ExxonMobil employees could see the value of their pension lump-sums significantly reduced, if interest rates continue to rise. ExxonMobil interest rates have recently increased for those who begin commencing their benefit in March through May of 2022. When interest rates move up or down, an employee’s pension lump-sum amount will move in an inverse relationship. With both short-term and mid-term blended rates rising over the last month, these higher rates will result in lower lump-sums for those retiring in the second quarter of 2022, with the exception of grandfathered employees.
For grandfathered employees, ExxonMobil will take the average Treasury Rate for the fourth, fifth, and sixth months prior to the quarter they elect to “commence” their pension benefit. Grandfathered employees were at least 64 years old, with at least 24 years of ExxonMobil service by December 31, 2021.
Update for ExxonMobil Employees on Interest Rates, January 2022:
Video Link: https://www.youtube.com/embed/7w5gm1Dq_Z4
If an employee was not at least 64 years old with at least 24 years of ExxonMobil service by December 31, 2021, then they are not grandfathered into the old pension calculation method. In calculating this employee’s lump sum, ExxonMobil will use the average of the short, intermediate and long-term corporate bond segment rates for the fourth and fifth months prior to the quarter the employee plans to commence their pension benefit.
Due to the pandemic, interest rates dropped dramatically. This resulted in an increase in lump-sum payments, culminating in record highs for individuals who commenced their benefits in the first quarter of 2021. However, since then, rates have increased, causing a reduction in pension lump-sums.
The Retirement Group is now offering a webinar series for ExxonMobil employees which helps tackle these issues. The goal of their new webinar series is to help ExxonMobil employees avoid making big retirement mistakes. On their website, The Retirement Group states that one of the biggest mistakes ExxonMobil employees make is retiring on the wrong day.
When an ExxonMobil employee chooses their retirement date they need to be aware that the date they select can have a large impact on the value of their lump-sum. In fact, on average a 1% rise in interest rates can equate to an 8% to 12% reduction in an ExxonMobil employee’s lump-sum. So, for someone with a $500,000 lump sum, that could mean a reduction of about $50,000. A $1,000,000 lump sum would drop by roughly $100,000. Conversely, if interest rates were to rise by 1% an ExxonMobil employees could expect to see an 8% to 12% increase in their lump-sum. While rates have not increased by 1% since the 2021 low quite yet, the 10 year Treasury Rate has soared. This is typically seen as an early indicator that rates will continue to rise.
In their webinar series, The Retirement Group also discusses how ExxonMobil employees are impacted by rising inflation. Inflation can be detrimental to either pension option. Inflation can often cause a rise in interest rates which, as discussed earlier, reduces lump-sum values. Inflation can also reduce the value of an employee’s annuity. The annuity is a fixed payment, therefore if inflation increases by 10%, an employee’s annuity payment will become 10% less valuable.
Given the current interest rate environment, The Retirement Group suggests that ExxonMobil employees discuss their options with an advisor who can monitor the interest rates and keep employees up to date on monthly changes.
The Retirement Group states on their website that it is important to remember the annuity option may be a better fit no matter how attractive the pension lump sum looks. Every situation is unique, and a cash flow analysis will allow employees to compare all pension options. The Retirement Group can provide a complimentary cash flow analysis to show ExxonMobil Employees how various retirement dates may play out.
Disclosure:
The Retirement Group is an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call the office at 800-900-5867 for additional questions or for help in the retirement planning process. The Retirement Group is not affiliated with, nor endorsed by ExxonMobil.
Securities offered through FSC Securities Corporation (FSC) member FINRA/SIPC. Investment advisory services offered through The Retirement Group, LLC. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Office of Supervisory Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121. ExxonMobil is not affiliated nor endorsed by The Retirement Group or FSC Securities.
Media Contact
Company Name: The Retirement Group
Contact Person: Tiffany Hill
Email: Send Email
City: San Diego
State: California
Country: United States
Website: https://www.theretirementgroup.com/