Kaiser Permanente Employees Risk Substantial Pension Losses if Interest Rates Continue to Rise

Kaiser Permanente employees could see a significant reduction in the value of their pension lump-sums, if interest rates continue to surge. When interest rates move up or down, an employee’s pension lump-sum amount will move in an inverse relationship. Kaiser Permanente interest rates increased for those who commence their benefit in February of 2022, and current trends indicate they are likely to increase again for those who commence their benefit in March of the same year. These higher rates will result in reduced lump-sums for those retiring in February.

When Kaiser Permanente employees elect the month they would like to begin receiving their pension, Kaiser Permanente looks back two months to determine the rates used for pension disbursement. When a Kaiser Permanente employee retires, their pension commencement date is typically the first day of the following month.  For an employee retiring in February, 2022, their pension commencement date will typically be March 1, 2022, and Kaiser Permanente will use January’s rates to calculate their pension. Due to the pandemic, interest rates dropped dramatically. This resulted in an increase in record high lump-sum payments for individuals who commenced their benefits in late 2020, and early 2021.  However, since rates have increased throughout the past year, there has been a reduction in the value of Kaiser Permanente pension lump-sums.

Pension Planning for Kaiser Permanente Employees


Video Link: https://www.youtube.com/embed/rjB8uf75KoU

The Retirement Group has launched a new webinar series to help Kaiser Permanente employees avoid making big retirement mistakes. The Retirement Group states on their website that one of the biggest mistakes Kaiser Permanente employees make is retiring on the wrong day.

Interest rates, and a Kaiser Permanente employee’s retirement date, have a large impact on their pension amount. In fact, on average, a 1% change in interest rates can equate to an 8% to 12% change in a Kaiser Permanente employee’s lump-sum. So, for someone with a $500,000 lump sum, that could mean a move of about $50,000. A $1,000,000 lump sum would drop by roughly $100,000. While rates have not increased by 1% since the 2020 low quite yet, the 10 year Treasury Rate has soared. This is typically seen as an early indicator that rates will continue to rise. 

Among other dangers, The Retirement Group discusses the outcomes that rising inflation can cause. 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 also hurts the annuity option, since it is a fixed payment. If inflation increases by 10% in the next year or two, an employee’s annuity payment would become 10% less valuable. 

Given the current interest rate environment, The Retirement Group suggests that Kaiser Permanente employees discuss their options with an advisor who can monitor the rates and keep employees up to date on the 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 Kaiser Permanente 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, Kaiser Permanente.

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. Kaiser Permanente is not affiliated nor endorsed by The Retirement Group or FSC Securities.

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