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UPS Retirement Topics
UPS Special Pension Buyout Offer - December 2016
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<blockquote data-quote="Bagels" data-source="post: 2389432" data-attributes="member: 43436"><p>I hate to be the party pooper but...</p><p></p><p>I'll make this simple. UPS is making this offer because beginning January 1, the IRS is adapting longer average life expectancy (which increases the per-person pension liability) and providing limited governance on discount (interest) rates being used in pension buyout calculations.</p><p></p><p>The latter is of extreme importance here: basically, UPS is offering the present value of your future annuity payments. There's two major factors here: time and discount (interest) rate. Consider the time factor -- two employees left UPS after about 15 years, accruing a $900/month benefit. One employee is only 33, the other is 64 -- even though on paper both employees have the same liability, because one has only 1 year to wait to collect whereas the other has 32 years, the older employee will receive a much larger offer, because $900/month will have more purchasing power next year than it will 32 years from now.</p><p></p><p>The discount (interest) rate is more critical. Right now, that interest rate is largely up to the employer. Most large companies offering buyouts are using discount rates in the high 7s - 10%, which makes the buyout a really, really bad idea. In other words, whatever amount offered to you today would need to earn 7%-10% annually to equate the amount you would've otherwise earned in the payouts. That's likely not going to happen. (The discount rates also means that most of you are dreaming given the amounts you've listed).</p><p></p><p>Reality is, UPS's offer will not be favorable. If you received this offer, you're in a pension whose full value is guaranteed by the government. Taking the buyout is a really bad idea unless you or your family has a history of health problems and you think you'll perish long before the IRS assumes you will (83 for men, IIRC). Buyouts are such a bad idea that the government will soon begin somewhat policing them, which is why you received this offer when you did to begin with.</p><p></p><p>That said, many of you will be tempted by the lump sum amounts and will take the offer, anyway. If you do, note that if the amount is directly rolled over into a retirement account, you will not be impacted by taxes. If the amount is directly paid to you, 20% will be withheld for taxes. If you deposit the entire amount (including the taxes that were withheld -- you need to come up with extra cash in other words) into a retirement account within 60 days, you will not be subject to any taxes. Withholdings are simply <strong>deposits </strong>toward your tax liability, which isn't calculated until you actually file your taxes. If you don't deposit the money into a retirement account, it'll be subject to a 10% penalty + taxes (which may be more or less what was withheld, depending on your liability).</p><p></p><p>BTW, according to my recent plan notice, there are 197,313 participants at 12/31/15, of which 9,883 were collecting benefits, 39,219 had vested but left the company and 148,211 were still employed. So if you received this notice, you're one of the 39,219 <img src="/community/styles/default/xenforo/smilies/smile.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />.</p></blockquote><p></p>
[QUOTE="Bagels, post: 2389432, member: 43436"] I hate to be the party pooper but... I'll make this simple. UPS is making this offer because beginning January 1, the IRS is adapting longer average life expectancy (which increases the per-person pension liability) and providing limited governance on discount (interest) rates being used in pension buyout calculations. The latter is of extreme importance here: basically, UPS is offering the present value of your future annuity payments. There's two major factors here: time and discount (interest) rate. Consider the time factor -- two employees left UPS after about 15 years, accruing a $900/month benefit. One employee is only 33, the other is 64 -- even though on paper both employees have the same liability, because one has only 1 year to wait to collect whereas the other has 32 years, the older employee will receive a much larger offer, because $900/month will have more purchasing power next year than it will 32 years from now. The discount (interest) rate is more critical. Right now, that interest rate is largely up to the employer. Most large companies offering buyouts are using discount rates in the high 7s - 10%, which makes the buyout a really, really bad idea. In other words, whatever amount offered to you today would need to earn 7%-10% annually to equate the amount you would've otherwise earned in the payouts. That's likely not going to happen. (The discount rates also means that most of you are dreaming given the amounts you've listed). Reality is, UPS's offer will not be favorable. If you received this offer, you're in a pension whose full value is guaranteed by the government. Taking the buyout is a really bad idea unless you or your family has a history of health problems and you think you'll perish long before the IRS assumes you will (83 for men, IIRC). Buyouts are such a bad idea that the government will soon begin somewhat policing them, which is why you received this offer when you did to begin with. That said, many of you will be tempted by the lump sum amounts and will take the offer, anyway. If you do, note that if the amount is directly rolled over into a retirement account, you will not be impacted by taxes. If the amount is directly paid to you, 20% will be withheld for taxes. If you deposit the entire amount (including the taxes that were withheld -- you need to come up with extra cash in other words) into a retirement account within 60 days, you will not be subject to any taxes. Withholdings are simply [B]deposits [/B]toward your tax liability, which isn't calculated until you actually file your taxes. If you don't deposit the money into a retirement account, it'll be subject to a 10% penalty + taxes (which may be more or less what was withheld, depending on your liability). BTW, according to my recent plan notice, there are 197,313 participants at 12/31/15, of which 9,883 were collecting benefits, 39,219 had vested but left the company and 148,211 were still employed. So if you received this notice, you're one of the 39,219 :). [/QUOTE]
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