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Financial Planning

For Fortune 500 Employees: AT&T Pensions Would Drop About 22% If Rates Were Calculated Today

New rates were just released for October 2022 and they increased 0.57% in the second segment!

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Those employed in Fortune 500 may want to consider how AT&T recently sent a memo to their employees warning them about the impending pension drop. AT&T estimates employees will lose between 15% - 30% on their lump-sum value. Employees would lose a significant amount on their pension lump-sums if the lump-sum was calculated based on September's interest rates. For those in Fortune 500, the segment rates used by AT&T track the U.S. 10 Year Treasury rate, which means that as the U.S. 10 year treasury rate increases, so do the segment rates. That is why the U.S. 10 Year Treasury rate is a great indicator of the IRS segment rates. The 10 Year Treasury rate has increased by over 2% since November 2021. Fortune 500 employees may benefit from understanding how when interest rates move up or down, an AT&T employee’s pension lump-sum amount will move in an inverse direction. A 1% increase in interest rates typically means a 10% decrease in lump-sum value. Our calculations show that lump-sums would drop by approximately 22% if AT&T used the current interest rates. This means that an employee with a $1,000,000 lump-sum would lose around $220,000, not including the interest they would have earned on the original $1,000,000. Those in Fortune 500 should understand that if rates continue to rise, this lump-sum loss will be substantially larger by the end of the year. The exact percentage an employee loses on their lump-sum will change depending on an employee's age, years of service, hire date, job title, and a few other factors. 


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Fortunately, there is still time for AT&T employees to prevent their lump-sum payout from decreasing. For the upcoming calendar year, AT&T determines employee lump payments using the segment rates from November. Consequently, the low interest rates available in November 2021 will be available to AT&T employees who retire in 2022. But individuals who choose to retire in 2023 will utilize the rates in effect as of November 2022, which means they will probably lose at least 22% on their lump sum pension. This increase in rates may encourage some employees in the Fortune 500 to retire earlier than they had planned. Many people who want to retire in the coming years have realized that if they decide to stay, they would essentially be working for nothing.

We are now offering a complimentary cash flow analysis for AT&T employees to help determine their preferred retirement date. By receiving a cash flow analysis, AT&T employees can potentially avoid making big retirement mistakes. With a cash flow analysis, AT&T employees will have a better idea of how rising interest rates will impact their retirement. 

With interest rates rising significantly over the past few months, we suggest that AT&T employees discuss their options with an advisor. Our advisors track the interest rates and keep employees updated on any changes that may impact their retirement plans. 

Remember that although the pension lump-sum option may seem more appealing to some, there are some for whom the annuity option may be a better fit. Because every scenario is different, employees can compare all available pension alternatives using a cash flow analysis.

*22% is an estimate and the actual number could be higher or lower depending on the individual.


AT&T Memo: https://blog.techstaffer.com/att-pension-drop-memo

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