Financial Intel Monthly

Could Lump-Sums for AT&T employees be on the decline? The November interest rates,  which AT&T uses to determine lump sum values for everyone who retires in 2022 were released in December. We now have new monthly segment rates which show that interest rates are continuing to rise. Rates have been steadily increasing over the past year and with the recent announcement of next year's interest rates we are very likely to see a reduction in lump-sum values for AT&T employees who retire in 2023. AT&T interest rates decreased in 2020 causing 2021 lump sums to hit record highs. Based on the current trend of interest rates and monetary policy announcements it is likely that rates seen in 2020 will be the lowest for the foreseeable future - meaning that the Lump Sum Values for AT&T employees who retired in 2021 will likely be the highest for the foreseeable future. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. 

Interest rates are tending upward, if this trend continues it will decrease the value of ExxonMobil employees' pension lump-sums. The IRS has recently released the Segment rates for the month of January, recorded at: 1.41% / 3.02% / 3.36%. Over the course of 2021 and now into 2022, interest rates at ExxonMobil increased significantly, which greatly reduced many lump sum payments. With record low rates culminating in the first quarter of 2021, ExxonMobil employees have since seen a significant increase in interest rates. We saw rates rise consistently in 2021 and with the announcement of January segment rates those retiring in the second quarter will see an even further reduction in lump sums. This recent trend upward looks be an early indicator of bad news for ExxonMobil employees opting for a lump-sum in the future.

ConocoPhillips employees considering the lump sum option on their pension payment, may have an opportunity to take advantage of lower interest rates in Q1 2022 before higher rates take into effect for the Q2 2022. Over the course of 2020, interest rates dropped dramatically, which greatly increased many lump sum payments. However, interest rates spiked modestly through 2021. While the overall trajectory of interest rates has been higher, the slight drop in ConocoPhillips rates for Q4 2021 and Q1 2022 should have the affect of increasing lump sum amounts, momentarily.

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Lump-sums are decreasing for KP employees who wait to commence their pensions lump-sum.  With both short, medium, and long-term rates rising over the last month, the higher average rate will result in lower lump-sums for those retiring in March of 2022. When KP employees elect the month they would like to begin their pension, KP looks back to two months to calculate the rates used for the pension disbursement. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. Through the pandemic, interest rates dropped dramatically which has greatly increased many lump sum payments. However, rates have increased significantly over 2021 and 2022, causing a reduction in pension lump-sums.

Lump-sums are decreasing for Chevron employees who wait to commence their pensions lump-sum.  With both short, medium, and long-term rates rising over the last month, the higher average rate will result in lower lump-sums for those retiring in April of 2022. When Chevron employees elect the month they would like to begin their pension, Chevron looks back to the third, fourth, and fifth month's rates to calculate the rates used for the pension disbursement. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. Through the pandemic, interest rates dropped dramatically which has greatly increased many lump sum payments. This trend culminated in record lows for individuals who commenced their benefits in December of 2020. However, since December 2020, rates have increased, causing a reduction in pension lump-sums.

The headline U.S. unemployment rate fell from 6.7% at the end of December 2020 to 3.9% in December 2021, marking the biggest one-year improvement in history.¹ While many workers, like those from Arizona for example took advantage of this strong rebound in the job market, companies large and small have been struggling with labor shortages.

A conspicuous lack of workers has snarled corporate supply chains; resulted in delayed and cancelled product orders; left working parents without access to child care; upended air travel; and forced restaurants, retail stores, and other businesses to shorten their hours or close understaffed locations. A recent spike in outbreaks from the Omicron variant worsened the situation.²

Since the pandemic began, unpredictable demand shifts have exposed pre-existing mismatches between the knowledge and skills of available workers and the tasks for which they are needed.³ But the sheer number of available jobs is also running well above the number of unemployed job seekers. Employers reported 10.6 million job openings on the last business day of November 2021, even though there were the 6.8 million unemployed persons in November and 6.3 million in December.⁴

COVID-19 may have kicked off a severe labor shortage, but longer-term demographic trends are partly to blame for this highly unusual job market.

A Workforce in Flux
At the onset of the pandemic, the labor force participation rate — the percentage of Americans age 16 and older who are working or actively looking for work — plummeted from 63.4% in February 2020 to a record low of 60.2% in April 2020. By December 2021, the rate had recovered only partially to 61.9%.⁵ About 2.3 million people have dropped out of the workforce entirely since the pandemic began.⁶ Some may have left temporarily, but others are probably gone for good.

Early retirements. The baby boom generation (born 1946–1964) is very large, and birthrates have declined in recent decades. The labor force has been aging and shrinking, and retirees' share of the U.S. population has been growing. Economists have long expected this wave of boomer retirements, some of which may have been accelerated by the pandemic. By one estimate, there were 2.4 million "excess retirements" due to COVID-19 (as of August 2021). Higher retirement account balances and home values made it feasible for some people to retire earlier than they would have otherwise.⁷

Immigration slowdown. It's estimated that declining immigration may have removed as many as 2 million potential workers from the current U.S. labor pool. Net migration to the United States has dropped steadily each year, from a peak of 1.05 million people in 2016 to 595,000 in 2019 and 247,000 in 2021. The most recent and drastic annual decline (July 2020 through June 2021) was due in part to travel restrictions associated with the pandemic.⁸

Pandemic repercussions. In December 2021, about 1.1 million people reported that the pandemic had prevented them from seeking work.⁹ This subset of missing workers includes those who still have child-care challenges or health concerns, including those who are contending with long-COVID symptoms.

On a positive note, pandemic relief measures helped many households strengthen their finances. Trillions of dollars in excess savings were accumulated thanks to stimulus payments, student loan pauses, and reduced spending while most people were stuck at home during 2020. This extra money gave many workers the breathing room to rethink their careers, and/or care for children or elderly parents, instead of working.

Economic Effects
A smorgasbord of open positions provides job seekers with more choices and more leverage. U.S. workers quit their jobs at record rates in 2021, in many cases to join new employers offering higher pay, lucrative benefits, better working conditions, or more flexibility, such as the option to work remotely.¹⁰

In fact, more intense competition for workers drove wages up 4.7% for the year ending in December 2021. Shortages have been more acute for lower-paying, in-person jobs, resulting in larger wage increases for workers in the leisure and hospitality, transportation and warehousing, and retail industries.¹¹

Workers only benefit when wage gains outpace inflation, because it cuts into their buying power. And unfortunately, real wages, which are adjusted for inflation, dropped as prices spiked in 2021.

The Consumer Price Index (CPI) rose 7.0% in 2021 — the highest annual rate in nearly 40 years — as many businesses passed higher labor costs on to their customers.¹² In December, the Federal Open Market Committee voted to speed up the tapering of the Fed's bond-buying program, setting the stage to begin raising interest rates more aggressively in response to persistent inflation.¹³ The dilemma for Fed officials is that they don't want to raise interest rates too fast and risk cooling the economy if labor shortages and other supply-chain issues will fade in time. But they must also be ready to act if it looks as though wage increases could fuel a dreaded wage-price inflationary spiral.

Labor shortages ranked as the number-one external factor that U.S. CEOs think will have the greatest impact on their businesses in 2022. Rising inflation followed closely in second place.¹⁴ The U.S. Chamber of Commerce has called on the federal government to reform and expand the legal immigration system so employers can fill jobs in labor-strapped industries, arguing that it could help cool inflation.¹⁵

In the coming months, some sidelined workers could be more motivated to seek employment when their savings are depleted or after their pandemic-related worries subside. Higher wages might also help draw some early retirees and stay-at-home parents back into the workforce.

However, labor force participation may never return to pre-pandemic levels, which means employers might need to change their hiring practices, reduce experience and education requirements, or provide training programs, opening the door to better-paying jobs for more workers. It's possible that automation technologies will also help fill the gap. Even so, it remains to be seen whether technology investments can boost productivity enough to offset a smaller workforce and maintain economic growth.

1, 4-5, 9-13) U.S. Bureau of Labor Statistics, 2021-2022
2) MarketWatch, January 11, 2022
3, 14) The Conference Board, 2022
6) S&P Global, 2022
7) Federal Reserve, 2021
8) U.S. Census Bureau, 2021
15) U.S. Chamber of Commerce, 2022

The IRS announced that the starting date for when it would accept and process 2021 tax-year returns was Monday, January 24, 2022.

Tips for making filing easier
To speed refunds and help with tax filing, the IRS suggests the following:

• Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2022. You may need to allow additional time for mail delivery.
  
  
• Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1957), and their instructions.
  
  
• File electronically and use direct deposit.
  
  
• Check irs.gov for the latest tax information, including how to reconcile advance payments of the child tax credit or claim a recovery rebate credit for missing stimulus payments. Also, watch for letters from the IRS with important information about those payments that may help you file an accurate return.

Key filing dates
Here are several important dates to keep in mind.

• January 14. IRS Free File opened. Free File allows you to file your federal income tax return for free [if your adjusted gross income (AGI) is $73,000 or less] using tax preparation and filing software. You can use Free File Fillable Forms even if your AGI exceeds $73,000 (these forms were not available until January 24). You could file with an IRS Free File partner (tax returns could not be transmitted to the IRS before January 24). Tax software companies may have accepted tax filings in advance.
  
  
• January 24. IRS began accepting and processing individual tax returns.
  
  
• April 18. Deadline for filing 2021 tax returns (or requesting an extension) for most taxpayers.
  
  
• April 19. Deadline for filing 2021 tax returns (or requesting an extension) for taxpayers who live in Maine or Massachusetts.
  
  
• October 17. Deadline to file for those who requested an extension on their 2021 tax returns.

Awaiting processing of previous tax return?
The IRS is attempting to reduce the inventory of prior-year income tax returns that have not been fully processed due to pandemic-related delays. Taxpayers do not need to wait for their 2020 return to be fully processed to file their 2021 return.

Tax refunds
The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS anticipates most tax refunds being issued within 21 days of the IRS receiving a tax return if the return is filed electronically, any tax refund is delivered through direct deposit, and there are no issues with the tax return. To avoid delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.

Could Lump-Sums for AT&T employees be on the decline? The November interest rates,  which AT&T uses to determine lump sum values for everyone who retires in 2022 were released in December. We now have new monthly segment rates which show that interest rates are continuing to rise. Rates have been steadily increasing over the past year and with the recent announcement of next year's interest rates we are very likely to see a reduction in lump-sum values for AT&T employees who retire in 2023. AT&T interest rates decreased in 2020 causing 2021 lump sums to hit record highs. Based on the current trend of interest rates and monetary policy announcements it is likely that rates seen in 2020 will be the lowest for the foreseeable future - meaning that the Lump Sum Values for AT&T employees who retired in 2021 will likely be the highest for the foreseeable future. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship.