Financial Intel Monthly

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Understanding how interest rates can impact your lump-sum is crucial for ConocoPhillips employees, especially those who reside in Texas.

Interest rates are back to trending in the right direction for ConocoPhillips employees, considering the lump sum option on their pension payment, moving into Q1 2022. Interest rates have dropped for individuals who wish to commence their benefits in Q4 2021 and again for Q1 2022. Over the course of 2020, interest rates dropped dramatically, which greatly increased many lump sum payments. However, interest rates spiked modestly from Q1 2021 to Q3 2021. While the overall trajectory of interest rates has been higher, the slight drop in the last two quarters should have the affect of increasing lump sum amounts momentarily.

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If the broader trend of rising rates continues, lump-sums should begin to decrease in Q2 2022. Should you desire to take your pension as a lump sum, ConocoPhillips will use interest rates and your age to calculate your lump sum payment. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship (except for Cash Balance Pension Lump Sum payouts). Even though it is too early to know blended interest rate figures for the second quarter of 2022, the last three monthly figures have shown a slight increase, which is bad news for ConocoPhillips employees electing a pension lump-sum. September  segment rates were recorded at: 0.70% / 2.55% / 3.06%.

Analysis:

On average, a 1% decline in interest rates results in roughly an 8%-12% increase to your pension lump sum (varies by age). Conversely, a 1% increase in interest rates results in roughly an 8%-12% drop in your lump sum pension value. Now that the August Corporate Bond Segment Rates are published, we encourage all employees that fall under one of these defined-benefit pension plans to re-run their pension projections to find out whether or not their lump-sum has decreased. We also encourage you to keep an eye on future rates as they seem to be trending upward. This is especially important if you are approaching retirement or already off payroll. You potentially may see a change in your pension lump sum.
Remember, you do not have to commence your pension benefit directly after you retire, unless you are age 65 or older at retirement. It may be advisable to defer the election of your pension benefit well beyond your retirement date, although you cannot commence your pension benefit prior to your retirement date in most cases.

Watch Our ConocoPhillips Interest Rates Update

ConocoPhillips Segment Lump Sum Interest Rates:

2022 Rates

2021 Rates

2020 Rates

ConocoPhillips Retirement Plan

As it turns out, there are 8 different pension plans at ConocoPhillips, called Titles. Most
employees fall under either the Phillips Retirement Income Plan (Title I), the Retirement Plan of Conoco (Title IV), The Burlington Resources Inc. Pension Plan (Title VI), or the ConocoPhillips Cash Balance Plan (Title II). If you don't fall under one of these plans or aren't sure which plan you fall under, please reach out to one of our COP-focused advisors for further guidance.

Considering how sensitive Titles I, IV, and VI are to interest rates, The Retirement Group puts an immense amount of effort into tracking these rates and educating employees on how they affect pension lump sums in an effort to help individuals potentially increase their pension benefit when they leave the company.

Phillips Retirement Income Plan:

If you are considering a lump-sum on this pension plan, it is very important to pay
attention to interest rates as you approach retirement. Interest rates on this plan
change quarterly and have a negative correlation with the lump-sum payout (i.e. rising
interest rates will typically reduce the value of your lump-sum). The interest rates that are
used in this calculation are the Corporate Bond Segment Rates (service after 2008) as well as the 30-year Treasury rate (service prior to 2009). ConocoPhillips will typically use the average interest rates for the fourth month prior to the quarter you commence your benefit, which can be helpful in timing the election of your benefit to potentially increase the lump sum payout.

Burlington Resources Inc. Pension Plan (FAE Formula):

If you are considering a lump-sum on this pension plan, it is very important to pay
attention to interest rates as you approach retirement. Interest rates on this plan
change quarterly and have a negative correlation with the lump-sum payout (i.e. rising
interest rates will typically reduce the value of your lump-sum). The interest rates that are
used in this calculation are the Corporate Bond Segment Rates (service after 2008) as well as the 30-year Treasury rate (service prior to 2009). ConocoPhillips will typically use the average interest rates for the fourth month prior to the quarter you commence your benefit, which can be helpful in timing the election of your benefit to potentially increase the lump sum payout.

The Retirement Group is not affiliated with nor endorsed by ConocoPhillips. We are 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 our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Securities through FSC Securities Corporation, member FINRA/SIPC and investment advisory services offered through The Retirement Group, LLC, a registered investment advisor not affiliated with FSC Securities Corporation. Office of Supervisor Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121. (800) 900-5867