Financial Intel Monthly

In March 2022, the Consumer Price Index for All Urban Consumers (CPI-U), the most common measure of inflation, rose at an annual rate of 8.5%, the highest level since December 1981.¹ It's not surprising that a Gallup poll at the end of March found that one out of six Americans considers inflation to be the most important problem facing the United States.²

When inflation began rising in the spring of 2021, many economists, including policymakers at the Federal Reserve, believed the increase would be transitory and subside over a period of months. One year later, inflation has proven to be more stubborn than expected. It may be helpful to look at some of the forces behind rising prices, the Fed's plan to combat them, and early signs that inflation may be easing.

What is it? 

In today's corporate environment, cost cutting, restructuring, and downsizing are the norm.  We have found many employers are offering their employees early retirement packages. As you near retirement age, you may find yourself confronted with an early retirement offer from PG&E. PG&E may refer to the offer as an early out package or retirement offer or golden handshake or a golden parachute. While many early retirement offers seem attractive at first, it is important for you to review an offer carefully before accepting it to ensure that it is indeed a "golden" opportunity.

Details of the PG&E 2022 VSP:

Participation in the VSP is voluntary and offers the following benefits:

• Lump sum payment equal to 52 weeks of your base salary.
  
• $10,000 transitional lump sum payment.
  
• $50,000 retiree medical subsidy to your Retiree Health Account (RHA).
  
• Prorated 2022 STIP (Short Term Incentive Plan), consistent with Company’s overall STIP program. Participants understand STIP is a discretionary at-risk compensation program.

Typical elements of an early retirement offer
IAn early retirement offer usually consists of severance payments and post-retirement medical coverage coupled with already existing retirement benefits.  These may be in the form of healthcare financial incentives or a severance tied to years of service. 

Many KP employees who are waiting to commence their pension lump-sums, are now seeing a significant decrease in their value. With short, medium, and long-term rates rising significantly over the last month, the higher average rates will result in lower lump-sums for those retiring in April of 2022. This is because when KP employees elect the month they would like to begin their pension, KP looks back two months to calculate the rates for the pension disbursement. When these interest rates move up or down, your lump sum amount will move in an inverse direction, so if interest rates increase, your lump sum amount will decrease and vice versa. Through the pandemic, interest rates dropped dramatically which greatly increased many lump sum payments. This trend culminated in record lows for individuals who commenced their benefits in December of 2020. However, since then this trend has shifted, as interest rates have been increasing rapidly, causing a large reduction in pension lump-sums values.

ConocoPhillips employees considering the lump sum option on their pension payment, may have an opportunity to take advantage of lower interest rates in Q2 2022 before higher rates take into effect for the Q3 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, Conoco Philips employees who retired in the first quarter might have seen their lump sums increase, but any increases in lump sums going forward will be entirely diminished due to rising rates now in effect for Q3.

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Many Chevron employees who are waiting to commence their pension lump-sums, will now see a significant decrease in their value. With short, medium, and long-term rates rising significantly over the last month, the higher average rates will result in lower lump-sums for those retiring in June of 2022. This is because when Chevron employees elect the month they would like to begin their pension, Chevron looks back at the third, fourth, and fifth months' rates to calculate the pension disbursement. When these interest rates move up or down, your lump sum amount will move in an inverse direction, so if interest rates increase, your lump sum amount will decrease and vice versa.

Through the pandemic, interest rates dropped dramatically which greatly increased many lump sum payments. This trend culminated in record lows for individuals who commenced their benefits in December of 2020. However, since then this trend has shifted, as interest rates have been increasing quickly, causing a large reduction in pension lump-sum values.

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 March, recorded at: 2.44% / 3.71% / 3.94%. 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 March segment rates those waiting until the third quarter will likely see an even further reduction in lump sums. This ongoing trend upward looks be an early indicator of bad news for ExxonMobil employees opting for a lump-sum in the future.

Before Russia stunned the world by invading Ukraine, it was widely believed that the economic ties formed through globalization would help promote peace. But the war is testing that assumption and drawing attention to the vulnerabilities in far-flung supply chains, which were already under pressure because of the pandemic and recovery.

In response to the brutal invasion of Ukraine, the United States, European Union (EU), United Kingdom (UK), and their allies are using financial sanctions to inflict severe damage on Russia's economy and pressure its leaders to end the war. But that effort likely comes at a significant cost to the global economy.

After dropping the benchmark federal funds rate to a rock-bottom range of 0%–0.25% early in the pandemic, the Federal Open Market Committee has begun raising the rate toward more typical historical levels in response to high inflation. At its March 2022 meeting, the Committee raised the funds rate to 0.25%–0.50% and projected the equivalent of six more quarter-percentage-point increases in 2022 and three or four more in 2023.¹

The federal income tax filing deadline for individuals is generally Monday, April 18, 2022 (Tuesday, April 19, 2022, if you live in Maine or Massachusetts).

Need more time?
If you're not able to file your federal income tax return by the April due date, you can file for an extension by the April due date using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Filing this extension gives you an additional six months (until October 17, 2022) to file your federal income tax return. You can also file for an automatic six-month extension electronically (details on how to do so can be found in the Form 4868 instructions). There may be penalties for failing to file or for filing late.

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.