Financial Intel Monthly

Understanding the Shift: AT&T's Retiree Pension Payments Transferred to Athene

AT&T has made changes to its pension plan for retirees. Beginning with the August pension payment, AT&T will transfer the assets and liabilities associated with the pension plan to Athene, a financial institution that manages pension group annuities for several other companies. This change does not affect the amount of the monthly pension payment. Retirees will receive monthly payments from Athene instead of the AT&T Pension Benefit Plan. The change impacts about 96,000 retirees who receive certain monthly pension benefits from AT&T.

If you are planning on taking the AT&T annuity, you will love taking the lump-sum and buying an annuity. When evaluating the best options for retirement, it is beneficial to plan ahead in order to avoid being left shorthanded. In an online survey of 1,911 Americans aging 50 to 75, 34% of retirees who took a lump-sum buyout from their defined-contribution plan depleted that sum within five years [1]. With that taken into account, if you are an AT&T employee being offered a lump-sum buyout, it may be worth looking into a better alternative. The purchase of an annuity using your lump-sum pension may prove to be a better option.

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

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. 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. 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. 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. 

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. 

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. 

The November interest rates, which AT&T uses to determine lump sum values for everyone who retires in 2022 have been released. 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 2022. 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. 

Now that you've made after-tax contributions to your AT&T 401(k) retirement plan, it could be time to go a step further and create a potential tax-free income stream for your retirement.

By changing your after-tax balance to Roth this year, you might effectively avoid paying taxes on future profits.

What is a Roth in-plan conversion?

You may use this tool to convert your 401(k) plan's after-tax balance to Roth funds. Any investment earnings taxes linked with your after-tax contributions must be paid when you convert to Roth savings. If you fulfill all of the conditions, your Roth investments can grow tax-free and be taken tax-free in retirement.

Over the last few weeks, our AT&T-focused advisors here at The Retirement Group have been getting asked a particular question during our webinars. We feel it is important that everyone who is currently working, retired, or on the verge of retiring know the answer to this:

The November interest rates, which AT&T uses to determine lump sum values for everyone who retires in 2022 will be released in mid December. Rates increased in November and if that trend holds we could see a reduction in lump-sum values for AT&T employees who retire in 2022. AT&T interest rates decreased in 2020 causing 2021 lump sums to hit record highs. However, rates are now rising which will likely reduce lump sums for those who retire in 2022. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. Through the pandemic, interest rates have dropped dramatically which has greatly increased many lump sum payments. This trend culminated in record lows for individuals who commence their benefits 2021. However, rates have increased in 2021, and larger trends show that they will likely increase further, potentially causing a significant reduction in pension lump sums in 2022.

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If you work for AT&T and are entering your retirement years this information will apply to you specifically.

AT&T History

AT&T has a complicated history of breaking up and merging back together. In 1984 the giant corporation was split into regional telecommunications companies known as the "Baby Bells." Since the break-up, these companies have merged once again to form the present-day AT&T.  Due to AT&T's mergers, understanding the complexities of the pension plans can be a challenge. Click the button below to schedule a follow up call with an AT&T specific advisor here at The Retirement Group.

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