Given the fiscal challenges facing Social Security, Sears Holdings employees must plan for retirement - and have a strategy that supplements Social Security benefits - to ensure long-term financial security, 'he said.
But Sears Holdings employees need to assess their retirement goals now and take advantage of tax-advantaged savings as future adjustments to Social Security benefits could affect their retirement income.'
In this article, we will discuss:
1. Social Security finances are changing because of demographic changes.
2. Solving Social Security's long-term funding shortfall.
3.Impact of COVID-19 pandemic on Social Security and increased benefits.
Social Security is pay-as-you-go; meaning today's workers are paying taxes on today's retirees' benefits. Yet demographic trends like lower birth rates, higher retirement rates, and longer life spans in your area create long-term fiscal challenges. And there are simply not enough U.S. workers to help the growing beneficiaries. Social Security is not collapsing, but the clock is ticking on whether the program can pay full benefits - something Sears Holdings employees and retirees need to know.
The Trustees of the Social Security Trust Funds annually report to Congress on the program's financial health and outlook. The Trustees estimated in the latest report, released August 2021, that the retirement program will have funds to pay full benefits only through 2033 unless Congress acts to shore up the program. Those days of reckoning are expected one year earlier than originally anticipated, thanks to the economic fallout of the COVID-19 pandemic.
Report Highlights
Social Security has two programs, each with a trust fund in which are deposited payroll taxes collected to pay benefits. Older workers, their families, and Survivors of Workers receive monthly benefits through the Older Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly Disability benefits through the Disability Insurance (DI) program. The combined programs are called OASDI.
Combined OASDI costs are expected to exceed total income (interest included) by 2021, and the Treasury will tap reserves to pay benefits. Trustees project that combined reserves will be exhausted by 2034. Afterwards, payroll tax revenue alone should cover about 78% of scheduled benefits. OASDI projections are hypothetical because the OASI and DI Trusts are separate entities, and generally, the taxes and reserves of one program cannot fund the other program.
If treated separately, the OASI Trust Fund would be drained by 2033. Payroll tax revenue alone would then cover 76% of OASI benefits.
The DI Trust Fund will be exhausted by 2057 - eight years earlier than estimated in last year's report. When that trust fund runs dry, payroll taxes alone would pay 91% of scheduled benefits.
We remind Sears Holdings employees and retirees that all projections are based on current conditions, which are subject to change and may not occur.
Proposed Fixes
Trustees want Congress to act soon on the financial problems these programs face so solutions can be less drastic and can be phased in gradually to minimize public impact. Combining some of the following solutions may also soften the effect of one solution.
Raise the existing Social Security payroll tax rate of 12.4%. The employee pays half and the employer pays half (self-employed pay the full 12.4%). An immediate and permanent payroll tax increase of 3.36 percentage points to 15.76% would be needed to meet the long-range revenue shortfall (4.20 percentage points to 16.60% starting in 2034).
Placing a ceiling on wages subject to Social Security payroll taxes (USD 142,800 in 2021) or raising it to zero (USD 142,800 in 2021).
The full retirement age should be raised to 67 for anyone born 1960 or later.
Reducing future benefits. For the long-term revenue shortfall, scheduled benefits would have to be cut by about 21% for all current and future beneficiaries - or by about 25% if reductions were made only for those first becoming eligible for benefits in 2021 or later - immediately and permanently.
The benefit formula that is used to calculate benefits should be changed.
The annual cost-of-living adjustment for benefits is calculated differently.
Pandemic Impact
The 2021 Trustees Report says the pandemic and the severe but short-lived recession in 2020 threw a wrench into Social Security's short-term finances. Employment, earnings, interest rates, and GDP [gross domestic product] all dropped sharply in the second calendar quarter of 2020 and are assumed to rise gradually thereafter towards a recovery by 2023, with worker productivity and thus GDP to be permanently lowered by 1%. Projections also included higher mortality rates for 2020-2023 and delays in births and immigration. Because payroll taxes are rebounding rapidly, the program was not as badly damaged as many feared.
Sharp increases in consumer prices in July and August suggest beneficiaries could face the highest annual benefit increase since 1983 beginning in January 2022. Social Security Administration chief actuary estimates that the 2022 cost-of-living adjustment (COLA) will be close to 6.0% (The official COLA had not been announced as of this writing).
So what's at risk for you?
In all, COVID-19 may have forced some 2.8 million Americans older than expected to file for Social Security benefits earlier than expected because of older workers at Sears Holdings companies losing their jobs or having health issues, the Census Bureau estimated.
If you regret starting Social Security benefits earlier than expected, you can withhold your application within 12 months of your original claim and reapply later. But you can do this only once, and you must repay all benefits you received. Or if you're fully retired, you can suspend benefits and restart them later voluntarily. Either of these moves would produce a higher future benefit.
Even if you won't need Social Security to live, the benefits could be a good chunk of your retirement income. A rough estimate of your monthly retirement benefit is available on your Social Security Statement - accessible through my Social Security account on SSA.gov - or by registering for my Social Security account. You should start receiving an annual statement by mail if you aren't receiving benefits and haven't registered for an online account.
No matter what Social Security's future holds, you still control your Sears Holdings retirement destiny. But now may be the time to save more for your Sears Holdings retirement while you work at a Sears Holdings company. Wait until you step out the door to think about your retirement income strategy. All information is from the 2021 Social Security Trustees Report except:
Featured Video
Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
Sources:
1. Munnell, Alicia H. Social Security's Financial Outlook: The 2021 Update in Perspective . Center for Retirement Research at Boston College, Sept. 2021, crr.bc.edu/wp-content/uploads/2021/09/IB_21-15_.pdf .
2. Van de Water, Paul N. What the 2021 Trustees' Report Shows About Social Security . Center on Budget and Policy Priorities, Aug. 2021, cbpp.org/research/social-security/what-the-2021-trustees-report-shows-about-social-security .
3. An Actuarial Perspective on the 2021 Social Security Trustees Report . American Academy of Actuaries, Sept. 2021, actuary.org/sites/default/files/2021-09/2021_SocSec_TrusteeReport.pdf .
4. Johnson, Richard W., and Karen E. Smith. If Social Security Runs Out of Money, Poverty among Older Adults and People with Disabilities Will Soar . Urban Institute, July 2024, urban.org/urban-wire/if-social-security-runs-out-money-poverty-among-older-adults-and-people-disabilities .
5. Wikipedia contributors. Social Security Trust Fund . Wikipedia, last updated Feb. 2025, en.wikipedia.org/wiki/Social_Security_Trust_Fund .
How does the Sears Holdings Pension Plan differentiate between normal retirement, early retirement, and late retirement options for Kmart participants? In what ways do these options influence the retirement planning process for employees of Sears Holdings, and what specific considerations should Kmart employees be aware of when choosing one of these retirement paths, particularly in relation to their vested status?
Differentiation of Retirement Options: The Sears Holdings Pension Plan offers distinct options for normal, early, and late retirement. Normal retirement is available at age 65 or after five years of plan participation, whichever is later. Early retirement can be taken from age 55 but before 65, provided the employee is vested, with benefits subject to actuarial reduction unless certain conditions are met (like having at least 90 points, which is a sum of age and years of credited service). Late retirement pertains to any retirement after the normal retirement age, with pensions recalculated to reflect the delay in benefit commencement.
Considering the frozen status of the Sears Holdings Pension Plan, how does this impact the benefits eligibility for Kmart employees, and what implications does it have for their retirement savings strategies? In what ways should current employees factor in this frozen status when evaluating their overall retirement readiness and potential alternatives outside of the company plan?
Impact of Frozen Status: The freezing of the Sears Holdings Pension Plan on January 31, 1996, means that there have been no new accruals of benefits or participants since that date. For Kmart employees, this impacts their benefits eligibility by capping the pension benefits at levels earned up to the freeze date. Employees need to consider this stagnation in benefits when planning for retirement, potentially seeking additional retirement savings avenues to bridge any shortfall.
What are the essential calculations involved in determining the retirement benefits under the Sears Holdings Pension Plan for Kmart employees? Specifically, how do the Career Average Pay and Final Average Pay formulas come into play, and what factors should employees consider when estimating their future retirement payouts?
Essential Calculations for Retirement Benefits: Pension benefits for Kmart employees under the Sears Holdings Pension Plan are calculated using either the Career Average Pay or the Final Average Pay formulas. These calculations take into account an employee's years of credited service and compensation up to the freeze date. Factors like estimated Social Security benefits and specific formulas (such as a deduction based on Social Security benefits under the Final Average Pay formula) play crucial roles in determining the final pension payout.
How can Sears Holdings employees best navigate the process of applying for benefits under the Pension Plan? What specific steps should participants take to ensure their applications are processed correctly, and what important deadlines should they be aware of to avoid any negative consequences on their retirement benefits?
Navigating the Benefits Application Process: To apply for pension benefits, employees must submit a formal application, ideally 30 to 90 days before the intended commencement date. It is crucial to ensure all personal information, including marital status and spouse details, is up-to-date to avoid delays or inaccuracies in benefit processing. Missing application deadlines can lead to postponed benefit payments or unwanted default options.
In what situations can Kmart employees expect to receive a Deferred Vested Pension, and how is the calculation for this pension affected by their previous employment and vesting service? Employees should be aware of the important factors influencing their eligibility and the steps necessary to maintain their retirement benefits after leaving the company.
Eligibility and Calculation for Deferred Vested Pension: A Deferred Vested Pension is available to employees who leave the company after becoming vested but prior to qualifying for retirement. The calculation mirrors that of a normal retirement pension, with possible early commencement reductions. Understanding the timing of benefit commencement and the potential reductions for early start is vital for planning.
How does the Sears Holdings Pension Plan address tax considerations for employees receiving both monthly payments and lump sum payments upon retirement? What tax implications should Kmart participants be aware of, particularly in relation to IRS rules for distributions and potential penalties for early withdrawal?
Tax Implications of Pension Receipt: Pension payments, whether monthly or lump sum, are subject to federal taxes. Monthly benefits are taxed as ordinary income, while lump sums might be eligible for special tax treatments or rollover options to defer taxes. It’s important for Kmart employees to consider these implications and possibly consult with a tax advisor to optimize tax liability.
What are the rights and protections afforded to Kmart participants under the Employee Retirement Income Security Act (ERISA) as they navigate their retirement benefits with the Sears Holdings Pension Plan? How can employees leverage these rights to ensure they are receiving all the benefits to which they are entitled?
ERISA Rights and Protections: Under ERISA, Kmart employees are entitled to certain rights including the ability to appeal denied benefits, access to plan information, and assurances of fair and equitable treatment of their benefits. Leveraging these protections ensures that employees receive all due benefits.
What steps should Kmart employees take to update their personal information to ensure they continue receiving their benefits without interruption, especially in the context of missing participants or uncashed checks? What resources and contacts at Sears Holdings are available to assist with these updates?
Updating Personal Information: Maintaining accurate personal information with the pension plan is crucial for uninterrupted benefit payments. Employees should promptly update changes such as address, marital status, or beneficiaries to prevent issues with benefit distributions or lost checks.
How does the process of transferring between affiliated employers impact pension benefits for Kmart employees under the Sears Holdings Pension Plan? What considerations should be taken into account concerning Credited Service and Vesting Service during such transfers, and how can employees ensure they do not lose any entitled benefits?
Impact of Transfers Between Affiliated Employers: Transferring between Sears Holdings’ affiliated employers can affect pension benefits differently depending on whether the employer participates in the pension plan. It's essential to understand how such transfers impact credited and vesting service accruals.
For Kmart employees seeking more information about their benefits under the Sears Holdings Pension Plan, what is the best way to contact company representatives? How can they effectively communicate their questions or concerns to ensure they receive accurate and timely information regarding their retirement benefits?
Contacting Plan Representatives: Kmart employees seeking clarity on their pension benefits should contact the Sears Holdings Pension Service Center. Effective communication, including prepared questions and necessary documentation, will aid in obtaining accurate and comprehensive information.
-2.png?width=300&height=200&name=office-builing-main-lobby%20(52)-2.png)
.webp?width=300&height=200&name=office-builing-main-lobby%20(27).webp)
-2.png)
.webp)