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Understanding the Rise in Interest Rates: What It Means for NiSource Employees and Their Retirement Plans

Interest rates are a key driver of most financial assets. While most often referenced in relation to the bond market, rates are also a key input in traditional equity valuation models, which incorporate market interest rates to determine the appropriate rate to discount future cash flows. Interest rates are an essential element in bond pricing and the yield that investors require to own a particular fixed-income security. Since hitting an all-time low in 2020, interest rates increased in 2021 and have continued that climb higher thus far in 2022. This has put pressure on fixed incomes and certain areas of the equity market, which has led to stress in certain areas of the stock market, such as growth stocks, which can be sensitive to interest rate shocks. With that in mind, let’s examine why rates have been moving up, and whether this should be a cause for concern for NiSource employees.

MORE AGGRESSIVE FEDERAL RESERVE
The Federal Reserve (Fed) has already raised interest rates by 75 basis points this year. A 25 basis point hike in March followed by a 50 basis point hike in May. The Fed is currently expected to hike rates by 50 basis points in both the June and July meetings and will continue to hike through the better part of 2022. With inflation running hot and the job market showing strength, the fact that the Fed is finally moving away from zero shows confidence in the health of the job market. But the speed with which interest rates are expected to go up underscores its concern about the soaring cost of living. Americans living in areas like California or New York will experience this policy shift through higher borrowing costs: No longer will it be insanely cheap to take out mortgages or car loans and this along with higher inflation may lead to less investment in the market and more spending on needs, which is a main reason for market volatility, and important for NiSource employees and retirees to keep in mind.

INFLATION CONCERNS
Inflation is also a primary determinant of long-term interest rates. Rising inflation has the potential to eat away at fixed-income returns, so naturally, inflation expectations are a component of the yield that investors require to own fixed income. Put simply, inflation is a result of too much money chasing too few goods, and there are concerns that the increase in the level of money in circulation may lead to this. The extraordinary level of fiscal and monetary stimulus put in place to combat the economic damage of Coronavirus caused a significant increase in the M2 money supply. As a result, we are currently seeing this increase in the level of money in circulation translate to a pickup in consumer spending, but also elevated inflation.

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RISKS OF A RECESSION
Now that the pandemic has started to recede, the Fed has once again started to raise short-
term interest rates. This policy change has caused market volatility to spike for the three
major reasons to the right.

Today as the Fed begins to aggressively hike interest rates, market participants worry we may endure a period of high inflation alongside weakening economic growth — otherwise known as stagflation.

This environment is another example of why we believe in and suggest to our clients from NiSource that staying diversified is the best way to insulate portfolios from being too exposed to one risk factor.

Economic Definitions
M2 Money Supply: The M2 Money Supply, also referred to as “M2” or “Money Stock,” measures the amount of currency in circulation. M2 includes M1 (physical cash and checkable deposits) as well as less liquid money, such as saving bank accounts.

As an employee of National Grid, what are the key eligibility criteria for participating in the Pension Plan specifically for Niagara Mohawk Power Corporation employees? How might these criteria impact your personal retirement planning and the benefits you expect to receive upon retirement from National Grid?

Eligibility Criteria for Niagara Mohawk Pension Plan: Employees of Niagara Mohawk Power Corporation who are represented by Local Union 97 of the IBEW and work at least 20 hours per week or accumulate 1,000 hours in a Pension Plan year are eligible. Participation begins automatically on the first day of employment. These criteria directly impact retirement planning by determining when employees begin accruing pension benefits and how much they will receive at retirement(National_Grid_2023_Niag…).

Within the framework of the National Grid Pension Plan, how does the cash balance formula work in calculating retirement benefits, and what implications does this have for employees of Niagara Mohawk Power Corporation when considering their long-term financial outlook?

Cash Balance Formula: The National Grid Pension Plan for Niagara Mohawk employees uses a cash balance formula that provides monthly pay-based credits (starting at 4% and increasing with years of service) and interest credits. These accumulate in a hypothetical account, growing until retirement, allowing employees to track their retirement benefits much like a savings account. This formula impacts financial outlook by providing predictable growth tied to service and pay(National_Grid_2023_Niag…).

For employees at National Grid, what are the specific rights and options available during the pension benefit application process? How do these rights protect the interests of individual employees and ensure they receive fair treatment under the Niagara Mohawk Pension Plan?

Pension Benefit Application Process: National Grid employees must apply for their pension benefits by submitting the required forms at least 90 days before retirement. Spousal consent is required if opting for any form of payment other than the default. This ensures employees understand and select the best payment option for their circumstances, protecting their interests under the Niagara Mohawk Pension Plan(National_Grid_2023_Niag…).

Given the different types of credits that contribute to the pension benefit for employees of National Grid, how are Pay-based Credits and interest credits calculated? What strategies might Niagara Mohawk Power Corporation employees employ to maximize these credits before retirement?

Pay-based and Interest Credits Calculation: Pay-based credits are determined by years of service, starting at 4% of pay and increasing to 8% after 20 years. Interest credits are based on an annual interest rate tied to the Treasury securities and corporate bond rates. Employees can maximize these credits by continuing to work and contributing to their pension balance(National_Grid_2023_Niag…).

How do pension benefits work for Transition Group Employees specifically within National Grid's framework, and what unique provisions apply to them under the Pension Plan as compared to regular employees of Niagara Mohawk Power Corporation?

Pension Benefits for Transition Group Employees: Transition Group Employees under the National Grid Pension Plan have benefits calculated using both the former final average pay formula and the cash balance formula, with the greater benefit being paid out. This differs from regular employees who only receive benefits calculated under the cash balance formula(National_Grid_2023_Niag…)(National_Grid_2023_Niag…).

What are the repercussions for National Grid employees in terms of benefit loss or limitation if they have not met the Vesting requirements under the Niagara Mohawk Pension Plan? How can understanding these repercussions influence an employee's decision-making regarding their career and retirement?

Impact of Vesting Requirements: Employees must complete three years of service to become vested in the Niagara Mohawk Pension Plan. If they leave before vesting, they lose all accrued pension benefits. Understanding vesting requirements is crucial for career and retirement planning, as it ensures employees retain their pension benefits if they meet the criteria(National_Grid_2023_Niag…).

As a current employee at National Grid, what does the termination of the Pension Plan imply for accrued benefits under the Niagara Mohawk Pension Plan? Specifically, how do federal protections through ERISA and the Pension Benefit Guaranty Corporation come into play for employees seeking assurance regarding their retirement funds?

Termination of Pension Plan and Federal Protections: If the Niagara Mohawk Pension Plan is terminated, accrued benefits are protected by ERISA and insured by the Pension Benefit Guaranty Corporation (PBGC). Employees can feel assured that their benefits will be secured up to the PBGC's limits in case of plan termination(National_Grid_2023_Niag…).

How does the National Grid Pension Plan accommodate the unique situations of employees during times of disability or military service, and what steps should Niagara Mohawk Power Corporation employees take to ensure their benefits continue during these periods?

Disability and Military Service: Niagara Mohawk employees receive service credits during periods of disability or military leave, ensuring continuous pension accrual. Employees should ensure their disability or military status is properly documented with the company to avoid interruptions in their pension benefits(National_Grid_2023_Niag…).

When considering the various forms of pension payments available to retirees from National Grid, what are the potential advantages and disadvantages of choosing an annuity versus a lump-sum payment for employees from Niagara Mohawk Power Corporation?

Annuity vs. Lump-Sum Payment: Retirees at National Grid have the option to choose between an annuity, providing a steady income for life, or a lump-sum payment. The annuity provides financial stability, while a lump sum offers flexibility. The choice depends on individual financial needs and retirement goals(National_Grid_2023_Niag…).

For those looking to gain further clarity on the nuances of the Niagara Mohawk Pension Plan, what are the most effective ways for employees to contact National Grid for assistance? How can engaging with the Pension Service Center enhance an employee's understanding of their benefits and rights?

Contacting National Grid for Pension Assistance: Employees seeking more information about their Niagara Mohawk Pension Plan can contact the National Grid Pension Service Center or use the online pension modeler. Engaging with the Pension Service Center provides personalized guidance, helping employees understand their benefits and make informed decisions(National_Grid_2023_Niag…).