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Understanding the Rise in Interest Rates: What It Means for Sonoco Products 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 Sonoco Products 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 Sonoco Products 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 Sonoco Products 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.

In the context of the retirement benefits provided by Sonoco Products Company, what are the different scenarios that could lead an employee to choose either the Normal Retirement Benefit or the Early Retirement Benefit, and what factors should be considered in making this decision? Additionally, how do these benefits interact with the vesting service and benefit service calculations specified by Sonoco Products Company?

Normal Retirement Benefit: Available at age 65, provides full monthly pension calculated by a predetermined formula. Early Retirement Benefit: Available from age 55 with 15 years of service, but monthly payments are reduced to account for the longer payment period. Employees must weigh the reduction in monthly benefits against the potential need or desire to retire early. Considerations: The choice largely depends on personal financial needs, health status, and employment circumstances. Early retirement reduces monthly benefits, which could impact long-term financial stability.

Considering the details about tax implications in the Sonoco Pension Plan, what steps should employees take to ensure they understand the taxation of both monthly annuity payments and lump sum payments when they retire from Sonoco Products Company? What resources does Sonoco offer to assist employees in navigating these tax obligations effectively?

Monthly Annuity Payments: Subject to federal income tax; state and local taxes may also apply. Employees can choose whether or not to have taxes withheld. Lump Sum Payments: Subject to mandatory 20% federal withholding if not rolled over into another qualified plan. Employees must consult with tax professionals to understand the taxation and potential penalties, especially if under age 59½. Resources: Sonoco provides access to benefits specialists through their Benefits Center and recommends consultation with tax advisors to manage tax obligations effectively.

How does Sonoco Products Company define and calculate the "Maximum Plan Benefit," and what impact do IRS limits have on the benefits that employees may receive upon retirement? Furthermore, how does this ensure that employees understand their entitlements under the plan?

Defined by IRS limits, which cap the annual benefits an employee can receive. For 2018, the limit was $220,000. Impact: Ensures high earners are aware of the maximum pension they can draw annually, and helps in planning additional retirement savings if necessary.

For employees at Sonoco Products Company who may be considering reemployment after retirement, what are the potential impacts on their pension benefits, and what guidelines does the company provide regarding how these benefits are recalculated upon re-entering the workforce?

Pension benefits cease during reemployment and resume upon re-retirement, recalculated based on additional service. This could affect decisions on returning to work post-retirement. Guidelines: Sonoco outlines how benefits are recalculated and emphasizes consulting with the Benefits Center to understand the specific impacts.

In what ways can employees of Sonoco Products Company calculate their required service years to determine pension eligibility, and what nuances exist in the vesting and benefit service calculations? How do these calculations affect the retirement planning process for long-term employees?

Vesting Service: Determines eligibility for a pension. A minimum of five years is required for a vested pension benefit. Benefit Service: Used to calculate the amount of pension. It includes periods of employment but may exclude certain leaves or breaks in service. Implications: Understanding these definitions helps employees plan their career and retirement timing to maximize benefits.

Employees at Sonoco Products Company are often curious about the various forms of payment they can choose for their pension. What are the available options, and how do these options differ in terms of financial implications for the retiree and their beneficiaries?

Options: Single life annuity, joint and survivor annuities (50%, 75%, 100% survivor benefits). Financial Implications: Each option impacts the monthly benefit amount and the security it provides to beneficiaries, necessitating careful consideration based on marital status and financial needs.

Understanding the process of applying for plan benefits can be complex for many employees. What are the specific steps that Sonoco Products Company employees need to follow to apply for their pension benefits, and what resources are available to help streamline this process?

Process: Initiated via Sonoco Benefits Center, involving choosing a retirement date, understanding benefit options, and completing necessary paperwork. Resources: Detailed support through retirement specialists aids in navigating the process smoothly.

Many employees may not be aware of their rights under ERISA as participants in the Sonoco Pension Plan. What specific rights and protections do employees have, and how can they assert these rights if there are disputes or issues regarding their pension benefits at Sonoco Products Company?

Provides specific rights regarding plan information, appeal processes for denied claims, and protections against plan abuses. Asserting Rights: Outlines steps to take if there are disputes over pension benefits, including the right to sue after exhausting administrative remedies.

If a Sonoco Products Company employee experiences a significant life change, such as divorce or a domestic relations order, what procedures must they follow regarding their pension benefits, and how does Sonoco manage such situations under the guidelines laid out in the plan documentation?

Procedures: Employees must follow specific procedures for dividing pension benefits in the event of divorce, under a Qualified Domestic Relations Order (QDRO). Management: Sonoco’s Benefits Center provides guidance and necessary documentation to ensure compliance with legal requirements.

For employees looking to learn more about their retirement options and benefits at Sonoco Products Company, what contact information is available for them to reach out for assistance? How can employees utilize these resources effectively to gain a clearer understanding of their retirement planning?

Available through the Sonoco Benefits Center, offering comprehensive support for retirement planning and benefit queries, essential for effective retirement planning.