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Is a Lump-Sum Pension Payout the Right Choice for USG Corporation Employees as Interest Rates Rise?

USG Corporation employees who have a lump sum option and are considering taking a lump-sum payment from USG Corporation need to move fast.

You shouldn’t wait much longer to decide, as the Federal Reserve’s planned series of interest-rate increases stands to reduce the size of the payout.

Lump-sum payouts, if available to you from USG Corporation, are calculated by determining the present value of your future monthly guaranteed pension income, using factors based on age, mortality tables published by the Society of Actuaries, and the Internal Revenue Service’s minimum present value segment rates.

There is an inverse relationship between interest rates and lump-sum pension payouts. When rates are low, the calculated payout rises because it takes a higher initial sum to arrive at the same future value of your lifetime monthly payments. As interest rates climb, it takes a lower initial sum to arrive at the same future value of those monthly payments, so the lump-sum buyout decreases.

As a USG Corporation employee, it is important to understand how companies sometimes offer lump-sum pension buyouts to workers at or near retirement, and former employees with vested pension benefits who haven’t begun taking monthly payments. This reduces the total obligations and risk within their plans.

As interest rates rise, more corporations will offer pension buyouts intending to reduce pension obligations on their balance sheet while paying out smaller lump sums.

As a USG Corporation employee potentially being offered a lump-sum payment, it is important to consider the risks associated with this alternative. According to research published in February by MetLife, in an online survey of 1,911 Americans ages 50 to 75 last fall, 34% of retirees who took a lump-sum buyout from their defined-contribution plan depleted that sum within five years.

With that taken into account, it becomes worthy to consider collecting monthly payments for the remainder of one's life as an alternative to the lump sum. Furthermore, given the availability of a survivor benefit, payment would carry on past the owner's death to the end of their spouse's life. Monthly checks provide longevity protection, preventing seniors from depleting their assets during a lengthy retirement.

According to the MetLife survey, 79% of retirees who took a lump sum made at least one major purchase, such as a vehicle, vacation, or a new or second home, within a year of getting their money. Monthly payments can serve as “guard rails” and prevent overspending, providing retirees with an established spending limit.

Although receiving monthly benefits may promote longevity by establishing monthly limits, the alternative of taking a lump sum is a better option for some. Those in poor health may not live long enough to collect all the money in monthly payments, and taking the lump sum now may allow them to leave more money to heirs. Single retirees may also opt for the lump sum since they aren't responsible for providing income to their spouse post-death.

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Some pension plans have capped benefits, so workers who have been with the company for most of their lives might not earn higher monthly payments by sticking around. Under circumstances like these, one may opt to retire with a lump sum prior to the rise of interest rates and work elsewhere.

Those with other assets besides their pension and Social Security may opt to take a lump sum. Having other assets provides enough security to afford the added risk of investing the buyout and seeking a better return. Similarly, seniors who plan to work full or part-time may want to invest part of their lump sum, knowing that their regular paychecks will help them weather a market downturn.

Rising inflation rates may make the lump sum option more attractive compared to the monthly payments. Assuming an annual inflation rate of 3%, a $1,000 monthly payment today will be equivalent to about $744.09 in 10 years. With that in consideration, it becomes beneficial for USG Corporation retirees to sit down with a financial adviser and calculate which option is best for their specific case.

Indexed annuities offer principal protection and the opportunity for investment gains when the market rises, serving as a hedge against inflation. Those retiring from USG Corporation companies should be aware of the high costs associated with many annuities and understand the details before exercising the purchase.

Using a lump sum to buy an annuity can prove to be of benefit when retirees fear the financial instability of their employer. Private-sector workers should inquire about their company's participation in the Pension Benefit Guaranty Corp., which covers a portion of their monthly benefits in the event that an employer’s pension fund becomes insolvent.

Democratic Sens. Patty Murray of Washington, Tina Smith of Minnesota, and Tammy Baldwin of Wisconsin reintroduced a bill that holds sponsors of pension plans accountable for providing detailed information to participants about proposed pension buyouts. The bill, known as the Inform Act, urges sponsors to provide a comparison of benefits participants would receive if they take the buyout or accept monthly payments, as well as an explanation of how the lump sum was calculated.

How does the retirement plan structure at USG Corporation impact both final average earnings participants and cash balance participants, especially regarding their eligibility and benefits accrued over time? In what ways does the differentiation between these two categories influence the retirement outcomes for employees of USG Corporation?

Retirement Plan Structure: USG Corporation's retirement plan differentiates between Final Average Earnings Participants and Cash Balance Participants. Final Average Earnings participants, who joined before January 1, 2011, accrue benefits based on their final average earnings and years of service, which can result in higher benefits for longer-serving employees. Cash Balance participants, who joined after January 1, 2011, have their benefits calculated based on a cash balance account, which grows with contributions and interest credits. These differences affect retirement outcomes, as Final Average Earnings participants may see higher pension payments if they have longer service or higher wages, while Cash Balance participants have more predictable but potentially lower benefits based on their account balance(USG Corporation_Retirem…).

USG Corporation's Retirement Plan allows for different age-specific rules regarding early retirement. How do the "Rule of 90" and "Rule of 82" affect the financial planning of employees considering an early retirement option, and what should they consider regarding their long-term financial security?

Rule of 90 and Rule of 82: The "Rule of 90" allows employees to retire early without a reduction in benefits if their age plus years of service total 90, provided they retire at or after age 62. The "Rule of 82" permits early retirement with reduced benefits for those whose age and years of service total 82. Employees planning early retirement must consider these rules as they directly affect the amount of benefits they receive, making it important to assess how long-term financial security will be impacted, especially if they retire before age 62(USG Corporation_Retirem…).

Could you elaborate on the process through which employees at USG Corporation can change their beneficiaries within the retirement plan? What steps need to be taken, and what are the implications of these changes on the benefits received upon the participant's death?

Changing Beneficiaries: To change beneficiaries, USG Corporation employees must contact Your Benefits Resources™, where they can designate a primary and contingent beneficiary. If married, the spouse must provide notarized consent to name a different primary beneficiary. The process involves completing a form, and any changes affect who receives benefits upon the participant's death. Failing to update the beneficiary could result in benefits being paid to unintended individuals(USG Corporation_Retirem…).

As part of the retirement process at USG Corporation, how are pensionable earnings calculated? What factors are included in this determination, and how might they vary among different employees based on their roles within the organization?

Pensionable Earnings Calculation: Pensionable earnings at USG Corporation include regular pay, shift differentials, and bonuses but exclude items like nonqualified deferred compensation, severance, and stock awards. These earnings are used to calculate benefits based on formulas that take into account an employee’s service years and earnings over the 36 highest consecutive months of the last 15 years of participation(USG Corporation_Retirem…).

How does the automatic enrollment in the USG Corporation Retirement Plan work, and what options do employees have if they initially chose not to participate? What implications might this have for their retirement savings strategy?

Automatic Enrollment and Opting In: Employees at USG Corporation are automatically enrolled in the retirement plan unless they choose to opt out. If employees decide not to participate initially, they can enroll later by contacting Your Benefits Resources™. Failure to participate from the start could result in lower retirement savings due to fewer years of contributions(USG Corporation_Retirem…).

In the context of USG Corporation, what are the potential tax consequences for employees withdrawing their retirement benefits, especially regarding the mandatory withholdings? How might employees effectively manage these tax liabilities when planning for retirement?

Tax Consequences of Withdrawals: Employees withdrawing their retirement benefits from USG Corporation will face mandatory federal income tax withholdings, typically 20% for lump sum distributions, unless the distribution is rolled over into an IRA. Employees must plan for these taxes when withdrawing to avoid unexpected liabilities and ensure they maximize their after-tax retirement income(USG Corporation_Retirem…).

How do employees at USG Corporation access the necessary documents related to their retirement benefits, and what is the process for obtaining copies of these documents if needed? What are the responsibilities of the Plan Administrator in this process?

Accessing Retirement Documents: Employees can access documents related to their retirement benefits through Your Benefits Resources™ online or via phone. If additional copies are needed, employees can request them from the Plan Administrator for a small fee. The Plan Administrator oversees ensuring these documents are provided to participants as required by ERISA(USG Corporation_Retirem…).

What unique provisions exist for USG Corporation employees who experience a break in service? How do these provisions impact their accumulated benefit service and overall benefits upon reemployment?

Break in Service Provisions: USG Corporation allows employees who experience a break in service to retain their accumulated benefits if they are reemployed within one year. If reemployed after one year, their previous service may not count toward future benefits unless they were vested prior to termination. This can affect the total benefits an employee accrues if they leave and later return(USG Corporation_Retirem…).

What options do employees of USG Corporation have for managing their benefits if they return to work after retirement? How does this affect their pension benefits and the overall strategy for maximizing retirement income?

Returning to Work After Retirement: Employees returning to work after retirement at USG Corporation will have their pension payments suspended and recalculated based on additional years of service. This recalculation takes into account prior payments, meaning employees should consider the impact of returning to work on their long-term pension strategy(USG Corporation_Retirem…)(USG Corporation_Retirem…).

How can employees of USG Corporation contact their Benefits Resourcesâ„¢ for more information on their retirement plan options? Are there specific channels preferred for different types of inquiries, and what resources are available to assist them?

Contacting Benefits Resources™: Employees can contact Your Benefits Resources™ via the web or a toll-free number to inquire about retirement plan options. Different inquiries, such as changes to beneficiaries or requesting benefit estimates, can be handled through these channels. Resources such as detailed benefit estimates are available to help employees plan for retirement(USG Corporation_Retirem…).