Essential Insights for Sonoco Products Employees: Navigating Retirement with a Pension and Social Security

Those planning retirement with a pension and Social Security supplemented by savings may want to consider how much spending money they have to work with, and whether or not it will cover necessary expenses.

When planning your retirement budget with unanswered questions about income streams, you may be left wondering how much Social Security you can expect, if your pension affects Social Security, or how taxes are going to work. Here's what you should know about retiring on your pension and Social Security.

How your Social Security benefits are calculated

When considering whether you qualify for social security and the amount that's entitled to you, several factors come into play. The first requirement is earning enough income over your career to gain 40 Social Security credits , which render you eligible to receive benefits.

Upon meeting that requirement, the Social Security Administration calculates the value of your benefit. Your average monthly earnings for the 35 years when your income was highest is used in the formula, adjusting numbers to account for the change in average wages across the overall economy during that time. The result is your primary insurance amount (PIA).

Depending on your age when claiming Social Security , the amount received may fluctuate above or below the PIA. Benefits are reduced when taking Social Security before reaching full retirement age. Alternatively, waiting past your retirement date might net you a greater benefit.

Working while you take Social Security can also influence the benefit amount. When under full retirement age, earning income above a set yearly limit lowers the benefit. On the other hand, earning income while receiving Social Security can increase your benefit if pay is high compared to previous years.

Benefits may also increase over time as the cost of living rises.

Benefits for spouses, former spouses, widows and widowers

When married with fewer than 40 credits, you may be eligible for a spousal benefit of up to half your spouse's amount at full retirement age. In the event you have enough credits but your earnings record based benefit is less than the spousal benefit, you may be entitled to your benefit plus an additional amount that will match the spousal benefit when added.

If you're divorced and you meet some conditions, you may be eligible for a spousal benefit that's up to half your former spouse's benefit at their full retirement age.

If your spouse has died, you may be eligible for a survivor's benefit as large as the full amount of your spouse's benefit if you've reached full retirement age, or a smaller amount if you're taking the benefit early.

Does pension affect Social Security?

Receiving a pension doesn't change the Social Security benefits you're eligible for if your employer withheld FICA taxes.

In the event that your employer didn't take FICA taxes out of your paycheck, then the pension received from that employer is considered a noncovered pension. Income from a noncovered pension can reduce your Social Security benefits.

How noncovered pensions can lower your benefits

If you have a noncovered pension but you still qualify for Social Security, the Windfall Elimination Provision (WEP) may apply to you. For this provision, the Social Security Administration uses a smaller percentage of your earnings in its formula for calculating the PIA, resulting in a smaller benefit. The WEP can cut your benefit by as much as half of your pension amount.

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When qualifying for a spousal benefit or survivor's benefit, a noncovered pension can reduce that benefit under the Government Pension Offset (GPO) . This provision cuts your benefit by two-thirds of your pension amount, and you can end up with a $0 benefit if your pension is large enough.

Exceptions to the WEP and GPO

If any of these situations apply to you, then the WEP won't reduce your benefit:

You work for the federal government and were hired in 1984 or later.

You work for a nonprofit that was exempt from Social Security on December 31, 1983, and meets some other conditions.

You only have a railroad pension.

Your earnings that weren't covered by FICA taxes were from before 1957.

You have at least 30 years of substantial earnings on which FICA taxes were paid.

The GPO typically won't affect your benefit if any of these is true:

You get a government pension that isn't based on your earnings.

You're a government employee, you have a government pension from work that was covered by FICA taxes, and you meet one of a few other requirements.

You work for the federal government, you switched from the Civil Service Retirement System to the Federal Employees' Retirement System after December 31, 1987, and you meet one of a few other requirements.

You received or were eligible for a government pension before December 1982, and you qualified for spousal benefits under the rules in place in January 1977.

You received or were eligible for a government pension before July 1, 1983, and you had one-half support from a spouse.

Does a pension count as earned income for Social Security?

The Social Security Administration doesn't view a pension as earned income . So you don't pay FICA taxes on your pension, and it doesn't add to your earnings record. Essentially, a pension can't add to your Social Security credits, and it doesn't enter into the PIA formula or affect your benefit amount.

When taking Social Security before full retirement age, a pension won't count toward earned income limit.

Looking up your Social Security benefits

It may prove beneficial to open an online account with the Social Security Administration to view a statement of your earnings history. The statement relays how much of your income was subject to FICA taxes for each year you've worked, letting you know if you have enough credits to be eligible for Social Security. Your full retirement age and estimates of what your benefit amount could be under different Social Security age scenarios is also shown.

The Social Security Administration offers a WEP calculator that shows how a noncovered pension may affect your Social Security benefit amount. You can enter your monthly income from the noncovered pension, your earnings from each year of your Social Security record, and the income you expect to earn in the future to calculate an estimate of your monthly benefit. A GPO calculator is also available and can help you establish how much your spouse's or survivor's benefits may be cut.

A financial advisor can help you get ready for retirement

With Social Security regulations being so complex, you may benefit from reaching out to a knowledgeable expert.

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.