AT&T’s October Rates Skyrocket, Further Reducing Lump-Sums

AT&T’s October 2022 interest rates are out and they are up .57% over September’s rates (In the second segment, which is the most impactful). If the October’s rate were to be used to calculate AT&T lump-sums, employees could expect a drop of about 31% in January 2023. AT&T uses the November rate so we are providing estimates to assist you as slowdowns & surpluses are occurring. AT&T interest rates decreased in 2020 causing 2021 lump sums to hit record highs. Based on the current trend of interest rates and monetary policy announcements it is likely that rates seen in 2021 will be the lowest for the foreseeable future. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. Call us for help determining how rates affect you: (800) 900-5867.

The AT&T Pension Plan is a great retirement benefit for AT&T employees. Your exact pension depends on your hire date, original company, and if you are management or non-management/Craft. The core pension benefit uses a calculation method looking at your years of service and final average pay or wage bands to determine your monthly annuity. From there you have the option to choose a joint annuity or a lump sum. The lump sum calculation will depend on your age and the current interest rate environment.

For the lump sum calculation, AT&T uses the PPA (Pension Protection Act) segment rates. These are 3 different segment rates based on years in retirement. The first segment is used for the first 5 years of retirement. The second segment is for years 6 through 20. The third segment is for years 21 and beyond. Your age will determine how many years segment 3 is used. These segment rates are updated monthly. AT&T uses the results of the November rates to determine the interest rates used for the lump sum calculation in the following year. The segment rates are generally released about 3 weeks into the following month.

In addition to the lump sum reduction in 2022, there are many other changes affecting employees, especially managers. If you would like to review your situation, we can run a complimentary detailed cash flow analysis to show you various retirement dates and how the AT&T benefits may change.

The annuity is discounted based on mortality as well as interest rates, meaning the present value of each monthly payment reduces as the probability of living to receive each payment reduces. The older you are when you commence your pension benefit, the fewer the number of years that will be valued using the third segment rate (20+ years) and, conversely, the younger you are, the greater the number of years that will be valued using the third segment rate.

This methodology essentially means that there will be a unique monthly interest rate (lump-sum conversion factor) for each year of birth.

How Do Rate Changes Affect Your AT&T Pension?

Pension pricing is based on interest calculations, which means a slight adjustment in your retirement date may have a significant financial impact on your pension due to changing rates each year.

Everything else held equal, a higher interest rate will produce a lower lump sum. The exact changes depend on your specific age, but on average a 1% change in rates can equate to an 8% to 12% change in lump sums. So, on average, a 1% change could increase or decrease your pension lump sum by roughly 10%.

The current changes discussed above of 3.11% since November 2021 will likely mean a decline of 31.1% in your lump sum. For someone with a $500,000 lump sum, this could mean a move of as much as $155,500. For a $1,000,000 lump sum, it would be roughly $311,000. It is also likely we will see rates move even higher in 2022 which will lead to a further drop in lump sums for 2023.

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Given the current interest rate environment, it is highly suggested you discuss your options with The Retirement Group and allow us to monitor the rates and keep you up to date on the monthly changes. We can provide a complimentary cash flow analysis to show you how various retirement dates may play out.

It is important to remember the pension annuity may be a better fit no matter how attractive the pension lump sum may be. Every situation is unique, and a cash flow analysis will allow you to compare all pension options. To schedule a cash flow analysis please use this link: https://www.theretirementgroup.com/contact-us

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, or AT&T. We are an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Securities through FSC Securities Corporation, member FINRA/SIPC and investment advisory services offered through The Retirement Group, LLC, a registered investment advisor not affiliated with FSC Securities Corporation. Office of Supervisor Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121. 800-900-5867