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The Phillips 66 Pension Plan is a great retirement benefit for Phillips 66 employees. Your exact pension depends on your hire date, original hire company, and if you are management or not. 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, Phillips 66 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. Phillips 66 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. Due to this, you will not know for certain what rates used for will be until late December. The best gauge is to watch the monthly rates as you get closer with the October rates being released around Thanksgiving.
In the rates moved up through the spring then came back down a bit in the summer. Since then, they have started moving back up again. As of this writing, the September rates are the most up to date which are 2 months shy of the November rates. Currently, those rates are .17% higher on the 1st segment, .24% higher on the 2nd segment, and .03% lower on the 3rd segment. Since the 2nd segment covers 15 years of retirement it has the largest weighting on the calculations. The current move of .24% will likely lead to a 2% - 3% decline in your lump sum in . However, with rates rising, and the volatility we've seen lately, it's possible you could see a significant increase between now and the time the November rates are released. This would cause a larger reduction in your lump sum.

In addition to lump sum reduction in , 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 Phillips 66 benefits may change. Click here to schedule a Cashflow Analysis.

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 Phillips 66 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 .24% will likely mean a decline of 2-3% in your lump sum. For someone with a $500,000 lump sum, which could mean a move of as much as $15,000. For a $1,000,000 lump sum, it would be roughly $30,000. It is very likely we will see rates move even higher in which will lead to a further drop in lump sums for . Should they go up by 1%, then changes could be 10%. That could mean a $50,000 decrease on a current $500,000 lump sum or $100,000 on a $1,000,000 lump sum.

Example:

John is a manager who is 61 years old and has reached Mod-75. He is a manager and is considering going early in so he does not lose the Phillips 66 paid portion on his retiree medical prior to age 65. His current lump sum is $800,000. After consulting Phillips 66 HR, he learns he could be giving up $600/mo. in benefits for the next 4 years which is a total of $28,800. He also sees that his lump sum will be going down by roughly $24,000 given the current interest rates and understands it may even go lower. His original plan was to work to age 62, however by working into , he could potentially be giving up $52,800 in benefits. He will effectively be working for reduced pay or even for free in given this scenario. Due to this, it may be better for him to retire in December to capture these benefits or review working longer to recoup them.

Review:

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 cashflow analysis please click the button below:

Solid estate planning starts with knowing exactly what Phillips 66 contributes to your financial foundation. According to publicly available information, Phillips 66 maintains a cash balance pension plan, which defines your retirement benefit as a hypothetical account balance that grows over your career through pay credits and interest credits. Under ERISA, cash balance plan benefits vest on a three-year cliff schedule. Phillips 66 also offers retiree healthcare benefits to eligible employees. Pulling together the full range of your Phillips 66 benefits into a coordinated retirement strategy helps eliminate blind spots in your planning.