ExxonMobil Q4 Lump-Sum Payments Likely to Fall, Based on Rising Rates

ExxonMobil lump-sum payments will drop again in the first quarter of 2023 as September's rate change is the biggest increase ever. Your pension is calculated based on your last date of employment and benefits start date. The benefit calculation is a defined benefit based on your years of service and final average pay. These, along with a social security offset are used to determine your single life annuity. All other forms of pension payments are based on this figure.This article is pertinent to all age groups, however those entering their (age range) will find the information particularly important This information is pertinent to all age groups, however those entering their retirement years will find the information particularly important.

Another consideration is If you are at least 63 years old with at least 23 years of ExxonMobil service by December 31, 2020, you are considered grandfathered into the old pension calculation method. The old pension calculation method uses the 30-year Treasury bond interest rates. ExxonMobil will take the average Treasury rate for the fourth, fifth, and sixth months prior to the quarter you elect to “commence” your pension benefit, also known as your benefit commencement date (BCD). Then ExxonMobil multiplies this rate by 95% and rounds to the nearest quarter percent. For example, if you retire in December and want to receive your pension in January, ExxonMobil will take the average Treasury rate for July, August, and September multiplied by .95, and then round it to the nearest quarter percent. The grandfathered rate for the third quarter is now set at 3.00%, which is the same as Q4 2022.

Non‐Grandfathered Employees

If you are not at least 63 years old with at least 23 years of ExxonMobil service by December 31st, 2020, then you are not grandfathered into the old pension calculation method. In calculating your lump sum, ExxonMobil will use the average of the short, intermediate, and long-term corporate bond segment rates for the fourth and fifth months prior to the quarter you plan to commence your pension benefit. For instance, if you plan to retire in December and start your pension in January of 2023, ExxonMobil will use the average corporate bond interest rates for the months of August and September of 2022 to calculate your pension lump sum (the average of the fourth and fifth month prior to the quarter you plan to start your pension).

Rates increased significantly for non-grandfathered employees from Q4 2022 to Q1 2023. This change may be enough for some employees to leave the company earlier than they had previously anticipated.

For lump-sum conversions, the pension annuity is discounted to a present value using the first segment rate for the first five years of expected payments, the second segment rate for the next 15 years of expected payments, and the third segment rate for all years of expected payments over 20. Because the annuity is discounted based on mortality as well as interest rates, 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 quarterly interest rate (lump-sum conversion factor) for each year and month of birth.

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How Do Rate Changes Affect Your ExxonMobil Pension?

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

Everything else held equal, a lower interest rate will produce a higher 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 changes from the fourth quarter of 2022 to the first quarter of 2023 may account for about a 2.4% decrease in lump sums, depending on whether or not you are considered grandfathered. The second segment rate, which is the most impactful, has increased by 2.4%. With no sign of this trend coming to an end soon, it is very important we run or update your cash flow analysis so you know all your claiming options.

You do not have to commence your pension as soon as you retire. You have the option to defer it. That may be beneficial if rates are dropping and/or you are under 60 years old. If you take your pension prior to age 60 there are age penalties and you will not receive 100% of your pension benefit.

The Retirement Group is not affiliated with nor endorsed by ExxonMobil. 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