"You've worked for many years in the telecom industry. Let us help you get your financial house in order for the retirement you’ve been working for."
Starting to save as early as possible matters. Time on your side means compounding can have significant impacts on your future savings. And, once you’ve started, continuing to increase and maximize your 401(k) contributions is key.
Whether you live in the United States of America or Puerto Rico, you'll receive quite a bit of useful information from this article! Click here to read our article on 401(k) matching for AT&T employees or speak with an AT&T-focused advisor by clicking the button below.
Joe Smith's Pension Plan
This is a typical/generic example of how your benefit works, however, each of you has different scenarios in which hire dates, years of service, age, salary, job, and more will affect your plan. The retirement group has worked with numerous AT&T employees, so our experts will be able to work through the specifics with you so you can get the greatest benefit.
Joe Smith Example:
Craft (1985 - 1997) = $1500
Cash Balance (1997 - 2002) = $300
CAM (2002 - Present) = $2400
Since the difference between the amount of the single life monthly annuity for the CAM benefit and the highest applicable formula (Grandfathered) other than the CAM benefit is greater than $400, Joe is paid a partial lump-sum & a residual annuity upon retirement.
To calculate your pension benefit follow these steps:
Step 1: Add Craft and Cash Balance and compare to CAM.
Step 2: Convert Craft and Cash Balance to Annuity and compare to CAM Annuity.
Step 3: If the CAM Annuity is $400 > than the Craft and Cash Balance annuity, the payment is a partial lump sum(Craft and CB), and an annuity of the difference between the combination of Craft and CB to the CAM annuity.
Management - Cash Balance Account
In 1997 Joe Smith switches to Management and participates in the Cash Balance Account:
- - After 5 years of service Joe will be fully vested with no term age penalties
- - If he receives salary increases, this will affect the calculation of his final benefit
- - Joe will receive his benefit in the form of a Lump Sum, upon retirement
- - In May of 2002 this account type was frozen by AT&T
Now we’ll discuss CAM. This is the plan that the majority of managers fall under today. It was introduced in 2001 and is the only plan that currently isn’t frozen.
In 2001, Joe starts his CAM pension plan:
CAM Pension Plan
- - Assume $0 opening balance as he came from Craft
- - Joe was hired before 6/12/01 so he is fully vested and eligible immediately
- - Joe's pension benefit may decrease during his early 60's due to life expectancy.
- - (Misconception: When you hit 30 years of service pension benefit decreases)
- - Early retirement discounts & penalties may apply, but not if Age 55 with 30 years, refer to table A & B (penalties credited monthly)
Payment Options
Thinking about what to do with your pension is an important part of planning for your retirement at AT&T. How should you take the Lump Sum or Annuity and when should you take it? What is best for you and your family?
You should routinely use the tools and resources found on The Retirement Group's e-book Library, such as the Retirekit, to model your pension benefit in retirement and the pension payment options that will be available to you.
You can also contact an AT&T-focused advisor at The Retirement Group at (800)-900-5867. We will get you in front of an AT&T-focused advisor to help you start the retirement process and tell you about your payment.
Interest Rates and Life Expectancy
In many defined benefit plans, like the AT&T pension plan, current and future retirees are offered a lump-sum payout or a monthly pension benefit. Sometimes these plans have billions of dollars worth of unfunded pension liabilities, and in order to get the liability off the books, they offer a lump-sum.
Depending on life expectancy, the initial lump-sum is typically less money than regular pension payments over a normal retirement time frame. However, most individuals that opt for the lump-sum plan to invest the majority of the proceeds, as most of the funds aren't needed immediately after retirement.
Something else to keep in mind is that current interest rates, as well as your life expectancy at retirement, have an impact on lump sum payout options of defined benefit pension plans. Lump sum payouts are typically higher in a low interest rate environment, but be careful because lumps sums decrease in a rising interest rate environment.
Additionally, projected pension lump sum benefits for active employees will often decrease as an employee ages and their life expectancy decreases. This can potentially be a detriment of continuing to work, so it is important that you run your pension numbers often and thoroughly understand the timing issues. Other factors such as income needs, need for survivor benefits, and tax liabilities often dictate the decision to take the lump-sum over the annuity option on the pension.
Borrowing from your 401(k)
Should you? Maybe you lose your job, have a serious health emergency, or face some other reason that you need a lot of cash. Banks make you jump through too many hoops for a personal loan, credit cards charge too much interest, and … suddenly, you start looking at your 401(k) account and doing some quick calculations about pushing your retirement off a few years to make up for taking some money out.
We understand how you feel: It’s your money, and you need it now. But, take a second to see how this could adversely affect your retirement plans.
Consider these facts when deciding if you should borrow from your 401(k). You could:
- - Lose growth potential on the money you borrowed.
- - Repayment and tax issues, if you leave your employer.
Net Unrealized Appreciation (NUA)
When you qualify for a distribution you have three options:
- Roll-over your qualified plan to an IRA and continue deferring taxes.
- Take a distribution and pay ordinary income tax on the full amount.
- Take advantage of NUA and reap the benefits of a more favorable tax structure on gains.
How does Net Unrealized Appreciation work?
First an employee must be eligible for a distribution from their qualified plan; generally at retirement or age 59 1⁄2, the employee takes a "lump-sum" distribution from the plan, distributing all assets from the plan during a 1 year period. The portion of the plan that is made up of mutual funds and other investments can be rolled into an IRA for further tax deferral. The highly appreciated company stock is then transferred to a non-retirement account.
The tax benefit comes when you transfer the company stock from a tax-deferred account to a taxable account. At this time you apply NUA and you incur an ordinary income tax liability on only the cost basis of your stock. The appreciated value of the stock above its basis is not taxed at the higher ordinary income tax but at the lower long-term capital gains rate, currently 15%. This could mean a potential savings of over 30%.
As an AT&T employee, you may be interested in understanding NUA from a financial advisor. One of our advisors is showcasing this free webinar on understanding NUA. Click here to watch the complimentary webinar!
AT&T Beneficiary Designations
As part of your retirement and estate planning, it’s important to name someone to receive the proceeds of your benefits programs in the event of your death. That’s how AT&T will know whom to send your final compensation and benefits. This can include life insurance payouts and any pension or savings balances you may have.
Next Step:
As part of your retirement and estate planning, it’s important to name someone to receive the proceeds of your benefits programs in the event of your death. That’s how AT&T will know whom to send your final compensation and benefits. This can include life insurance payouts and any pension or savings balances you may have.
Next Step:
- - When you retire, make sure that you update your beneficiaries. AT&T has an Online Beneficiary Designation form for life events such as death, marriage, divorce, child birth, adoptions, etc.
If you are unsure about AT&T benefits, schedule a call to speak with one of our AT&T-focused advisors
They can help determine your eligibility, get you and/or your eligible dependents enrolled in Medicare or provide you with other government program information. For more in-depth information on Social Security, please call us.
Check the status of your Social Security benefits before you retire. Contact the U.S. Social Security Administration, your local Social Security office, or visit ssa.gov.
Are you eligible for Medicare or will be soon?
If you or your dependents are eligible after you leave your telecom industry company, Medicare generally becomes the primary coverage for you or any of your dependents as soon as they are eligible for Medicare. This will affect your company-provided medical benefits.
You and your Medicare-eligible dependents must enroll in Medicare Parts A and B when you first become eligible. Medical and MH/SA benefits payable under the company-sponsored plan will be reduced by the amounts Medicare Parts A and B would have paid whether you actually enroll in them or not.
You and your Medicare-eligible dependents must enroll in Medicare Parts A and B when you first become eligible. Medical and MH/SA benefits payable under the company-sponsored plan will be reduced by the amounts Medicare Parts A and B would have paid whether you actually enroll in them or not.
For details on coordination of benefits, refer to your summary plan description.
If you or your eligible dependent don’t enroll in Medicare Parts A and B, your provider can bill you for the amounts that are not paid by Medicare or your company-specific medical plan … making your out-of-pocket expenses significantly higher.
According to the Employee Benefit Research Institute (EBRI), Medicare will only cover about 60% of an individual’s medical expenses. This means a 65-year-old couple, with average prescription-drug expenses for their age, will need $259,000 in savings to have a 90% chance of covering their healthcare expenses. A single male will need $124,000 and a single female, thanks to her longer life expectancy, will need $140,000.
Check your plan summary to see if you’re eligible to enroll in Medicare Parts A and B.
If you become Medicare-eligible for reasons other than age, you must contact your company’s benefit center about your status.
