Post Trippin
Member
I sure as hell do not plan on throwing away a $1100/mo benefit for UPS' chump offer.
UPS Special Pension Buyout Offer - December 2016
- Thread starter JMR07168
- Start date
margincharge1
Member
I hate to be the party pooper but...
I'll make this simple. UPS is making this offer because beginning January 1, the IRS is adapting longer average life expectancy (which increases the per-person pension liability) and providing limited governance on discount (interest) rates being used in pension buyout calculations.
The latter is of extreme importance here: basically, UPS is offering the present value of your future annuity payments. There's two major factors here: time and discount (interest) rate. Consider the time factor -- two employees left UPS after about 15 years, accruing a $900/month benefit. One employee is only 33, the other is 64 -- even though on paper both employees have the same liability, because one has only 1 year to wait to collect whereas the other has 32 years, the older employee will receive a much larger offer, because $900/month will have more purchasing power next year than it will 32 years from now.
The discount (interest) rate is more critical. Right now, that interest rate is largely up to the employer. Most large companies offering buyouts are using discount rates in the high 7s - 10%, which makes the buyout a really, really bad idea. In other words, whatever amount offered to you today would need to earn 7%-10% annually to equate the amount you would've otherwise earned in the payouts. That's likely not going to happen. (The discount rates also means that most of you are dreaming given the amounts you've listed).
Reality is, UPS's offer will not be favorable. If you received this offer, you're in a pension whose full value is guaranteed by the government. Taking the buyout is a really bad idea unless you or your family has a history of health problems and you think you'll perish long before the IRS assumes you will (83 for men, IIRC). Buyouts are such a bad idea that the government will soon begin somewhat policing them, which is why you received this offer when you did to begin with.
That said, many of you will be tempted by the lump sum amounts and will take the offer, anyway. If you do, note that if the amount is directly rolled over into a retirement account, you will not be impacted by taxes. If the amount is directly paid to you, 20% will be withheld for taxes. If you deposit the entire amount (including the taxes that were withheld -- you need to come up with extra cash in other words) into a retirement account within 60 days, you will not be subject to any taxes. Withholdings are simply deposits toward your tax liability, which isn't calculated until you actually file your taxes. If you don't deposit the money into a retirement account, it'll be subject to a 10% penalty + taxes (which may be more or less what was withheld, depending on your liability).
BTW, according to my recent plan notice, there are 197,313 participants at 12/31/15, of which 9,883 were collecting benefits, 39,219 had vested but left the company and 148,211 were still employed. So if you received this notice, you're one of the 39,219.
I hate to be the party pooper but...
I'll make this simple. UPS is making this offer because beginning January 1, the IRS is adapting longer average life expectancy (which increases the per-person pension liability) and providing limited governance on discount (interest) rates being used in pension buyout calculations.
The latter is of extreme importance here: basically, UPS is offering the present value of your future annuity payments. There's two major factors here: time and discount (interest) rate. Consider the time factor -- two employees left UPS after about 15 years, accruing a $900/month benefit. One employee is only 33, the other is 64 -- even though on paper both employees have the same liability, because one has only 1 year to wait to collect whereas the other has 32 years, the older employee will receive a much larger offer, because $900/month will have more purchasing power next year than it will 32 years from now.
The discount (interest) rate is more critical. Right now, that interest rate is largely up to the employer. Most large companies offering buyouts are using discount rates in the high 7s - 10%, which makes the buyout a really, really bad idea. In other words, whatever amount offered to you today would need to earn 7%-10% annually to equate the amount you would've otherwise earned in the payouts. That's likely not going to happen. (The discount rates also means that most of you are dreaming given the amounts you've listed).
Reality is, UPS's offer will not be favorable. If you received this offer, you're in a pension whose full value is guaranteed by the government. Taking the buyout is a really bad idea unless you or your family has a history of health problems and you think you'll perish long before the IRS assumes you will (83 for men, IIRC). Buyouts are such a bad idea that the government will soon begin somewhat policing them, which is why you received this offer when you did to begin with.
That said, many of you will be tempted by the lump sum amounts and will take the offer, anyway. If you do, note that if the amount is directly rolled over into a retirement account, you will not be impacted by taxes. If the amount is directly paid to you, 20% will be withheld for taxes. If you deposit the entire amount (including the taxes that were withheld -- you need to come up with extra cash in other words) into a retirement account within 60 days, you will not be subject to any taxes. Withholdings are simply deposits toward your tax liability, which isn't calculated until you actually file your taxes. If you don't deposit the money into a retirement account, it'll be subject to a 10% penalty + taxes (which may be more or less what was withheld, depending on your liability).
BTW, according to my recent plan notice, there are 197,313 participants at 12/31/15, of which 9,883 were collecting benefits, 39,219 had vested but left the company and 148,211 were still employed. So if you received this notice, you're one of the 39,219
Hi Bagel, I received the same UPS Special Pension Payment Offer Card a few days ago.
I worked for UPS a total of 16 years part time. I became disabled in 2006 so I had to resign. I'm eligible for my pension at age 55. Still have 5 years to go. I currently receive Social Security disability. Do you know if I'll be hit with the 20% tax and the 10% penalty? I 'm wondering if I take the lump sum if it will affect my social security disability. I've never experienced a buyout before. Do you have any advice? Where do I go ask questions? Thanks margincharge
Catatonic
Nine Lives
It will not affect your SSD but they will probably ask for an explanation if it is reported on your W2.
Keep in mind that if you can start withdrawing at age 55, your full retirement age is 65 which the offer will use as the base for discount.
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Bagels
Family Leave Fridays!!!
You'll eventually pay taxes on the income, the only question is when.
- If you open an IRA and have UPS directly deposit the funds into it, no taxes will be withheld. You will pay taxes on your annual distributions, however (in other words, if you receive $20,000 and withdraw $5,000 in 2017, you'll pay taxes on $5,000).
- If UPS sends you the funds directly, 20% will be withheld for taxes. Keep in mind this is merely a deposit toward your annual tax liability, which may be greater or less than the funds withheld. So if you receive $20,000 and deposit the entire amount into your bank account, it will be considered 2016 income. Depending on what your liability for the year is, you may get some (or all) of the withholding back.
- The 10% penalty will apply. To avoid it, you'll need to include Form 5329 when you file your taxes. Keep in mind that the IRS' benchmark for disability may not be the same as Social Security's.
- For questions, seek consultation with an accountant. Keep in mind that it'll cost you a few hundred bucks, and then another few hundred bucks to complete your tax return.
- My advice is to skip the buyout. While a few extra bucks now might seem nice to pay down debt, go on a shopping spree or take a nice trip... once the money's gone, it's gone.
UpstateNYUPSer(Ret)
Well-Known Member
You must be psychic if you can make this bold statement without even knowing what their chump offer will be.
Is the $1,100/month your only source of retirement income?
I suggest that you make an appointment with a financial adviser or CPA so that you can make an informed decision.
UpstateNYUPSer(Ret)
Well-Known Member
Bagels, do you see them possibly "sweetening the pot" for those who refuse their initial buyout offer?
Jaco Williams
Active Member
Everybody is an expert...
Just like a typical UPSer.
Just like a typical UPSer.
UpstateNYUPSer(Ret)
Well-Known Member
Rather than mock him, do you have anything of substance to support your claim that Bagels doesn't know what he/she is talking about?
It's football Sunday and I have all day so take your time and choose
yours words carefully.
Jaco Williams
Active Member
Wasn't mocking anybody in particular. So slow your roll.
"Choose your words carefully"
Lol - that's funny.
"Choose your words carefully"
Lol - that's funny.
UpstateNYUPSer(Ret)
Well-Known Member
Your post was clearly meant to discredit Bagels.
Jaco Williams
Active Member
Enough already. Good gravy.
I didn't realize there were that many financial experts that work or used to work at UPS.
That's all I'm saying.
Go sort a package would ya...
Get a jump start on Peak Season.
Big Brown needs you.
I didn't realize there were that many financial experts that work or used to work at UPS.
That's all I'm saying.
Go sort a package would ya...
Get a jump start on Peak Season.
Big Brown needs you.
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UpstateNYUPSer(Ret)
Well-Known Member
Are you in disagreement with any of the points Bagel made in his posts?
Jaco Williams
Active Member
I don't believe anything from an UPSer.
UpstateNYUPSer(Ret)
Well-Known Member
This may surprise you but there are many of us with college degrees who have the ability to grasp concepts such as this and present the facts in an intelligent manner.
If you would like I can get you some crayon and paper so that you can try to play along with the grown ups.
Jaco Williams
Active Member
So grown ups are using crayons too huh?
No thanks. Grown ups are A-holes. So are folks that wave their college degree around. Typical.
Man - the folks that sent me private messages were right about you...
No thanks. Grown ups are A-holes. So are folks that wave their college degree around. Typical.
Man - the folks that sent me private messages were right about you...
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Took me a while to find all of this info, but here we go. Use this website PensionBenefits, Inc. - Lump Sum Value Calculator
and enter your birth date. For benefit start date use the date you will turn 65 and Oct 1, 2016 for the determination date. You MUST use the mortality table!! Select 2016 Applicable Annuity Table with the Age Set Back as "1". Interest rate you will use is 4.98% if you are more than 20 years from 65, 4.05% if you turn 65 in the next 5-20 years and 1.68% if you turn 65 in the next 5 years. Now all you need to enter is your Monthly Benefit.
I found all of this by reading the USP Pension Plan that is filed with the SEC. This can be found at : UPS Retirement Plan, as Amended and Restated
It defines the guidlelines I listed above when calculating a pension buyout. Believe it not UPS does have a written plan when it comes to offering buyouts and it is strictly guided by the IRS. Most of UPS' criteria refers to numbers that the IRS puts out. They cannot just lowball you an offer. It is all based on how much you can earn in interest from now until you turn 65. Here's what mine calculates to: I am over 20 years until 65 and my monthly benefit will be $1600 so my buyout offer should be about $80,000.
and enter your birth date. For benefit start date use the date you will turn 65 and Oct 1, 2016 for the determination date. You MUST use the mortality table!! Select 2016 Applicable Annuity Table with the Age Set Back as "1". Interest rate you will use is 4.98% if you are more than 20 years from 65, 4.05% if you turn 65 in the next 5-20 years and 1.68% if you turn 65 in the next 5 years. Now all you need to enter is your Monthly Benefit.
I found all of this by reading the USP Pension Plan that is filed with the SEC. This can be found at : UPS Retirement Plan, as Amended and Restated
It defines the guidlelines I listed above when calculating a pension buyout. Believe it not UPS does have a written plan when it comes to offering buyouts and it is strictly guided by the IRS. Most of UPS' criteria refers to numbers that the IRS puts out. They cannot just lowball you an offer. It is all based on how much you can earn in interest from now until you turn 65. Here's what mine calculates to: I am over 20 years until 65 and my monthly benefit will be $1600 so my buyout offer should be about $80,000.
Bagels
Family Leave Fridays!!!
No, you're the a-hole.
My postings were targeted toward a group of people who had inquired about the process and/or solicited advice. I'm a CPA, people pay me for my time & wisdom, but I graciously provided it here. You're one of those people whose seen one too many J.G. Wentworth commercials and believe "it's my money, and I want it now!!!" In a few months, you'll have blown (your meager offer) on booze and hookers; when you hit retirement age, you'll be back on here complaining "UPS screwed me!" and "UPS doesn't care about its retirees!" I get that. And you know what? It doesn't effect me in any way, so I don't give a dang. But don't come on here mocking me when I'm trying to help others because you're a dumb
. Don't like my posts? Then just ignore them.
Bagels
Family Leave Fridays!!!
I project that UPS will use a 7-8% discount rate and insist that this is a "one-time" offer. But I doubt that will be the case. UPS' liabilities will increase as a result of the IRS' tables increasing the average lifespan, maintenance costs (PBGC premiums + administrative cost) will continue to swell, and interest rates will rise forcing UPS to put more money into the plan to meet its liabilities. I think it's inevitable that those who are smart enough to reject this offer will get a much sweeter one. UPS will want relief from the liability, and the present value of the next offer will be based on a larger dollar amount (given that UPS will have to account for a larger lifespan) and the discount rate will be policed (UPS won't be able to use an 8% rate when treasury rate is 2% max).
If we could just keep on topic that would be great . This is a very important issue and any valid advice is much appreciated . My husband still has 12 yrs to go till retirement age . So this buyout can be critical to our future. We have a child with a life long medical condition so we have different planning needs . So stop the name calling and let's just stick to providing useful information.
Lineandinitial
Legio patria nostra
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