Does anyone know if RIGP is protected or can they default or reduce benefits. Can they take that away like the did the severance. When Delphi went under the bus, union workers were protected, but many of the office staff lost a large portion of their pensions.
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Does anyone know if Xerox RIGP, is subject to an additional 10% IRS penalty if I take it in a lump sum now, early at age 52? It doesn't say it in the Summary Plan description, only says IRS will take the required 20% off the top upfront, pretty much as an income tax.
Xerox stopped purchasing annuities from Met Life on July 1, 2013. I was reading about pension settlement in the 2013 Xerox annual report (still available online) and noticed that language regarding pension settlement cost had changed versus the 2012 annual report. Below is an excerpt from the 2012 report:
"One of the most significant and volatile elements of our net periodic
defined benefit pension plan expense is settlement losses. Our primary
domestic plans allow participants the option of settling their vested
benefits through either the receipt of a lump-sum payment or the
purchase of a non-participating annuity contract with an insurance
company. Annuity purchases represent benefits to be provided via
contracts under which an insurance company is obligated to pay the
benefits. Accordingly, under either option, the participant’s vested
benefit is considered fully settled upon payment of the lump-sum or
the purchase of the annuity. Approximately two-thirds of participants
elect to receive a lump-sum payment."
In 2013, the text regarding purchasing annuities disappeared. I contacted Xerox HR and I was informed that on July 1, 2013 Xerox started self funding the pension annuity option. I thought that this was a big deal. Xerox never informed employees about it. I talked to a financial adviser in the Rochester area who was not aware of the change. He told me not to worry about Xerox annuity because it was not connected to Xerox. He thought Xerox was still purchasing the annuities from Met Life. There are a lot of uninformed people out there.
Xerox used to purchase an annuity for the retiree from Met Life. I'm not sure what they do now. I would talk to a financial advisor and compare your options. I took the lump sum and rolled it over into an IRA. The way things are at Xerox now, I would want all of my money out of there, ASAP!
Question. If I were to take the annuity immediately
(I'm 62 with 40 years) would that circumvent the problem of Xerox not funding the pension? Doesn't Xerox go to a 3rd party to purchase the annuity thereby escaping the Xerox problem or is that not true?
8% is pretty hard to ignore as that's what the annuity worked out to be in my case. I have other sources of retirement income.
One thing that few seem to notice is that the annual funding notice started showing pension funding using adjusted interest rates in 2012. Prior to 2012, pension plans determined their liabilities based on a two-year average of interest rates. Companies complained about the affect of low interest rates (needed to add more money to attain required funding levels) so in 2012, our illustrious representatives in Washington allowed companies to use 25 year average "adjusted rates". The annual funding notice showed (at least until I retired last year) funding levels with and without adjusted rates. There was always a huge difference in funding levels when the two-year average rates are used.
Later in the annual funding notice, there was a paragraph with the headline of "Corporate and Actuarial Information on file with the PBGC". If company is under 80% funded using the un-adjusted rates, the company must provide additional data to the PBGC. Xerox was subject to the extra data requirements for several years. I cannot say if this continues to be the case since I no longer receive the annual funding notice.
The concern that I had with the adjusted rates was that if all large companies are allowed to use the adjusted rates, what will happen if a large # of companies go bankrupt in a significant recession and the funding is not up to what it would be if the two year average rates were used? The PBGC is not using the adjusted rates to determine which companies need to provide more actuarial data for monitoring.
When the PBGC ran short of funds for multi-employer plans, I believe congress allowed the PBGC to reduce annuity check amounts by a significant amount for pension participants in the multi-employer plans that the PBGC took over.
Must be nice to worry about a pension... Because it means you have one. Most of us don't. Your costs are dragging us down. Harsh truth, sorry.
Regarding 72(t), there is no age restriction. Work with a smart tax advisor and financial advisor.
I left XRX at 58 years of age (29 years of service) because I did not want to get stuck in an annuity. I called HR and asked if the pension fund was fully covered. That was last October and it was 100% funded. It appears that now it is near 80% funded. Yes, that is a threshold. I asked HR about that scenario when I had them on the phone. I was told that at <80% funded one would receive a 50% lump sum and 50% annuity when they separate from the company. If it falls below 60% finding then it is all annuity. Perhaps that policy has changed. But I in no way wanted to take the risk to lose it all or a significant part of it. So I chose to leave. I rolled my pension into my 401K and gave it all to a financial adviser. The IRS has a rule called 72t where one who is 55 or older can take early distributions from the rolled over monies without paying the 10% penalty. But there are restrictions. It is easy to lookup if anyone is interested going down that path. It was a no brainer for me. My opinion: if you have a large amount of money in the pension fund and you are between 55 and 59 1/2 then I would forget IRIF and retire from the company. But definitely talk to a financial advisor first. Pick a reputable one. Do not have a friend or a friend of a friend do it.
One reminder for anyone considering the annuity vs lump sum: if you die, the only person that can inherit is a spouse - not children. This was significant for me, a single parent. No way was I going to risk that - and I'd made the lump sum decision pre-Icahn/JV
I too was concerned with taking a reduced pension when I retired early at age 60. I had less than 30 years in, therefore my pension was reduced by 25%. I dug into the lump sum calculation and discovered that the life expectancy portion of the formula helped to offset the pension reduction. Then I looked at rising interest rates and how my lump sum would be reduced if I waited until the next calendar year. My lump sum would have been reduced by 40K. I was hoping for a VRIF that year and it didn't happen, so I retired in September, cashed out, took the money and ran. I rolled it over into an IRA and found another job, not as high paying, but my lump sum was equivalent to 17 years of my pension, up front. If I get hit by a train, my family gets the money. Everybody's situation is different, but you should totally understand the math before you make a decision. With the way things are today, I wouldn't trust Xerox or the PBGC to protect your pension.
Excellent, 1yod. Just received my RIGP statement via US mail. Funding barely above 80%. Unless I get laid off very soon it appears lump sum will not be an option for me in the near future and with my age reduction, retiring now isn’t going to happen. Wish I could get unreduced lump sum without IRIF or being 65.
First, I am no expert, second, its complicated...
The Pension Benefit Guarantee Corporation (PBGC) is a Federal, tax-payer paid entity crated to provide some protection of employee retirement income should the sponsoring company of a Defined Benefits (DB) pension plan rule into significant financial strain, typically bankruptcy. There are caps on the income a person covered by a plan that has been taken over by the PBGC. On average, a retiree will receive about 60% of their income from a plan that falls to the PBGC; but that number will vary greatly depending on various factors for both the retiree and the plan.
Xerox right now is not close to bankruptcy, though that may become an issue in 2021 when a majority of the company’s debt. The combination of likely decreases income and the downgrade of Xerox’s debt to junk could be problematic.
Thus, its unlikely that the RIBP plan will move to PBGC before 2021, if ever.
That said, there have been instances of a company declaring bankruptcy before being sold as a way to clear debt, such as pension plans.
Qualified pension plans, such as RIGP, do have some legal protections, especially under ERISA. A company can take certain actions, such as freezing the plan, which Xerox has already done and other ‘administrative’ changes. One big change would be to de-risk the plan, which is basically selling the obligations of a pension plan to a 3rd party, typically an insurer. Xerox has not been able to do so because the plan still offers a lump-sum payment, which makes it too risky for an insurer to bear. Also, PGBC also does not allow for lump-sum payments.
Therefore, I would not be surprised at all if Xerox leadership allows RIGP to fall under 80% funding, which would trigger the elimination of lump-sum payments (I believe the plan has to notify plan participants of this change 6 months after the 80% threshold is crossed). The only reason it has not hit that number yet is due to the $500M that the prior leadership put into the plan at the end of 2017. I can only imagine what Icahn & co. thought of that. I also saw in the recent investors’ day report from Xerox does not show any additional funding to RIGP in 2019 nor 2020. If nothing had changed, RIGP would have been fine for a few years without further funding. But, the chaos around the Fuji/Icahn battle resulted in a run on the plan that has only accelerated with the recently layoffs. One big problem is that under the old severance plan, employees had to wait 6 months until the severance ended before they could take money out of the plan (cash-out or roll-over). Now, as it’s a lump-sum severance, employee can take the money out immediately. Keep an eye out for the 2018 Annual Report when it comes out and for any PBGC filings Xerox makes for a clearer view on this.
RIGP is very close to going under the required 80% level at which lump sum in no longer a corporate obligation. Anyone who wants lump sum should strongly consider getting IRIFed now to avail themselves to lump sum, unless they are willing to roll the dice on PBGC which is itself at risk due to the huge number of US corps pensions going under over the past few years (which is under the radar to most especially politicians but is generally available info).
My take: amateur / novice but a starting point for others to comment. If XRX declares bankruptcy, or cannot satisfy the obligations for pension, the pension guarantee benefits Corp (PBGC) kicks in. For low pension this is a guarantee, but for higher pensions you could see a major reduction. Ask Kodak people on this one.
The current leadership appears to have no concern for employees so I would be contemplating that they will stop the pension contributions as a logical Icahn next step following the holding company announcement, removal of the CTO, and other obvious pre-sale actions.