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ExxonMobil Pension Plan Changes (Effective January 1, 2024)

ExxonMobil quietly announced changes to the pension payment choices; removing some of the least used choices.  Less choice can be unsettling; so, clients have been asking our opinion. 

The first thing to say is:  you still have more choices now compared to 10 years ago.  So, what we see is a situation where more choices were offered; some of the new choices were not popular and have been removed. 

What stays the same is a great pension plan.  In particular:

  1. The basic pension formula is unchanged, that formula has always been based on a single-life annuity with a 5-year certain period.
  2. The ability to take the annuity over two lives (“joint annuity”) rather than a single life, with an actuarial adjustment to keep the lifetime value the same.
  3. The ability to take 100% lump sum, calculated to be actuarially equivalent to the single life annuity.

In addition to these basic choices, there have always been other choices for those taking the annuity.  In recent years these included:

  1. The joint annuitant does not have to be a spouse; the
  2. A 50% joint annuity – if survivor is not the retiree, then survivor receive only 50%
  3. A single-life annuity with an extended period certain of 10 years
  4. A 50% lump sum, with the other 50% being an annuity with any of the annuity choices above.

All those choices remain.  So, what has changed? 

Specifically, what is no longer available:

  1. A 25% joint annuity – where, if the surviving spouse is not the retiree, they receive only 25%.
  2. Single life annuity with an extended period certain of 20 years.
  3. A partial lump sum of 25% or 75%, with the remaining paid as annuity.

The partial lump sum choices were only added 5 to 10 years ago.  They were added to encourage more people to take at least some of the pension in the form of an annuity.  Clearly, in the many years when the choices were all or none (100% lump sum or 100% annuity), the vast majority of people chose 100% lump sum.  Since the partial annuity choices were added, the vast majority still choose 100% lump sum.  The next most popular choice is 50% lump sum.  This choice remains. 

Offering 4 choices when most people are interested in only one of them requires 4 times as many pension calculations.  Also, it probably confuses more people than it enlightens.  So, people will see a benefit statement that is easier to read. 

That’s all we have to say about changes.  If you are still reading, you might want to know more about your pension plan.  Let me say:  glad you asked.

ExxonMobil has both a defined benefit plan (which we are discussing here) and a defined contribution plan (The Savings Plan, also called the 401(k) plan), which we are not discussing today. 

A defined benefit plan promises a specified monthly benefit at retirement.  The retirement benefits provided by a defined benefit plan are typically based on some kind of formula that considers factors like your time with the company, your salary and your age. 

ExxonMobil offers an annual payout equal to 1.6% of your “average pay” for each year you are with the company.  Doing the math, after 20 years you see an annual benefit equal to nearly a third of your salary.  After 30 years this is nearly one-half.  After 40 years it replaces almost 65% of your salary.  You do not have to retire from the company to get this benefit.  After 5 years, it’s a vested benefit.

There are not that many defined benefit plans around anymore.  As of 2021, only 11% of U.S. employee participated in a defined benefit plan at all.  That number has been declining for many decades. 

That “average pay” mentioned above; ExxonMobil calls that “pensionable pay”. Pensionable pay is the average of the highest 36 consecutive months out of the last 10 years.  This is usually the last 36 months, but it protects someone who was injured and worked restricted duty for a period prior to retirement.  Pensionable pay is expressed in monthly income and that means the base pension benefit is expressed as a monthly benefit.

As with most defined benefit plans, the ExxonMobil plan is “integrated” with Social Security.  An integrated pension plan is an employer-based pension plan in which Social Security is counted as part of the employees’ total benefits.  The logic of Social Security integration is that the employer paid into Social Security just as much as the employee; it was a 50/50 deal on taxes paid for Social Security every paycheck.  So, the employer should be able to account for their part of that Social Security payout.  In other words, in some cases, the employer can reduce the pension benefit by as much as 50% of the employee’s anticipated Social Security benefit. 

As you might know, a retiree’s Social Security benefit is based on their highest 35 years of earnings.  So, how do you do adjust for that?  The ExxonMobil plan uses a common strategy.  The Social Security “offset” is: 

SS Offset = 1.5% x [years of service, but not more than 33.3333 years]

This formula ensures that the offset is never more than 50% of the Social Security benefit. 

The “vested benefit” of an ExxonMobil employee is the “base pension benefit” minus the “SS offset”.  The form of the benefit is a monthly annuity starting at age 65 and continuing for the life of the employee.   Alternative methods of taking the benefit are available.  The alternatives available depend on several factors, the most important being whether the person is “retirement eligible”.A person becomes retirement eligible when they are *at least* 55 years old and have *at least* 15 years of service. 

If a person takes the benefit before age 65, they usually receive less than 100% of the “vested benefit”.  Below shows a part of the table of discounts, just to give a feeling for the significant difference between those who are retirement eligible (“retirees”) versus those who are not retirement eligible “terminees”. 

AgeRetireeTerminee
65100%100%
60100%60%
5575%38%

The full table can be found here:  https://www.exxonmobilfamily.com/en/finance/pension/receiving-your-pension-benefit

As mentioned above, there are alternatives to the single-life, monthly annuity.  These are outlined here: https://www.exxonmobilfamily.com/en/finance/pension/payment-options 

Note that the internet site includes options that will not be available in 2024 and thereafter.

The next most popular question we get is to explain how the lump sum is calculated from the annuity, and how interest rates factor into all of this.  We have a webinar on that topic. Here is a link to the most recent one from April 2023:  https://bogartwealth.com/video/discount-rates-exxonmobil-lump-sum-may2023/

Bogart Wealth offers retirement planning services in Houston, Texas, and McLean, Virginia. We’ll learn about your long-term goals and help map out your finances, ensuring your retirement strategy aligns with your retirement ideas. Contact Bogart Wealth for more information on our intelligent retirement planning services.


IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Bogart Wealth is not affiliated with ExxonMobil; the content of this commentary has not been written or endorsed by ExxonMobil. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.com. Please Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

IMPORTANT DISCLOSURE INFORMATION:
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level (s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at bogartwealth.com


Please Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.
Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

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