ExxonMobil Retirement Process 2024 Update

Nell Cordick

Hello, my name is Nell Cordick and I am a senior wealth advisor with Bogart Wealth. Welcome to the Bogart Wealth Webinar series. Today, today’s topic is ExxonMobil’s retirement process. For those of you who might be new to our firm, our mission is to help clients achieve financial peace of mind by preserving and maximizing intergenerational wealth.

Nell Cordick

A little background on us. We have over 2 billion of assets under management, working with about 1,300 households. We are a registered investment advisory firm, which means we are an independent fiduciary advisor working in your best interest. We custody our assets at Charles Schwab for your protection. We are a fee only wealth management firm. Bogart Wealth has financial advisors located in McLean, Virginia and Houston, Texas, and we work with clients in numerous states across the country.

Nell Cordick

We have a full operations and financial planning team in our Virginia and Texas offices. We also have- manage our investments in-house and work with a local CPA in Texas to help our clients with their tax preparation needs. We have three offices. Our headquarters located in McLean, Virginia, and two office is located in Houston, one in Gessner and one in The Woodlands.

Nell Cordick

At Bogart Wealth, we believe in educating our clients. Periodically we will do a series of webinars and in-person events. We welcome you to join future webinars to gain additional insight on these and other financial topics. For those of you who work with us, you know that planning is at the heart of everything we do. Most people think that planning is for retirement is just about the investment management piece. But everyone’s situation is different and it is important for us to focus on your goals and manage the issues that are important specifically to you. If you are new to Bogart Wealth and have not gone through our planning process, I encourage you to reach out to one of our advisors or myself, and we can talk specifically about what you and your family are working towards.

Nell Cordick

Today, we will discuss the various stages of the retirement process at ExxonMobil. In each stage, we will discuss your choices and other variables you should consider. We will cover the key components related to separation of service, the considerations for your pension benefit activation, and the considerations related to your Voya distribution. Retirement has really three components when you are thinking of retiring from ExxonMobil.

Nell Cordick

So first of all, retirement per se. At retirement, your pension service is frozen as of the last day that you’re on payroll. Your average pensionable pay is frozen also as of the last day of payroll and your health benefits change from employee to retiree. The second component is commencing your pension. So basically, you also have a choice of choosing your BCD or your benefit commencement date. The value of your pension is based on pension service and pensionable pay as of the last day of payroll and your age as of your BCD. This only matters if you retire prior to reaching age 60. The third component that you need to consider is your distribution of your Voya Savings Plan.

Nell Cordick

So first, let’s discuss separation of service and what is involved there. So, you have three key dates that you have to be aware of. First is you have to request your intent to retire package from benefits. You inform your supervisor in writing of what you expect your last day of work to be. And then you would also use your Tiger Time keeper to input the key dates. You submit your pay in lieu of vacation form, if applicable, and you will receive and return your intent to retire package. You will plan your retirement party and then you will turn in your laptop, badge, mobile devices, etc. upon your last day. But those are key dates to be aware of.

Nell Cordick

So, what is your intent to retire package consist of? Basically, it is primarily related to your pension benefit, but it also contains your health benefit information and but it cannot be used to change health benefits. So, when you are doing your intent to retire package, you will complete your forms. You will select lump sum versus annuity. If it’s an annuity, you will also select your tax withholding. If it is a lump, sum you will you will select your IRA custodian. It’s important to have your advisor verify the information that you put on these forms. It’s important that you read the tax disclosure. And basically, there will be three places that you will need to notarize. For, that are there in accordance. An additional one if it is supplemental and one fewer if you are single. If not returned at least 31 days prior to the BCD that you requested. The pension benefit will be delayed upon arriving for you.

Nell Cordick

Basically, here at Bogart Wealth, we will create a retirement roadmap for you that basically lays out, based upon your BCD, what needs to occur at specific dates. And that’s important to just be aware of all of the specific dates that you have to adhere to. So, with your retirement roadmap, we will help work that through for you. But there are certain key dates that you need to be aware of. Basically 90 to 120 days out you need to give notice to your direct supervisor. That would inform them in writing of your last day on payroll. Your first day of retirement and your benefit commencement date. Now, the benefit commencement date can be delayed based upon if you want it to delay taking your lump sum.

Nell Cordick

You will then receive an intent to retire package. With this package, you will review and complete all of the forms, have it reviewed, and have it notarized where applicable. You would return it at least 35 days in advance of your BCD, and then you would within that time frame. You would then change your medical plan payment method on the benefits website. 1 to 2 days within arriving at your BCD in your lump sum rollover check will be delivered to you via mail.

Nell Cordick

You would then also receive your supplemental pension check will be mailed to you. And then basically, we will provide a label for you to be able to send that check directly to us to be able to deposit into Charles Schwab, or you can hand-deliver it to our offices directly. And then we would certainly be meeting with you during that time, quite regularly, to discuss other aspects that will need to occur after the lump sum check has arrived.

Nell Cordick

Basically 5 to 10 days after your retirement. We will then meet with you to discuss exactly how you want to manage your Voya plan. You have lots of options which we will discuss in greater detail, but you would be discussing ‘ How do you want to use your NUA shares? How do you want to use your IRA shares? What is your after-tax amount and to discuss what are what will be your options that you want to do with your Voya Savings plan?

Nell Cordick

And then 10 to 15 days after that, we can absolutely meet to roll over your Voya plan. Basically, the check if you decide to- whenever you decide to roll over your Voya plan, the check will arrive usually within 10 to 15 days. The IRA shares will go through Computershare, and then we will transfer them into Charles Schwab as well as your NUA shares as well. And then basically, we will subsequently be updating your cost basis on your NUA shares.

Nell Cordick

The second thing that we would discuss is your pension benefit. So should I retire now or delay the lump sum. So first of all, when do you consider delaying the pension? Number one is if you don’t need the money right away. Number two is if you’re retiring before age 60. And number three, taking the lump sum, but you expect that interest rates will fall in the future.

Nell Cordick

What is the impact of interest rate changes on the lump sum? It can be quite dramatic. And that is one thing that we will work with you very closely on, beginning prior to when you expect to break service as well as afterwards. Basically, a single rate equivalent, in terms of if you were to retire in Q2 of 2024 at age 60, would mean that your lump sum of about $1 million would happen. If we are assuming that that is your lump sum at that particular time? Basically, if there is a 1% movement in the interest rates, it will cause a 10% change in your lump sum. Fairly linear. So, we’re very careful to be watching those interest rates and those interest rate projections very carefully.

Nell Cordick

So which discount rate applies to me? The general rule is that the rate in effect on the benefit commencement date, the BCD, BCD is always the first of the month. For example, to get the second quarter discount rate of your BCD must be June 1st at the latest. If you are grandfathered and you chose the first available BCD, then you have the option of choosing interest rate in effect on the first day of retirement. The first day of retirement is the first calendar day after the last day on payroll. What does grandfathered mean? Basically, to be grandfathered, you have to be born before 1958 and hired before 1998, which would mean that now you are at least 66 years old with it, with at least 26 years of continuous service. And basically, if that were the case, you would use 95% of the 30-year Treasury bond. Round it to the nearest quarter percent.

Nell Cordick

All others are subject to the PPA in 2006. So that would mean those who are under 50 or less than ten years of service as of December 31st, 2007. The new pension plan rules apply. You will use three segmented rates based on high quality corporate bond yields. And basically, higher yields mean a lower lump sum. So, you typically would rather, if at all possible, to be in a lower interest rate environment will be more beneficial.

Nell Cordick

In terms of these two slides basically just depict what the, historical discounted interest rates have been. The third area that we want to talk about is your savings plan distribution. So why would you roll over your savings plan? Number one is you want to have access to your money. If you leave it at Voya, you are limited to the number of withdrawals that you can do per year. Secondly, having professional management is an advantage. Third is reduced stress of you having to watch it. Fourth, you have greater choices. You have more investment options. Fifth, the fixed income options are greater by rolling it over than they are left in the Voya plan. The ability to use any way to create cash flow is an advantage, and the potential to generate income using covered calls for your ExxonMobil shares is an advantage.

Nell Cordick

What is the process- What does a savings plan distribution look like? So basically, if you were moving over the entire plan, it would be called a lump distribution. You would first think about what is the ExxonMobil stock. So that would come across as is in in shares. And within the ExxonMobil stock, you would have two buckets that it would go into. It would go into the NUA shares or the IRA bucket. We’ll go into- and we educate you on all of these in greater detail. The other cash that’s left in the account is really divided into two, two buckets. You would have, your, any after tax accounts would go either into cash or a Roth. And the remaining of the before tax accounts would go into an IRA.

Nell Cordick

What is NUA? It is net unrealized appreciation. There are very few companies who offer the benefit of NUA. But ExxonMobil is one of those companies. Basically, it allows you to take money from your savings plan and move part of your shares into an after-tax account, and that’s called your NUA share account. The rest of your shares would stay in the IRA. So why is it a big deal? Basically, it’s giving you the opportunity to move assets from a qualified plan to a non-qualified account. Now what you have to be aware of is it only applies to ExxonMobil stock. It can include stock received as a company match. And you can choose which dollar range of shares that you want to use. It must be part of a lump sum distribution from your 401k. And there’s certain time restrictions. It has to be the first distribution since a qualifying event. Those qualifying events are separation of service from age 55 to 59.5. The second qualifying event is actually attaining the age of 59.5. And the third is disability. You must remove everything from the 401k. Anything that you do not take as NUA would be rolled into an IRA. There must be nothing left at the NUA at the end at- excuse me in the 401k at the end of the calendar year.

Nell Cordick

The benefits. Why would you do it? So, it will avoid having to take RMDs on the money that you move out. Required minimum distributions. It also allows you to pay a long-term capital gains tax rates on the NUA shares versus ordinary income, which in most cases would be advisable. You’re only allowed to use NUA tax rules if you distribute the employer securities as part of the lump sum distribution. It is a one-shot deal. Distribution of your entire balance within a single year, and it must be the first distribution after you reach 59.5, or as a result of your separation from service after 55, disability or death.

Nell Cordick

So, the tax treatment. If you leave it in the 401k or the IRA, it is taxed as ordinary income. If you take advantage of NUA and move the shares out of the IRA, the cost basis is taxed as ordinary income. But the gain on those shares is taxed at long term capital gains rates. So, an example. If you had $500,000 worth of ExxonMobil shares that you wanted to utilize for NUA purposes, if you leave it in the 401k, $500,000 would be subject to ordinary income. If you move it into NUA, 50- hypothetically, $50,000 is the tax is the cost basis with $450,000 being the gain, which will be taxed at a lower tax rate.

Nell Cordick

This is a chart that really just shows you the difference in ordinary income tax rates versus capital gains rates. So, it is definitely an advantage to be in the lower rate structure. Now regarding your savings plan rollover, key components as you’re making the consideration of what the right timing is to do your rollover. Cash flow planning is critical. You must review questions before your call, review your NUA plan to see how that affects your total cash flow. Review tax issues. Review your estate plan issues. Review your investment plan and only do it after you’re completely clear on all of your options. Because it is a there’s no do over after you’ve done it. And then basically the process is a phone call into the plan custodian. And it’s a very easy process. We actually are on the call with you. We discuss exactly how many NUA shares, what the rollover is, if they’re any other after-tax dollars. We address all of those. And you definitely want to have an advisor on that call with you when you do the roll over from Voya.

Nell Cordick

So, to recap, we’ve talked about separation from service, pension benefits and savings plan distribution. So how does that all interact? It is very important to consider your entire picture as you’re making these decisions. And that is what we believe we can assist you with as you’re going through this process. Your plan must- look at everything. And your plan is different from the person who’s sitting next to you. You want to take into consideration taxes. You want to understand risk management and your tolerance for risk. You want to understand your estate plan. What is your investment picture look like? What is your time horizon? What are your cash flow needs? What are the market forces? What new laws could be into effect? All of these are considerations that you need to look at as you’re making these decisions.

Nell Cordick

And basically, we would like to work with you on doing your analysis. We do it extensively. We are looking at retirement planning cash flow both today into the future. We’re looking at annuity versus lump sum analysis. We’re looking at an NUA analysis, portfolio evaluation, portfolio risk analysis, personalized asset allocation, Roth IRA analysis, insurance analysis, long term care analysis, and social security optimization. All of these factors have an effect on your long-term retirement picture.

Nell Cordick

So as your advisor, we think that it’s very important that we are all of our advisors are certified financial planners. It is important that we know your financial plan. It’s important that we understand the IRS rules. It’s important that we understand what different business cycles can look like. And it’s important that we have experience in managing portfolios. We think that it’s important to discuss and have open dialog on various strategies. We want to make sure that we’re providing financial planning based on your needs and risk tolerance, and that we are providing regular portfolio performance reporting, and that we always speak in a way that that is easy to understand, and gives you additional guidance.

Nell Cordick

We welcome the opportunity to have a one-on-one financial strategy session with you. There is no cost or obligation to do this. We do think that we can add value for you as you are making these decisions that affect your financial future. This is just a little bit of a slide, a little bit of where our offices are located. And in addition, we do have the contact information in your email of how to actually go on for making an appointment with us. We do thank you for your time today and for joining us.