Wow, I have a pension! I never expected anything to come out of Intel’s pension plan so it’s nice surprise. It’s a small pension, but it’s better than nothing. The way it works is if Intel’s 401(k) contribution and social security isn’t enough to support your retirement (based on your final pay), then they would kick in the difference. You also have to work there long enough for the pension to be vested. I’m not exactly sure how long this is. I guess it is 7 years, the same as the profit sharing plan (Intel’s contribution to 401k.)
Here is the excerpt taken from the Intel’s retirement plan.
The Pension Plan in SERP is a so-called “floor offset” pension plan, which provides pension benefits in the event that an employee’s Profit Sharing Plan account balance does not offer a minimum level of retirement income as determined by a pension formula based on final average pay, Social Security covered compensation, and length of service upon separation not to exceed 35 years. If the Profit Sharing Plan account balance does not provide a minimum level of retirement income, the Pension Plan makes up the difference. The Profit Sharing Plan balance for each of Intel’s executive officers is above this minimum, so none of those individuals would receive any payments from the Pension Plan if they retired today.
I’m sure there are some complicated projections going on at Fidelity (the trustee.) The employer contribution portion of my 401(k) came out to about $145,000 after 16 years. I’ll share all the details of my 401(k) rollover in my next post. $145,000 is a lot of money, but there is no way it would support a retirement. I guess the key phrase above is “determined by a pension formula based on final average pay.” My final pay is in the low six figures and the formula probably calculated that I would need more money to live on than social security + $145,000 can provide.
Anyway, I’m sure you’re curious about exactly how much pension I would get.
Here are the numbers.
My pension benefit is $355.99. It is payable as a monthly Single Life Annuity in 2039 when I turn 66.
If I changed the benefit commencement date to 12/01/2012, then the benefit is reduced to one of these options.
1) Lump Sum payment: $9672
2) Single Life Annuity: $47
3) 50% Joint & Survivor Annuity
- To me: $44
- To Mrs. RB40: $22
4) 100% Joint & Survivor Annuity
- To me: $41
- To Mrs. RB40: $41
As you can see it’s not much if I take the benefit right now. Here are my choices.
- Take the lump sum and roll it over to an IRA. I like this option because I will gain total control of the pension. An IRA would be much easier to keep track of and factor into my portfolio balancing. Who knows what will happen to this pension plan if Intel doesn’t do well in the next 20 years. The Fidelity rep. told me even if Intel goes out of business, I would still get 40% of the benefit. I guess this is insured somehow.
- Cash out and buy the awesome SONY 84” LED TV or go on a nice beach vacation! OK, the 84” TV cost $25,000 so I would have to kick in quite a bit more. That’s not going to sit well with Mrs. RB40. It probably doesn’t fit on our living room wall anyway. Also, I would have to pay a 10% penalty to the IRS similar to cashing out an IRA.
- Take the $41/month. This is peanuts, but anything helps. I guess we can go out one extra time a month or maybe I can invest this in the stock market. It’s hard to get excited about $41 though.
- Wait 26 years until I’m 66. The benefit will be $356/month then. This is a long time to wait and in 26 years, $356 can probably only pay for a nice dinner out. I ordered a projection for 5 years and 20 years out and the results will come back in a month or so. I’ll be able to make a better decision once I see the actual numbers.
From what I see so far, I’m heavily leaning toward taking the lump sum and rolling it over to an IRA. I guess I’m a bit of a control freak and I want to be responsible for this pension rather than trusting Intel and Fidelity. The other options are not really attractive to me. $41 is too small and I don’t want to wait 26 years for the full annuity especially with the uncertainty of how Intel will do over the long run.
What would you do in my place?
Photo credit: flickr Benson Kua