Interest rates for ConocoPhillips employees were just released, and many employees will see a significant reduction in the value of their lump-sum. When interest rates move up or down, an employee’s pension lump-sum amount will move in an inverse relationship (except for Cash Balance pension lump sum payouts). ConocoPhillips interest rates have increased by nearly 1% (in the second segment, which is the most impactful) for those who begin commencing their benefit in the third quarter of 2022. When rates increase by 1% employees will, on average, see a 10% reduction in their lump-sum. Which means an employee with a $1,000,000 lump-sum could lose $100,000 by retiring in Q3 2022, instead of Q2 2022.
Most employees fall under the Phillips Retirement Income Plan (Title I), the Retirement Plan of Conoco (Title IV), The Burlington Resources Inc. Pension Plan (Title VI), or the ConocoPhillips Cash Balance Plan (Title II). However, there are 8 total pension plans at ConocoPhillips and which plan an employee belongs to determines how their lump-sum is impacted by rising rates.
Video Link: https://www.youtube.com/embed/SYRhdMKicmc
Considering the fact that Titles I, IV, and VI are very sensitive to fluctuating interest rates, The Retirement Group has set out to keep employees informed on any changes which could help individuals potentially increase their pension benefit when they leave ConocoPhillips.
Interest rates dropped dramatically during the pandemic, which prompted an increase in lump-sum payments, culminating in record highs for individuals who commenced their benefits in Q2 of 2021. However, rates have increased in the time since then, causing pension lump-sums to drop in value.
The Retirement Group is now offering a complimentary cash flow analysis to show ConocoPhillips Employees how various retirement dates will affect their benefit. The Retirement Group states on their website that one of the biggest mistakes ConocoPhillips employees make is retiring on the wrong day in a rising interest rate environment. The cash flow analysis lays out a ConocoPhillips employee’s options for when they can retire, and how their benefit will be affected if they retire on certain dates.
The Retirement Group also has a webinar series for ConocoPhillips employees which discusses interest rates & inflation. While inflation does not directly affect an employee’s lump-sum, it can be detrimental to both pension options. Inflation often leads to a rise in interest rates which, as discussed earlier, reduces lump-sum values. Inflation can also reduce the value of an employee’s annuity payments. The annuity is a fixed payment, meaning it is not adjusted for rising inflation. Therefore, if inflation were to rise by 10%, a fixed annuity payment becomes 10% less valuable.
With interest rates rising significantly over the past few months, The Retirement Group suggests that ConocoPhillips employees discuss their options with an advisor. These advisors monitor the interest rates and can keep employees up to date on any changes which may impact their retirement plans.
The Retirement Group states on their website that no matter how attractive the pension lump sum looks, it is important to remember the annuity option may be a better fit for certain individuals. Every situation is unique, and a cash flow analysis will allow employees to compare all pension options.
Disclosure: The Retirement Group is an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call the office at 800-900-5867 for additional questions or for help in the retirement planning process. The Retirement Group is not affiliated with, nor endorsed by ConocoPhillips.
Securities offered through FSC Securities Corporation (FSC) member FINRA/SIPC. Investment advisory services offered through The Retirement Group, LLC. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Office of Supervisory Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121. ConocoPhillips is not affiliated nor endorsed by The Retirement Group or FSC Securities.