Lump-Sum Payouts and Annuity Purchase for Kraft Employees

When considering retirement or a job change from Kraft, it is imperative to learn about your eligibility for a lump-sum payment offered by your retirement plan.

When deciding whether or not to take a lump-sum payment, it is essential to plan out the allocation of proceeds you will receive. For those working at Kraft, this money may comprise a significant portion of the financial assets in their possession and may be the only private source of their retirement income. With that under consideration, it may be in your best interest to seek assistance with different retirement options and electing the one best suited for your needs.

The insurance association LIMRA conducted a study of employees retiring, changing jobs, or leaving the workforce with eligibility for a lump-sum payment from their pension plan. The study's purpose was to assist pension companies with developing products and services that help employees preserve their pension benefits. The study includes information on 1,763 employees eligible for a lump-sum payment from their employer's retirement plan: 684 employees who had retired in the past three years, and 1,079 employees who had changed jobs or left the workforce in the past three years.

Size and Growth of the Market

Employees who are eligible for a lump-sum payment from their Kraft-sponsored retirement plan include those who are:

retiring
disabled
changing jobs or leaving the workforce
losing their job due to layoffs or corporate downsizing
participating in a pension plan that is being terminated
beneficiaries of a deceased participant in a pension plan

In 1996, employer-sponsored pension plans made up a total of $336 billion in benefit payments – an increase of 6 percent from 1995 and 31 percent from 1991. Of that amount, an estimated 28 percent ($94 billion) was in lump-sum payments. This amount does not include more than $20 billion that plan participants choose to leave in their plans.

The U.S. Department of Labor found that from January 1993 to September 1994, 940 workers aged 40 and older received a lump-sum payment. Subsequent analysis indicates that this study underestimates the number of people receiving a payment and that it does not include those who were offered a payment but left the money in the plan. It does show that a large number of workers representing billions of dollars have the task of deciding what to do with this money.

The number of employees faced with this decision, as well as the amount of money involved, is not only large but increasing rapidly. Three factors contributing to this rapid increase are:

the growth of defined contribution plans, particularly 401(k) plans.
the growth of participant account balances in defined contribution plans.
the increasing number of persons reaching retirement age early in the next century.

Need for Assistance

As an employee of Kraft, choosing the right pension option can be one of the most important financial decisions you will make. Those eligible for a lump sum payment will have countless options. Their choices will include at least one or more of the following options:

take the money in one lump-sum cash payment
leave the money in the previous employer's plan
transfer the money directly to an IRA
take a cash payment and transfer it to an IRA within 60 days
take the money in installments or purchase an immediate annuity

Each option has advantages and disadvantages. The options have differing effects on household income, tax liabilities, and preserving pension benefits. Not all options create the same estate value or survivor benefits for beneficiaries. Some options create maximum current income but not estate value. Other options create no current income but preserve estate value and spousal benefits.

Employees are strongly discouraged from taking a cash distribution. If they do, they will have to pay Federal and State taxes and if under 59 1/2, may incur a 10 percent penalty. The employee has 60 days to place this money into an IRA or qualified pension plan to avoid income and penalty taxes. However, the employee will not receive the 20 percent refund until income taxes are filed for that year; and, to avoid the taxes and penalty on the amount withheld, the individual must put, within the same 60 days, the equivalent of the 20 percent withheld into an IRA or qualified pension plan. The 10 percent penalty is not imposed if the employee died, became disabled, reached age 59½, or reached 55 in the year his or her employment was terminated. If the employee has a loan from the plan, it will have to repaid.

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Size of Payment

For retirees, the average lump-sum payment offered is $119,200. In addition, nearly 15 percent of retirees have lump-sum payments valued at $250,000 or more. When eligible for a lump-sum payment, the most popular option chosen is to transfer the money to an IRA – 2 in 5 employees choose this option. Approximately 1 in 5 employees leave the money in the employer's pension plan. Another popular option is to take the money in installments or as a series of annuity payments. A cash payment is popular among job changers. Of those taking a cash payment, 45 percent saved some or all of the money.

Where Do Retirees Invest or Save the Money?

For those transferring the money to an IRA or taking a cash payment, the majority invest the money in mutual funds. Other savings and investment products include money market funds, savings accounts, annuities, stocks, and bonds. The competition for these investment dollars is high. No one company has a dominant market share. The five companies with the largest market share have a combined market share of less than 25 percent.

Those placing the money in an IRA show no clear preference for the type of company chosen to service the account. Banks and credit unions are the most popular among retirees, with 27 percent opening their IRA with this type of institution. Mutual fund companies are more popular with job changes – 1 in 3 employees who experienced a job change placed their IRA with a mutual fund company.

Leaving the money in the Kraft-provided pension plan is the easiest option for an employee to choose. Other reasons include:

The plan offers good service.
They want to avoid taxes and penalties.
The plan has good investment performance.
They liked the investment choices.
They would have a larger amount of money.

Sources of Assistance

Kraft plays a critical role of providing information to employees on their options. Over 90 percent of employees felt they received adequate information from their employer. This information includes employer-written materials, employer seminars, and face-to-face meetings with the employer's staff. Another useful source of information mentioned frequently is commercially available written material from bookstores.

Most do not seek the advice of a professional. They rely on either their own analysis or the help of family and friends. If retirees choose to contact a professional, they typically choose a financial planner or independent investment advisor.

Conclusion

Pension companies and employers are only in the early stages of understanding the needs of employees eligible for a lump-sum payment from their pension plan and designing products and services to help these employees. They can play a vital role in assisting employees in preserving their retirement benefits. Pension companies need to be more proactive in providing plan sponsors with necessary tools. One example is a service plan where the company assumes many of the administrative procedures performed by the employer. This service offers the employer the pension company's expertise in advising employers and cost savings. It offers employees access to a full time retirement specialist who works daily with employees in similar situations. In addition, the employer can tailor the services to meet the special needs of its employees.

Notes

Woods, John R., 'Pension Benefits Among the Aged: Conflicting Measures, Unequal Distributions,' Social Security Bulletin, Volume 59, No. 3, Fall 1996
LIMRA estimates approximately 23 percent of persons eligible for a lump-sum distribution leave this money in the employer's plan.
Retirement Benefits of American Workers: New Findings from the September 1994 Current Population Survey, U.S. Department of Labor Pension and Welfare Benefits Administration Office of Research and Economic Analysis, September 1995.
Participants in 457 plans are not allowed to transfer their distribution to an IRA, and cash distributions are only allowed after retirement.
Stable value investments – a type of investment that is only offered within pension plans. Stable value investments – also commonly referred to as guaranteed interest contracts (GICs) – are a popular investment option for participants in defined contribution plans. A stable value investment option offers a return of money invested at a predetermined interest rate.

How does the pension plan offered by Kraft Foods Global, Inc. compare to standard retirement plans in terms of employer contribution allocation, and what specific policies should employees be aware of when considering their retirement options through Kraft Foods Global, Inc.?

Kraft Foods Global, Inc. Pension Plan vs. Standard Retirement Plans: The pension plan offered by Kraft Foods Global, Inc. operates as a defined benefit plan, which allocates employer contributions based on years of service and compensation, ensuring steady retirement income based on a formula. This contrasts with standard retirement plans like 401(k)s, where contributions are often employee-driven and subject to market performance. Employees should understand that the guaranteed nature of a pension provides long-term stability, but they must consider the plan’s specific terms regarding eligibility, vesting, and distribution options.

In what ways do the eligibility requirements for contributions to the retirement plans at Kraft Foods Global, Inc. align with IRS regulations for 2024, and what should employees know about these rules when planning their retirement funds?

Eligibility and IRS Regulations for 2024: The eligibility requirements for Kraft Foods Global, Inc.’s retirement plan align with IRS regulations by requiring one year of service for plan participation, with no minimum age requirement. This is typical for defined benefit plans and is in line with IRS standards for qualified plans. Employees planning their retirement funds should ensure they meet the service requirements and understand that contributions are employer-funded rather than employee-driven, unlike other retirement plans that follow IRS contribution limits(Kraft Foods Global Inc_…).

Considering the defined benefit plan structure of Kraft Foods Global, Inc., how are distributions processed at retirement, and what potential tax implications should employees consider when deciding between a lump sum or annuity option upon retirement?

Distribution Options and Tax Implications: Kraft Foods Global, Inc.’s defined benefit plan offers both lump sum and annuity options for retirement distributions. Employees must carefully consider tax implications: lump sums may be subject to immediate taxation, while annuity payments spread income over time, potentially offering tax advantages. Employees should evaluate their financial needs and tax situation to choose the most suitable option for their retirement(Kraft Foods Global Inc_…).

How does Kraft Foods Global, Inc. ensure the stability and sustainability of its retirement funds, known as the retirement plan funding levels, and what measures are in place to protect employees' interests in case of economic downturns?

Retirement Plan Stability and Economic Downturns: Kraft Foods Global, Inc. ensures the stability and sustainability of its retirement funds through a well-funded pension plan, with funding levels reported at over 100%. This level of funding offers protection against economic downturns, safeguarding employee interests. The company also maintains a significant fidelity bond, providing additional security for plan participants in case of adverse financial events(Kraft Foods Global Inc_…).

What resources are available to employees of Kraft Foods Global, Inc. for financial planning assistance related to their retirement, and how can knowledge of these resources influence their decisions regarding retirement savings and benefits?

Financial Planning Resources: Employees of Kraft Foods Global, Inc. have access to various resources, such as retirement plan summaries and consultations with financial planners. These tools can help employees make informed decisions regarding their retirement savings and benefits, potentially influencing their strategies for maximizing contributions and taking advantage of plan features like early retirement options(Kraft Foods Global Inc_…).

How should employees at Kraft Foods Global, Inc. approach the process for requesting a distribution from their retirement plan, and what specific information is required to expedite this process effectively?

Requesting a Distribution: Employees at Kraft Foods Global, Inc. must contact the plan administrator to request a distribution. Providing accurate personal information, retirement dates, and preferred payment methods is essential to expedite the process. It’s crucial to ensure that all documentation is complete to avoid delays(Kraft Foods Global Inc_…).

How does the participation in the additional retirement plans offered by Kraft Foods Global, Inc., such as the Thrift Investment Plan, benefit employees in the context of overall retirement savings and IRS contribution limits for 2024?

Additional Retirement Plans and IRS Contribution Limits: Participation in Kraft Foods Global, Inc.’s Thrift Investment Plan allows employees to enhance their retirement savings while adhering to IRS contribution limits for 2024. This plan complements the pension plan by offering a defined contribution option, giving employees the chance to maximize their overall retirement savings through a combination of employer contributions and personal investments(Kraft Foods Global Inc_…).

What communication channels does Kraft Foods Global, Inc. provide for employees to ask questions or seek clarification regarding their retirement benefits, and what should employees include in their inquiries to receive detailed answers?

Communication Channels for Retirement Benefits: Kraft Foods Global, Inc. provides clear communication channels through its HR department and plan administrators, where employees can ask detailed questions about their retirement benefits. It’s advisable for employees to include specific details in their inquiries, such as their years of service and expected retirement dates, to receive thorough responses(Kraft Foods Global Inc_…).

How do the overall retirement plan offerings at Kraft Foods Global, Inc. facilitate long-term financial security for employees compared to industry standards, and what unique features should employees leverage to maximize their retirement savings?

Maximizing Long-Term Financial Security: The retirement plan offerings at Kraft Foods Global, Inc. focus on long-term financial security by providing guaranteed income through its defined benefit structure. Compared to industry standards, this approach offers employees a more predictable and stable source of retirement income. Employees should leverage features like early retirement options and understand their full benefit potential to optimize their financial outcomes(Kraft Foods Global Inc_…).

What strategies should employees at Kraft Foods Global, Inc. employ to ensure they remain informed about ongoing changes in retirement planning regulations and plan offerings as they approach retirement, especially in light of any adjustments to IRS rules or company policies?

Staying Informed on Retirement Plan Changes: Employees should stay informed about ongoing changes in retirement planning regulations and company policies by regularly reviewing updates from Kraft Foods Global, Inc. and keeping track of IRS adjustments. Attending company-provided financial planning seminars and consulting with financial advisors can help ensure that employees are well-prepared for retirement, especially as IRS rules or plan offerings evolve(Kraft Foods Global Inc_…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

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