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What is it?
In today's corporate environment, where cost-cutting, restructuring, and downsizing are the norm, many employers are offering their employees early retirement packages. We find it important to prepare our Frontier Communications employees, should this situation come up for them. As you near your retirement from Frontier Communications, you may find yourself confronted with an offer from Frontier Communications for early retirement. Frontier Communications may refer to the offer as a golden handshake or a golden parachute. While many early retirement offers seem attractive at first, it is important that should this come up, Frontier Communications employees
review the offer carefully
before accepting it to ensure that it is indeed a golden' opportunity.
Typical elements of an early retirement offer
In general
An early retirement offer usually consists of severance payments and post-retirement medical coverage coupled with already existing retirement benefits.
Severance payments
Severance payments are usually based on your salary and the number of years you have worked with Frontier Communications. Severance payments can be distributed in either a lump sum or over a number of years.
Example(s): John has 30 years of service with the local utility company, and grosses $1,400 per week before taxes. When John reaches age 57, his employer offers him an early retirement package. The package includes a severance payment based on two weeks' salary for each year that John worked for the company ($2,800 x 30 = $84,000).
Caution: In certain cases, severance pay is considered 'deferred compensation' subject to the requirements of IRC Section 409A . Ask Frontier Communications if your severance package satisfies Section 409A. If it doesn't, you could be subject to a 20 percent penalty tax.
Post-retirement medical coverage
Because of the high cost of medical care, you might find it hard to turn down an early retirement package that includes post-retirement medical coverage. These packages usually provide medical coverage until you reach age 65 and become eligible to receive Medicare . However, some packages continue to provide full or reduced medical coverage past the age of 65.
Bridging
Another type of early retirement offer is the Social Security 'bridge payment.' In this scenerio, Frontier Communications would provide you with temporary benefits to bridge the period between early retirement and the time when your Social Security benefits are scheduled to begin. The temporary benefits are usually equivalent to the amount you will receive from Social Security at age 62.
Example(s): John, age 57, works for a local utility company. The company offers John an early retirement package that includes five years of temporary benefits. These temporary benefits are equivalent to the amount that John will receive from Social Security at age 62. The benefits serve as a 'bridge' between the period of John's early retirement, age 57, and the period when he becomes eligible for early Social Security benefits at age 62.
Evaluating an early retirement offer
In general
The decision of whether to accept an early retirement offer is not an easy one to make, which is why we want to make sure our Frontier Communications clients are prepared, should this situation arise. Frontier Communications's personnel department may, potentially, provide either individual or group counseling to guide you during this important decision-making process. If counseling is not available, you should speak to the person in charge of employee benefits at Frontier Communications. Find out what amount you can expect to receive each year after you retire from Frontier Communications. Then, figure out the difference between what you would collect if you retire early and the amount you would earn if you continue working. Because they're often the numbers used by employers to calculate how much money you're going to receive, be sure that Frontier Communications has your correct date of birth and starting date of employment.
Tip: If you choose to accept an offer for early retirement, some companies may pay (in the form of a bonus) all or part of the difference between what you would collect if you retire from Frontier Communications early and the amount you would earn if you were to continue working with Frontier Communications.
Caution: Frontier Communications employees should consider discussing their situation with an attorney and/or financial professional. Although a company-paid consultant may provide valuable information, they may not necessarily be acting in your best interest.
Tax/retirement plan implications
If you accept an early retirement offer, you should be aware of any possible tax implications. Defined benefit plans often contain provisions that reduce your monthly benefit when you begin distributions before a certain age. As a result, early retirement can result in lower monthly retirement benefits. Taxable distributions from potential Frontier Communications-sponsored retirement plans (such as 401(k)s) and traditional IRAs are generally subject to a 10 percent premature distribution tax if made before age 59½. However, we'd like to make our clients from Frontier Communications aware that there are a number of exceptions to this rule. One important exception is for distributions made from 401(k)s and other qualified plans as a result of separation from service in the year you reach age 55 or later (age 50 for qualified public safety employees participating in governmental defined benefit plans). Another important exception from the 10 percent premature distribution tax is for substantially equal periodic payments (sometimes called SEPPs). Substantially equal periodic payments are amounts you receive from your IRA or qualified retirement plan not less frequently than annually for your life (or life expectancy) or the joint lives (or joint life expectancy) of you and your beneficiary. There is no minimum age requirement for this exception, but distributions from qualified retirement plans are eligible for the exception only after you separate from service.
Provided that you're over age 59½ or meet one of the exceptions, you can take penalty-free withdrawals from your account/plan. However, you may still have to pay income tax on all or part of the withdrawal. Distributions from potential Frontier Communications-sponsored plans are usually taxable since contributions to most of these plans are made on a pre-tax basis (although qualified distributions from Roth 401(k)s and Roth 403(b)s are free from federal income taxes). IRA distributions may or may not be taxable, depending on whether or not the contributions you made to the account were tax deductible. Roth IRAs are subject to special rules of their own.
Tip: While withdrawals from an IRA or retirement plan can be a valuable source of retirement income, the need for current income should be weighed against issues such as: (1) the desire to defer income tax for as long as possible, (2) the desire to preserve the assets for your beneficiaries, and (3) the possibility that, with life expectancies on the rise, you may live into your 80s or 90s and may, therefore, need to draw on those retirement assets for a long period of time.Consequences of saying no to an offer
If Frontier Communications provides you with an offer to retire from Frontier Communications early and you're thinking about turning down the offer, it's important for Frontier Communications employees to be aware of the consequences. If you're holding out for a better offer, keep in mind that the first offer is oftentimes the most generous. Also, if you think there is a good chance you might be let go anyway further on down the road, you may want to accept a sure thing right away rather than face the uncertainty of Frontier Communications's future plans.
Consequences of saying yes to an offer
In general
After careful consideration, you may find that retiring early from Frontier Communications is the way to go. However, before you jump right into retirement, you'll want to be aware of the consequences of saying yes.
Less time to save for retirement
If you accept an offer to retire early, say at around age 55, you could be giving up 10 years or more of saving for retirement from Frontier Communications. Less time to save means you will have fewer savings available during your Frontier Communications retirement.
Example(s): John saves $700 a month in a tax-deferred retirement plan at a 7 percent annual return for 20 years. At age 55, his retirement savings will have grown to approximately $366,780. If John leaves that money in his account for another 10 years and earns the same 7 percent annual return, even without any additional contributions his savings will grow to approximately $737,100. If John keeps contributing for the additional 10 years, his retirement savings could be even more. (This is a hypothetical example, and is not intended to reflect the actual performance of any specific investment, nor is it an estimate or guarantee of future value. Investment fees and expenses have not been deducted; if they had been, the accumulation totals would have been lower.)
Retirement savings will have to last for a longer period of time
A lower retirement age, coupled with generally increasing life expectancies, can result in your retirement years making up one-third of your total life span. In other words, you could spend as many years in retirement as you did in the workforce. Your retirement savings will have to last for a longer period of time than if you had retired from Frontier Communications at the normal retirement age. In addition, Frontier Communications employees should consider the effect of inflation, which could eat away at the purchasing power of your retirement savings.
Your pension may be smaller
If you participate in a traditional defined benefit plan , also known as a pension plan, accepting early retirement could result in a smaller pension. If applicable, Frontier Communications employees should determine whether it is more valuable to have a smaller benefit over a longer period of time rather than a larger benefit over a shorter period of time. Generally, defined benefit plans are based on two factors: (1) length of service, and (2) salary during your highest earning period. If you retire from Frontier Communications early, your years of service are reduced. In addition, most employees' highest earning period occurs just before retirement, so early retirement can force you to give up your highest earning period. Furthermore, many companies impose early withdrawal penalties that can equal 5 to 7 percent of your pension for each year that you retire early.
On the other hand, employers sometimes sweeten early retirement packages, increasing your pension benefit beyond what you've earned by adding years to your age, length of service, or both, or by subsidizing your early retirement benefit or your qualified joint and survivor annuity option. These types of pension sweeteners are key features to look for in Frontier Communications's potential offer--especially if a reduced pension won't give you enough income.
Psychological impact
In addition to determining whether or not you have the financial resources to retire from Frontier Communications, you should also consider the psychological impact of retiring early. One of the first questions that you need to ask yourself is: Am I really ready to retire? Early retirement thrusts you into a lifestyle change that you may not have expected to encounter for another 10 to 15 years. You may find it difficult to adjust from a working environment to a relaxed, laid-back lifestyle. While many people will find it easy to adjust to a lifestyle that includes vacations and golfing, others may have a hard time dealing with all the free time.
Fortunately, there are ways for people who have a difficult time coping with this sudden change in lifestyle to ease themselves into retirement. Not only can a part-time job provide you with extra cash, but it can also help keep you busy.
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Career counseling
What if you can't afford to retire? Finding a new job
You may find yourself having to accept an early retirement offer, even though you can't afford to retire. One way to make up for the difference between what you receive from your early retirement package and your old paycheck is to find a new job, but that doesn't mean that you have to abandon your former line of work for a new career. You can start by finding out if your former employer would hire you as a consultant. Or, you may find that you would like to turn what was once just a hobby into a second career. Then there is always the possibility of finding full-time or part-time employment with a new employer.
If you have been out of the job market for a long time, you might not feel comfortable or have experience marketing yourself for a new job. Some companies provide career counseling to assist employees in re-entering the workforce. If your company does not provide you with this service, you may want to look into outplacement firms and nonprofit organizations in your area that deal with career transition.
Caution: Many early retirement offers contain noncompetition agreements or offer monetary inducements on the condition that you agree not to work for a competitor. However, you should be able to work for a new employer and still receive your pension and other retirement plan benefits.
Retirement planning issues
Medicare--age 65
Even though you can receive early Social Security retirement benefits, you are not eligible for Medicare benefits until age 65. If your potential early retirement package does not include post-retirement medical coverage, you may have to look into alternative methods of obtaining health benefits, such as through COBRA (Consolidated Omnibus Reconciliation Act of 1985) or private health insurance, until you are eligible to begin receiving Medicare benefits.
Social Security--age 62
If you accept an early retirement offer, you'll want to consider applying for early Social Security retirement benefits. The Social Security Administration allows any individual who is eligible to receive Social Security benefits at the normal retirement age the option of receiving benefits beginning at age 62. However, if you decide to receive Social Security benefits before the normal retirement age, the benefits you receive will be reduced.
Tip: If Frontier Communications provides an early retirement offer and you choose to accept, you are not required to begin receiving early Social Security retirement benefits before the normal retirement age.
Can you afford to retire early?
Whether or not you have the financial resources to retire from Frontier Communications early depends on how much you have in retirement income and how much you plan to spend when you retire. Your early retirement income includes your early retirement package (severance payments and retirement benefits), Social Security (if you receive benefits before the normal retirement age), personal savings and investments, and wages (if you work after early retirement). To determine how much you will spend, you must estimate your annual living expenses for early retirement.
It is important for Frontier Communications employees to note that annual living expenses during early retirement are likely to differ from expenses later in retirement. During early retirement, you may find yourself still paying off a mortgage, funding your children's education, and paying for medical coverage. The worksheets that follow can help you to estimate your potential early retirement income and living expenses, and determine whether or not you can afford to retire early from Frontier Communications.
| Annual Early Retirement Living Expenses | |
| Housing (mortgage, rent, homeowners/rental insurance, maintenance, furnishings, property taxes) | $ |
| Utilities (electricity, heat, water, phone, cable) | $ |
| Transportation (car payments, insurance, gas, repairs, etc.) | $ |
| Food | $ |
| Insurance (medical, dental, disability, life) | $ |
| Taxes (Federal/State income taxes, Social Security if you plan on working after early retirement) | $ |
| Education | $ |
| Clothing | $ |
| Travel and recreation | $ |
| Debts (loans, credit card payments) | $ |
| Gifts (charitable, personal) | $ |
| Savings and Investments | $ |
| Miscellaneous | $ |
| TOTAL | $ |
Caution: If your early retirement package does not include medical coverage, remember to calculate the cost of health care into your early retirement living expenses.
| Early Retirement Income | |
| Early retirement package (severance payments, retirement benefits) | $ |
| Social Security (if you receive your benefits before normal retirement age) | $ |
| Personal savings and investments | $ |
| Wages (if you work after early retirement) | $ |
| TOTAL | $ |
Tip: When you estimate your early retirement living expenses and income, it is important to consider inflation, which has historically averaged three percent annually.
Financial concerns
Loss of health insurance
If your potential early retirement package does not include Frontier Communications-paid health benefits, you still may be eligible for health insurance through COBRA . You are entitled to COBRA coverage if you work for a company that provides employees with a group health plan and has 20 or more covered employees. COBRA allows you to pay for your health insurance at the same rate your company pays, plus a small administrative fee. COBRA coverage generally lasts up to 18 months from the date of retirement, and does not require you to qualify for coverage or worry about pre-existing conditions. Once your COBRA coverage runs out, you will have to purchase private insurance if you want to continue health insurance coverage until you are old enough to qualify for Medicare coverage.
Reduction in Social Security benefits
Your Social Security benefits are based on what is known as the primary insurance amount (PIA). The PIA is based on your average indexed monthly earnings (AIME). If you retire from Frontier Communications at the normal retirement age (see the following Social Security Administration table), your monthly benefit will be equal to your PIA. However, if you receive your Social Security retirement benefits early, your monthly benefit will be less than your PIA.
| Age for Receiving Full Social Security Benefits | |
| Year of Birth | Normal Retirement Age |
| 1943 - 1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
If you elect to receive Social Security retirement benefits early , you can receive more benefit checks than if you retire from Frontier Communications at normal retirement age. While this might seem profitable, you will suffer a permanent reduction in your monthly benefits. The reduced benefit is based on a deduction of approximately 5/9 of 1 percent (.0056) for each month you receive benefits before the normal retirement age up to 36 months, and a deduction of 5/12 of 1 percent thereafter. Your total lifetime benefits would remain the same based on standard life expectancy assumptions. However, your benefits are spread out over a longer period of time, which results in lower monthly benefits.
Example(s): Mary retires from the local utility company at age 62, and elects to receive her Social Security benefits early. If Mary had waited to receive her Social Security benefits until her normal retirement age of 65, she would have received 100 percent of her primary insurance amount (PIA) benefit, or $800. Because Mary elected to receive her benefits at age 62, there is a reduction of 5/9 of 1 percent (.0056) for each of the 36 months that she receives benefits prior to the normal retirement age. Thus, Mary will receive approximately $640, or 20 percent less (.0056 x 36), than she would have received at normal retirement age.
Tip: The application process for early Social Security retirement benefits can take as long as three months. The Social Security Administration recommends that you contact its office prior to your 62nd birthday.
The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.
How does Frontier Communications Corporation determine the eligibility and participation criteria for employees in the pension plan? What are the key components that employees should be aware of in terms of service hours and years of service that can impact their pension benefits?
Frontier Communications Corporation determines pension plan eligibility based on employees' transfer from Verizon, crediting prior service under the Verizon Pension Plan to the Frontier Plan. Employees must meet the eligibility and service requirements, including hours of service and years of service, which are integral to calculating accrued benefits. The pension plan specifies that employees' service prior to the transition is recognized for determining their benefits under the Frontier plan(Frontier_Communications…).
In what ways does Frontier Communications Corporation ensure that employees transitioning from Verizon retain their accrued benefits under the new pension plan? Can you elaborate on how prior service will be accounted for under the Frontier Plan and any potential challenges that may arise in this process?
Employees transitioning from Verizon to Frontier retain their accrued benefits, with prior service credited under the Frontier Pension Plan. This is facilitated by a "Mirror Plan," which ensures that benefits under Verizon’s plan are transferred without reduction. Prior service is critical to the calculation of benefits and will continue under the Frontier Plan. However, challenges may arise regarding understanding the precise terms of service credits post-transition(Frontier_Communications…).
How does the merger of the Verizon pension plans with the Frontier Communications Corporation Pension Plan affect employees’ future benefits? What measures are put in place to ensure that Former Verizon employees receive benefits that are at least as favorable as those they previously had?
The merger of Verizon pension plans into the Frontier Communications Pension Plan guarantees that former Verizon employees receive benefits that are at least as favorable as those they had under the Verizon plan. The benefits accrued under Verizon are preserved, and future benefits are determined similarly, subject to Frontier’s amendments(Frontier_Communications…).
What resources are available for Frontier Communications Corporation employees to access more detailed information regarding their pension plan benefits? How might these resources assist in understanding the changes post-merger with Verizon?
Frontier provides detailed pension information through resources such as the Milliman Benefits Service Center. Employees can access these resources to better understand the impacts of the merger and ensure their benefits remain intact. The Summary Plan Description (SPD) and Summary of Material Modifications (SMM) provide employees with comprehensive updates post-merger(Frontier_Communications…).
Can you explain the process and implications for employees at Frontier Communications Corporation if they decide to appeal a denied pension claim? What steps must they take, and how does the appeals process ensure compliance with ERISA regulations?
If an employee’s pension claim is denied, they may appeal by submitting a written claim to the Plan Administrator, with additional documentation if requested. The appeals process ensures compliance with ERISA regulations, offering employees multiple review stages to reconsider denied claims(Frontier_Communications…).
How does Frontier Communications Corporation communicate updates to its pension plan practices to employees? Are there specific intervals or methods by which changes are shared, and how can employees keep abreast of these changes?
Frontier communicates pension plan updates to employees through various channels, including formal documents like the SMM and SPD. Updates are typically distributed periodically, with critical changes communicated as needed. Employees should regularly check for updates to stay informed(Frontier_Communications…).
In the context of financial planning for retirement, how do past benefits from the Verizon pension plans get integrated into the existing Frontier Communications Corporation pension framework? What advice can be given to employees regarding their financial health as they approach retirement?
Past benefits from the Verizon pension plan are integrated into Frontier’s pension framework through the transfer of assets and liabilities. Employees should review their benefit statements and consult financial planning resources to ensure a smooth transition and optimize their retirement strategy(Frontier_Communications…).
What roles do the Milliman Benefits Service Center and the Claims Review Committee play in supporting the employees of Frontier Communications Corporation regarding their pension claims? How can employees engage with these entities for assistance?
The Milliman Benefits Service Center supports employees with pension inquiries, while the Claims Review Committee handles appeals. Employees can contact Milliman for questions and submit appeals to the Claims Review Committee if disputes arise over benefits(Frontier_Communications…).
As an employee of Frontier Communications Corporation, what should be understood about the standard forms of pension payments available at retirement? How do these options impact the total benefits an employee may receive over time?
Frontier employees should understand the available pension payment options, including annuities and lump-sum distributions. These options affect the total amount received, and employees should consider their long-term financial needs when selecting a payment method(Frontier_Communications…).
How can employees contact Frontier Communications Corporation for more information about their pension plan? What are the best practices for reaching out and ensuring that their inquiries are handled efficiently?
Employees can contact Frontier regarding pension plans through the Milliman Benefits Service Center by phone or via their online portal. It is recommended to prepare inquiries with relevant documentation to ensure efficient handling(Frontier_Communications…).
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