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The November interest rates, which Aetna uses to determine lump sum values for everyone who retires in 2022 will be released in mid December. Rates increased in November and if that trend holds we could see a reduction in lump-sum values for Aetna employees who retire in 2022. Aetna interest rates decreased in 2020 causing 2021 lump sums to hit record highs. However, rates are now rising which will likely reduce lump sums for those who retire in 2022. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. Through the pandemic, interest rates have dropped dramatically which has greatly increased many lump sum payments. This trend culminated in record lows for individuals who commence their benefits 2021. However, rates have increased in 2021, and larger trends show that they will likely increase further, potentially causing a significant reduction in pension lump sums in 2022.
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The Aetna Pension Plan is a great retirement benefit for Aetna employees. Your exact pension depends on your hire date, original hire company, and if you are management or not. The core pension benefit uses a calculation method looking at your years of service and final average pay or wage bands to determine your monthly annuity. From there you have the option to choose a joint annuity or a lump sum. The lump sum calculation will depend on your age and the current interest rate environment.
Aetna Pension Lump Sum Calculation:
For the lump sum calculation, Aetna uses the PPA (Pension Protection Act) segment rates. These are 3 different segment rates based on years in retirement. The first segment is used for the first 5 years of retirement. The second segment is for years 6 through 20. The third segment is for years 21 and beyond. Your age will determine how many years segment 3 is used. These segment rates are updated monthly. Aetna uses the results of the November rates to determine the interest rates used for the lump sum calculation in the following year. The segment rates are generally released about 3 weeks into the following month. Due to this, you will not know for certain what rates used for 2022 will be until late December. The best gauge is to watch the monthly rates as you get closer with the October rates being released around Thanksgiving.
In 2021 the rates moved up through the spring then came back down a bit in the summer. Since then, they have started moving back up again. As of this writing, the September rates are the most up to date which are 2 months shy of the November rates. Currently, those rates are .17% higher on the 1st segment, .24% higher on the 2nd segment, and .03% lower on the 3rd segment. Since the 2nd segment covers 15 years of retirement it has the largest weighting on the calculations. The current move of .24% will likely lead to a 2% - 3% decline in your lump sum in 2022. However, with rates rising, and the volatility we've seen lately, it's possible you could see a significant increase between now and the time the November rates are released. This would cause a larger reduction in your lump sum.
In addition to lump sum reduction in 2022, there are many other changes affecting employees, especially managers. If you would like to review your situation, we can run a complimentary detailed cash flow analysis to show you various retirement dates and how the Aetna benefits may change. Click here to schedule a Cashflow Analysis.
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The annuity is discounted based on mortality as well as interest rates, meaning the present value of each monthly payment reduces as the probability of living to receive each payment reduces. The older you are when you commence your pension benefit, the fewer the number of years that will be valued using the third segment rate (20+ years) and, conversely, the younger you are, the greater the number of years that will be valued using the third segment rate.
This methodology essentially means that there will be a unique monthly interest rate (lump-sum conversion factor) for each year of birth.
How Do Rate Changes Affect Your Aetna Pension?
Pension pricing is based on interest calculations, which means a slight adjustment in your retirement date may have a significant financial impact on your pension due to changing rates each year.
Everything else held equal, a higher interest rate will produce a lower lump sum. The exact changes depend on your specific age, but on average a 1% change in rates can equate to an 8% to 12% change in lump sums. So, on average, a 1% change could increase or decrease your pension lump sum by roughly 10%.
The current changes discussed above of .24% will likely mean a decline of 2-3% in your lump sum. For someone with a $500,000 lump sum, which could mean a move of as much as $15,000. For a $1,000,000 lump sum, it would be roughly $30,000. It is very likely we will see rates move even higher in 2022 which will lead to a further drop in lump sums for 2023. Should they go up by 1%, then changes could be 10%. That could mean a $50,000 decrease on a current $500,000 lump sum or $100,000 on a $1,000,000 lump sum.
Example:
John is a manager who is 61 years old and has reached Mod-75. He is a manager and is considering going early in 2021 so he does not lose the Aetna paid portion on his retiree medical prior to age 65. His current lump sum is $800,000. After consulting Aetna HR, he learns he could be giving up $600/mo. in benefits for the next 4 years which is a total of $28,800. He also sees that his lump sum will be going down by roughly $24,000 given the current interest rates and understands it may even go lower. His original plan was to work to age 62, however by working into 2022, he could potentially be giving up $52,800 in benefits. He will effectively be working for reduced pay or even for free in 2022 given this scenario. Due to this, it may be better for him to retire in December 2021 to capture these benefits or review working longer to recoup them.
Review:
Given the current interest rate environment, it is highly suggested you discuss your options with The Retirement Group and allow us to monitor the rates and keep you up to date on the monthly changes. We can provide a complimentary cash flow analysis to show you how various retirement dates may play out.
It is important to remember the pension annuity may be a better fit no matter how attractive the pension lump sum may be. Every situation is unique, and a cash flow analysis will allow you to compare all pension options. To schedule a cashflow analysis please click the button below:
How does Aetna Inc.'s frozen pension plan affect employees' eligibility for benefits, and what specific criteria must current employees meet to qualify for any benefits from the Retirement Plan for Employees of Aetna Inc.?
Eligibility for Benefits: Aetna Inc.'s pension plan has been frozen since January 1, 2011, meaning no new pension credits are accruing. Employees who were participants before this date remain eligible for benefits but cannot accrue additional pension credits. To qualify for benefits, participants need to have been vested, which generally occurs after three years of service(PensionSPD).
In what ways can employees at Aetna Inc. transition their pension benefits if they leave the company, and what implications does this have for their tax liabilities and retirement planning?
Transitioning Pension Benefits: If employees leave Aetna, they can opt for a lump-sum distribution or an annuity. Employees can roll over their lump-sum payments into an IRA or other tax-qualified plans to avoid immediate taxes. However, direct rollovers must follow the tax-qualified plan's rules. If not rolled over, employees are subject to immediate tax and potential penalties(PensionSPD).
What steps should an Aetna Inc. employee take if they become disabled and wish to continue receiving pension benefits, and how does the company's policy on disability impact their future retirement options?
Disability and Pension Benefits: Employees who become totally disabled and qualify for long-term disability can continue participating in the pension plan until their disability benefits cease or employment is terminated. No additional pension benefits accrue after December 31, 2010, but participation continues under the plan until employment formally ends(PensionSPD).
Can you explain the implications of the plan amendment rights that Aetna Inc. retains, particularly concerning any potential changes in the pension benefits and what this could mean for employee planning?
Plan Amendment Rights: Aetna reserves the right to amend or terminate the pension plan at any time. If the plan is terminated, participants will still receive benefits accrued up to the date of termination, protected by ERISA. Any future changes could impact employees' planning and retirement options(PensionSPD).
How does the IRS's annual contribution limits for pension plans in 2024 interact with the provisions of the Retirement Plan for Employees of Aetna Inc., and what considerations should employees keep in mind when planning their retirement contributions?
IRS Contribution Limits: The IRS sets annual contribution limits for pension plans, including defined benefit plans. In 2024, employees should ensure that their pension contributions and tax planning strategies align with these limits and the provisions of Aetna's pension plan(PensionSPD).
What are the options available to Aetna Inc. employees regarding pension benefit withdrawal, and how can they strategically choose between a lump-sum distribution versus an annuity option?
Withdrawal Options: Aetna employees can choose between a lump-sum distribution or various annuity options when withdrawing pension benefits. The lump-sum option allows for immediate access to funds, while annuities provide monthly payments over time, offering a more stable income stream(PensionSPD).
How does Aetna Inc. ensure compliance with ERISA regulations concerning the rights of employees in the retirement plan, and what resources are available for employees to understand their rights and claims procedures?
ERISA Compliance: Aetna complies with ERISA regulations, ensuring employees' rights are protected. Resources are available through the Plan Administrator and myHR, providing information on claims procedures, plan rights, and how to file appeals if necessary(PensionSPD).
What documentation should employees of Aetna Inc. be aware of when applying for their pension benefits, and how can they ensure that they maximize their benefits based on their years of service?
Documentation for Benefits: Employees should retain service records and review their benefit statements to ensure they receive the maximum pension benefits. They can request additional documents and assistance through myHR to verify their years of service and other relevant criteria(PensionSPD).
How do changes in interest rates throughout the years affect the annuity payments that employees at Aetna Inc. might receive upon retirement, and what strategies can they consider to optimize their retirement income?
Impact of Interest Rates on Annuities: Interest rates significantly affect annuity payments. Higher interest rates increase the monthly annuity amount. Employees should consider the timing of their retirement, especially at the end of the year, when interest rates for the following year are announced(PensionSPD).
If employees want to learn more about their pension options or have inquiries regarding the Retirement Plan for Employees of Aetna Inc., what are the best channels to contact the company, and what specific resources does Aetna provide for assistance?
Contact for Pension Inquiries: Employees can contact myHR at 1-888-MY-HR-CVS (1-888-694-7287), selecting the pension menu option for assistance. Aetna also provides detailed resources through the myHR website, helping employees understand their pension options and benefits(PensionSPD).
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