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How Are San Diego Gas & Electric Employees Impacted by Inflation & Rising Interest Rates?

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Company Name For plan years beginning in Year Month First Segment Second Segment Third Segment Plan Type
San Diego Gas & Electric All 2024 May 5.18% 5.41% 5.62%
San Diego Gas & Electric All 2023 May 4.91% 5.15% 5.34%

Have you looked at the news recently? Every news site that you visit, the headlines are plastered with “HISTORICAL INFLATION RATES” or “HIGHEST INFLATION RATES IN THE LAST 39 YEARS”. As an employee of San Diego Gas & Electric, what does this actually mean for you as you approach retirement?


First off, let us define what inflation is. Inflation is known as the increase in general price levels of goods and services. Inflation is measured through the CPI, the Consumer Price Index, which is produced by the Bureau of Labor Statistics. The U.S. Bureau of Labor Statistics found that a gallon of whole milk cost $3.66 in October 2021, which is 8% more from October 2020 at $3.38 per gallon. Combined with the other goods and services, we would find an average increase in prices and calculate how much prices have increased within a given time period. Normally, the Federal Reserve targets an inflation rate of 2% and since 2016, it has been pretty consistent, only off by about a half percentage point. However, in 2021, the annual inflation rate was 7%, drastically different from the 1.4% increase in 2020 and the 2.3% increase in 2019. To put this in perspective, from 2018 to the end of 2020, CPI grew at a cumulative 5.7%. So within a single year, inflation grew faster than the three years prior.


Inflation is an expected occurrence and many people who retire tend to expect a consistent rate over their life span and calculate their retirement expenses with this in mind. However, these calculations quickly change when there are abrupt increases in inflation. Unexpected inflation can have devastating effects on a San Diego Gas & Electric employee’s savings as it whittles away at your spending power faster than you expect it to. Today, you might be able to buy groceries within a certain budget, but during an inflation spike, groceries will outpace your budget and soon enough, you’ll find yourself spending considerably more for your normal grocery bundle.


In order to control the rapid rise of inflation, the Federal Reserve uses interest rates to dissipate inflationary pressures. As interest rates increase, inflation generally decreases. This relationship is caused by how interest rates affect the rate of borrowing money. When interest rates are low, people will borrow money as they pay less in interest. This fuels the economy and increases inflation. As interest rates rise, people will borrow less and the markets will move slower as there is less fuel to add to the fire. These factors go hand in hand in an economic balancing act.

You may be wondering: “How does this affect my San Diego Gas & Electric pension? Should I be choosing lump-sum or annuity?” As pension lump sum amounts are calculated using the current interest rates, choosing lump-sum versus annuity can be a difficult decision. Since lump-sum pensions are inversely affected by interest rates, the higher interest rates rise, the less you will receive from your San Diego Gas & Electric lump-sum pension. As interest rates rise however, annuity pensions become a lot more attractive as they use current interest rates to calculate your lifetime monthly payments.


In regards to healthcare, it is lagging behind the country’s 7% inflation rate and has only risen 2.5% over this past year. However, we are seeing a labor shortage in the healthcare sector, which can lead to a rise in wages to attract workers and would ultimately increase prices and insurance premiums for patients. Many San Diego Gas & Electric retirees typically rely on Medicare to support them in their healthcare costs, however, Medicare rarely covers all costs and patients are required to pay a premium on top of out-of-pocket expenses. These premiums will increase as inflation continues to increase, leading to an overall increase in expenses for healthcare. For the upcoming 2022 year, Medicare Part B premiums increased by 14.5%, pushing the standard monthly premium to $170.10. Even though, as a whole, healthcare costs have not risen in line with inflation, we have seen very high inflation for those nearing or at retirement age.

 

With increasing prices in drug expenses and Medicare premiums, the Employee Benefit Research Institute (ERBI) found in their 2022 report that couples with average drug expenses would need $296,000 in savings to cover those expenses in retirement - a 10% increase from the year prior. Couples with higher drug expenses would need $361,000 to cover those healthcare costs - an 11% increase from the year prior.

Overall, the landscape of the economy is rapidly changing and these recent developments have been shifting people’s expectations and forecasts for retirement. Understanding how inflation and interest rates will affect your retirement is a vital step in crafting a successful retirement plan.

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With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
San Diego Gas & Electric (SDG&E) offers both a traditional defined benefit pension plan and a defined contribution 401(k) plan. The defined benefit plan includes a cash balance component, where benefits grow based on years of service and compensation, with interest credits added annually. The 401(k) plan features company matching contributions and various investment options, including target-date funds and mutual funds. SDG&E provides financial planning resources and tools to help employees manage their retirement savings.
Record Profits and Investments: SDG&E reported record profits of $936 million for 2023, up $21 million from 2022. Despite this profitability, the company has faced criticism over high energy rates and efforts by local groups to replace it with a public utility. SDG&E continues to invest in infrastructure and diverse supplier programs, with $450 million contracted with minority-owned firms in 2023 (Sources: San Diego Union-Tribune, Voice of San Diego, Times of San Diego).
San Diego Gas & Electric provides RSUs to employees, vesting over time and converting into shares upon vesting. Stock options are not typically part of their compensation package.
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Full Interest Rate update table for San Diego Gas & Electric employees

Company Name For plan years beginning in Year Month First Segment Second Segment Third Segment Plan Name
San Diego Gas & Electric All 2025 January 4.74% 5.55% 5.92%
San Diego Gas & Electric All 2024 December 4.65% 5.28% 5.63%
San Diego Gas & Electric All 2024 November 4.66% 5.25% 5.57%
San Diego Gas & Electric All 2024 October 4.42% 5.04% 5.46%
San Diego Gas & Electric All 2024 September 4.17% 4.76% 5.25%
San Diego Gas & Electric All 2024 August 4.5% 4.96% 5.4%
San Diego Gas & Electric All 2024 July 4.92% 5.25% 5.59%
San Diego Gas & Electric All 2024 June 5.09% 5.28% 5.52%
San Diego Gas & Electric All 2024 May 5.18% 5.41% 5.62%
San Diego Gas & Electric All 2024 April 5.24% 5.48% 5.61%
San Diego Gas & Electric All 2024 March 4.99% 5.19% 5.37%
San Diego Gas & Electric All 2024 February 4.97% 5.22% 5.37%
San Diego Gas & Electric All 2024 January 4.89% 5.14% 5.29%
San Diego Gas & Electric All 2023 December 5.01% 5.13% 5.15%
San Diego Gas & Electric All 2023 November 5.5% 5.76% 5.83%
San Diego Gas & Electric All 2023 October 5.77% 6.14% 6.19%
San Diego Gas & Electric All 2023 September 5.58% 5.66% 5.56%
San Diego Gas & Electric All 2023 August 5.45% 5.52% 5.43%
San Diego Gas & Electric All 2023 July 5.35% 5.28% 5.1%
San Diego Gas & Electric All 2023 June 5.26% 5.23% 5.16%
San Diego Gas & Electric All 2023 May 4.91% 5.15% 5.34%
San Diego Gas & Electric All 2023 April 4.77% 4.97% 5.13%
San Diego Gas & Electric All 2023 March 5% 5.2% 5.15%
San Diego Gas & Electric All 2023 February 4.99% 5.12% 4.96%

For more information you can reach the plan administrator for San Diego Gas & Electric at 488 8th ave San Diego, CA 92101-7123; or by calling them at 619-696-2000.

https://www.sdge.com/documents/pension-plan-2022.pdf - Page 5, https://www.sdge.com/documents/pension-plan-2023.pdf - Page 12, https://www.sdge.com/documents/pension-plan-2024.pdf - Page 15, https://www.sdge.com/documents/401k-plan-2022.pdf - Page 8, https://www.sdge.com/documents/401k-plan-2023.pdf - Page 22, https://www.sdge.com/documents/401k-plan-2024.pdf - Page 28, https://www.sdge.com/documents/rsu-plan-2022.pdf - Page 20, https://www.sdge.com/documents/rsu-plan-2023.pdf - Page 14, https://www.sdge.com/documents/rsu-plan-2024.pdf - Page 17, https://www.sdge.com/documents/healthcare-plan-2022.pdf - Page 23

*Please see disclaimer for more information