Retirement Guide for PG&E Employees || The Retirement Group

In our comprehensive retirement guide for PG&E employees, we go through many factors which you may take into account when deciding on the optimal time to retire from PG&E. Some of those factors include healthcare & benefit changes, the new tax rates, inflation, and much more. Keep in mind although we are not affiliated with PG&E, we have been assisting PG&E employees with retirement planning for more than three decades. Feel free to reach out to The Retirement Group with any questions that you may have regarding the information contained in this guide. You may also want to contact your PG&E benefits department for further information.

It is imperative for individuals to be aware of tax updates and news from the IRS. The main changes that will affect individuals and households include:

The 2024 standard deduction will increase to $14,600 for single filers and those married filing separately, $29,200 for joint filers, and $21,900 for heads of household.

Taxpayers who are over the age of 65 or blind can add an additional $1,550 to their standard deduction. That amount jumps to $1,950 if also unmarried or not a surviving spouse.

The personal exemption for tax year 2024 remains at zero, as it was for 2023. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.

Remote workers employed by a corporate company might face double taxation on state taxes. Due to the pandemic, many employees moved back home which could have been outside of the state where they were employed. Last year, some states had temporary relief provisions to avoid double taxation of income, but many of those provisions have expired. There are only six states that currently have a ‘special convenience of employer’ rule: Connecticut, Delaware, Nebraska, New Jersey, New York, and Pennsylvania. If you work remotely for a corporate company, and if you don't currently reside in those states, consult with your tax advisor if there are other ways to mitigate the double taxation.

Retirement account contributions: Contributing to your company's 401k plan can cut your tax bill significantly, and the amount you can save has increased for 2024. The amount individuals can contribute to their 401(k) plans in 2024 will increase to $23,000 -- up from $22,500 for 2023. The income ranges for determining eligibility to make deductible contributions to traditional IRAs, contribute to Roth IRAs, and claim the Saver's Credit will also all increase for 2024. The catch-up contribution limit for employees age 50 and over will increase to $7,500.

There are important changes for the Earned Income Tax Credit (EITC) that you, as a taxpayer employed by a corporation, should know:

The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, up from $7,430 for tax year 2023.
Married taxpayers filing separately can qualify: You can claim the EITC as a married filing separately if you meet other qualifications. This wasn't available in previous years.

Deduction for cash charitable contributions: The special deduction that allowed single nonitemizers to deduct up to $300—and married filing jointly couples to deduct $600— in cash donations to qualifying charities has expired.

Child Tax Credit changes:

The maximum tax credit per qualifying child is $2,000. Additionally, you can't receive a portion of the credit in advance, as was the case in 2023.
As a parent or guardian, you are eligible for the Child Tax Credit if your adjusted gross income is less than $200,000 when filing individually or less than $400,000 if you're filing a joint return with a spouse.

2024 Tax Brackets

2024-Tax-Bracket

Inflation reduces purchasing power over time as the same basket of goods will cost more as prices rise. In order to maintain the same standard of living throughout your retirement after leaving your company, you will have to factor rising costs into your plan. While the Federal reserve strives to achieve a 2% inflation rate each year, in 2023 that rate shot up to 4.9%, a drastic increase from 2020’s 1.4%. While prices as a whole have risen dramatically, there are specific areas to pay attention to if you are nearing or in retirement from your company, like healthcare. Many corporate retirees depend on Medicare as their main health care provider and in 2023 that healthcare out-of-pocket premium is set to increase between 5 - 14%. In addition to Medicare increases, the cost of over-the-counter medications is also projected to increase by at least 7%. The Employee Benefit Research Institute (ERBI) found in their 2022 report that couples with average drug expenses would need $296,000 in savings just to cover those expenses in retirement. It is crucial to take all of these factors into consideration when constructing your holistic plan for retirement from your company.

*Source: IRS.gov, NerdWallet,

Retirement planning is a verb. And consistent action must be taken whether you’re 20 or 60.

The truth is that most Americans don’t know how much to save or the amount of income they’ll need.

No matter where you stand in the planning process, or your current age, we hope this guide gives you a good overview of the steps to take and resources that help you simplify your transition into retirement and get the most from your benefits.

You know you need to be saving and investing, especially since time is on your side the sooner you start, but you don’t have the time or expertise to know if you’re building retirement savings that can last.

As decades go by, you’re likely full swing into your career and your income probably reflects that. However, the challenges to saving for retirement start coming from large competing expenses: a mortgage, raising children and saving for their college.

One of the classic planning conflicts is saving for retirement versus saving for college. Most financial planners will tell you that retirement should be your top priority because your child can usually find support from financial aid while you’ll be on your own to fund your retirement.

How much we recommend that you invest toward retirement is always based on your unique financial situation and goals. However, consider investing a minimum of 10% of your salary toward retirement through your 30s and 40s. So long as your individual circumstances allow, it should be a goal to maximize your employer’s contribution match.

Over 50? You can invest up to $30,500 into your retirement plan/401(k) which consists of $23,000 plus the over-50 catch-up provision of $7,500.

As you enter your 50s and 60s, you’re ideally at peak earning years with some of your major expenses, such as a mortgage or child-rearing, behind you or soon to be in the rearview mirror. This can be a good time to consider whether you have the ability to boost your retirement savings goal to 20% or more of your income. For many people, this could potentially be the last opportunity to stash away funds.

These retirement savings vehicles give you the chance to take advantage of three main benefits:

Compound growth opportunities (as seen above)
Tax saving opportunities
Matching contributions

Matching contributions are just what they sound like: Your employer matches your own 401(k) contributions with money that comes from the company. If your employer matches, the company money typically matches up to a certain percent of the amount you put in.

Unfortunately, many people don’t take full advantage of the employer match because they’re not putting in enough themselves.

A 2020 study from Financial Engines titled “Missing Out: How Much Employer 401(k) Matching Contributions Do Employees Leave on the Table?”, revealed that employees who don’t maximize the company match typically leave $1,336 of potential extra retirement money on the table each year.

- If your employer will match up to 3% of your plan contributions and you only contribute 2% of your salary, you aren’t getting the full amount of your company’s potential match.

- By bumping up your contribution by just 1%, your company is now matching 3% (the max) of your contributions for a total combined employee and employer contribution of 6% of your salary. By doing so, you aren’t leaving money on the table.

Whether you’re changing jobs or retiring, knowing what to do with your hard-earned retirement savings can be difficult. An employer-sponsored plan, such as a pension and 401(k), may make up the majority of your retirement savings, but how much do you really know about that plan and how it works?

There are seemingly endless rules that vary from one retirement plan to the next, early out offers, interest rate impacts, age penalties, and complex tax impacts.

Increasing your investment balance and reducing taxes is the key to a successful retirement plan spending strategy. At The Retirement Group, we can help you understand how your pension and retirement 401(k) fits into your overall financial blueprint.

If you have a monthly annuity and you start your pension on your retirement date, your first monthly pension payment will be made on the first of the month after you retire—not on your retirement date—and your first payment will include your first and second monthly benefits. The way your pension is calculated depends on the type of formula you have and your employment classification.

Employees hired before 2013 may have the final pay formula—or a combination of the final pay formula and the cash balance formula.
All employees hired in 2013 and later have the cash balance formula.

Cash Balance Formula & Annual Pay Credits

Cash Balance Formula
The cash balance formula lets your pension benefit accumulate for each year you work in a pension-eligible position—not just at the end of your employment.

All employees hired 2013 and later, or employees hired before 2013 that chose the cash balance formula can accrue annual pay credits based on full years of age and full years of credited service—plus, your account is credited with interest on the last day of each calendar quarter.

Annual pay credits
Annual pay credits are based on a point system of full years of age and full years of credited service as of December 31 each year:

Example:

55 years old + 21 years of service = 76 points (55 + 21). This person would get an annual pay credit of 9% of pay.

Annual pay credits based on points (age + service):
Fewer than 40 points	5% of pay
40-49 points	6% of pay
50-59 points	7% of pay
60-69 points	8% of pay
70-79 points	9% of pay
80 or more points	10% of pay

If you have both formulas,

Did you choose the cash balance formula during the pension choice period in 2013? You'll have:

You can start your two benefits at the same time or separately, and you can make the same or different payment option and joint pensioner elections for the two benefits.

Retiring Early?

The younger you are when you retire, the more your benefit may be reduced to reflect what’s likely to be a longer retirement period.

Final Pay Formula	Cash Balance Formula
If you start to receive your monthly pension payments before age 65, your benefit may be reduced.	No matter how old you are when you leave PG&E, you can take your vested benefit as a single lump-sum payment or as a monthly annuity for life.
Any reductions in your monthly pension benefit will be based on your years of credited service and age when your pension payments begin.*	If you take your cash balance benefit as a lump sum, you can roll it into another retirement plan--like an IRA--to avoid potential immediate income taxes or IRS early withdrawal penalties.
Your personalized pension election form already shows reduced benefits if the early retirement reduction factors apply to you.	If you take your cash balance benefit as an annuity, your account balance will be converted to a monthly benefit for life using IRS-based actuarial factors that take into account your age when you start receiving benefits.

* The final pay formula's early retirement reduction factors are calculated using bands of service years, as described in the Summary of Benefits Handbook.

Pension payments can’t be changed or stopped:

After you start receiving your monthly pension payments, they’ll continue for life.

- You can’t change any of your pension elections for any reason after your pension start date.
-Your payments can’t be stopped or suspended even if you’re rehired or reinstated by PG&E, unless there is a legal reason requiring a hold on your pension benefit.

Delaying your Pension

Planning a new career after you retire? Have a new job lined up?

You can delay the start of your pension, whether you have the final pay formula or the cash balance formula. You’re not required to start your pension to receive retiree medical coverage, and you’re not required to elect retiree medical coverage to receive your pension. If you delay your pension, you’ll still be considered a retiree for all your other retirement benefits.

Starting a delayed pension: If you decided to delay your pension when you retired and you later want to start your pension, you must notify the PG&E Pension Call Center at least 90 days but no more than 180 days before you want your pension to start. If you’re retiring early and you delay the start of your pension, your benefit may increase.

Final pay formula
Do you have an early retirement reduction? It will decrease for every month that you delay the start of your monthly pension payments—until you qualify for an unreduced pension. The later you start your pension payments, the smaller the reduction for early retirement.

Example: Delay pension for employee with 20 years of service

Payment Starts	Benefit at normal retirement age (single life pension)	Early retirement reduction factor	Early retirement benefit (single life pension)
Age 55	$1,000 per month	26%	$740 per month
Age 60	$1,000 per month	6%	$940 per month
Age 62	$1,000 per month	0%	$1,000 per month
Age 65	$1,000 per month	0%	$1,000 per month

If you come back to work for PG&E

Delaying your Pension
If you’re rehired or reinstated by PG&E:

- You’ll keep your pension,
- Any monthly annuity payments will continue while you work,
- You’ll earn income as an active employee.

Benefits for pension-eligible rehires:

If you’re rehired as a pension-eligible employee, you’ll be eligible for a new pension benefit under the cash balance formula as if you were a newly hired employee—except you’ll be immediately vested. The new cash balance benefit will be added to your unchanged original pension payment after you retire a second time.

Did you contribute to the Retirement Plan before 1973?

Check your personalized Pension Election and Authorization form. It will show your contributions if you made any.
If you made contributions, you need to decide what to do with them:

When do you want your refund?
You can get your refund in the same year as your first pension payment (your pension start date) or in the next year after your pension start date.

Refund election dates are tied to your pension start date—not to your retirement date. If your pension is delayed, your refund will also be delayed. Here are your choices:

Current-year refund

Refund will be paid in the same year as your pension start date
Refund will be paid in the same month as your first pension payment
Refund may be paid on a different date than your first pension payment

Next-year refund

Refund will be paid the year after your pension start date
Refund will be paid in January of the following year
Refund may be paid on a different date than your January pension payment

How do you want your refund?

You have three payment options for your refund:

Taxes and timing of your refund.

Your contributions were made on an after-tax basis, but the interest you accrued has been tax-deferred. Federal laws require that you receive the credit for your nontaxable contributions over your expected lifetime.

This means if you get a refund now, most of the refund will be taxable in the year you receive it.

Even if you don’t get a refund of your contributions, your monthly pension payment will contain a portion that is not taxable until either:

The full value of your after-tax contributions has been returned to you, if you don’t get a refund.
The full value of your after-tax contributions has been accounted for, if you do get a refund.

If you’re married

If you die before your entire contribution is returned to you or is fully accounted for, your spouse will be able to deduct the remaining nontaxable portion from your tax return for the year in which you die.

If you live past the life expectancy used in your benefit calculation, then your full pension payment will be taxable after you have received your entire contribution or after it has been fully accounted for.

Refunds and rollovers

Most of your cash refund will be taxable in the year you receive it. PG&E will withhold required taxes from your cash refund.

The rollover amount won’t be taxable until you withdraw the money from your tax-qualified plan. No taxes will be withheld from the direct rollover of your interest as long as you complete the rollover within 60 days of the date on your rollover check. If you’re late delivering the rollover funds, you may have immediate income taxes and IRS early withdrawal penalties on the amount of your rollover.

Refunds and rollovers

Both the final pay formula and the cash balance formula allow the following monthly annuities. You can be single or married to elect any of these options:

Single life pension

This option pays you a monthly benefit for your lifetime and stops the first of the month after your death. No payment will be made to any other person after your death.

If you elect this option, you won’t be able to change your election even if you later marry or want to add a joint pensioner other than your spouse.

Married?

Federal law requires that your spouse be paid at least a 50% joint pension unless you and your spouse elect otherwise. Your spouse will have to provide notarized consent if you choose the single life pension.

Regular joint pension

This option pays you a reduced monthly benefit (compared to a single life pension) for your lifetime—plus, after your death, it pays a further benefit to any one person you choose for his or her lifetime. Your basic monthly pension benefit will be reduced to reflect the additional value of this option to your joint pensioner.

Your percentage options may be limited if your joint pensioner isn’t your spouse and is more than 10 years younger than you are.

If your joint pensioner dies before you do, your benefit will continue as the reduced monthly pension payment for your lifetime. No payment will be made to anyone after your death.

Special joint pension

This option pays you a reduced monthly benefit (compared to a single life pension and a regular joint pension) for your lifetime—plus, after your death, it pays a further benefit to any one person you choose for his or her lifetime.

If your joint pensioner dies before you do, your benefit will increase or “pop up” to the original single life pension benefit—as if you had never elected a joint pension. This increased benefit will be payable for your lifetime, but no payments will be made to anyone after your death.

Your basic monthly pension benefit will be reduced by more than it would for the regular joint pension. That’s because this option offers greater value to you if your joint pensioner dies first. If you die first, your joint pensioner’s monthly benefit won’t increase beyond the percentage you elect.

You can't change your joint pensioner

If you elect a joint pension, the person you designate as your joint pensioner will be the only person to receive the joint survivor’s benefit when you die.

You won’t be able to designate a different joint pensioner to receive your survivor’s benefit—and you won’t be able to remove the joint pensioner you elect. This rule applies even if:

- You later divorce or sever ties with your joint pensioner
- You later marry a new spouse
- Your joint pensioner dies

Relative Value of Joint Pension Options

Your personalized pension benefit estimate shows a relative value percentage for each of the joint survivor’s pension options, so you can compare:

The relative values are determined using interest rates and life expectancy assumptions specified by the IRS. The relative value compares the actuarial equivalent of your unreduced single life pension to each joint pension option amount based on the life expectancy of you and your joint pensioner.

If you or your joint pensioner live longer than the assumptions, the actual value of your lifetime payments will be greater than the stated value because you’ll receive the payments for a longer period of time.

Thinking about what to do with your pension is an important part of planning for your retirement at PG&E. What is best for you and your family?

You should routinely use the tools and resources found on The Retirement Group's e-book library, such as the RetireKit, to model your pension benefit in retirement and the pension payment options that will be available to you.

You can also contact a PG&E advisor at The Retirement Group at (800)-900-5867. We will get you in front of a PG&E advisor to help you start the retirement process and tell you about your payment.

Note: We recommend you read the PG&E Summary Plan Description. The Retirement Group is not affiliated with PG&E.

Next Step:

- How do interest rates affect your decision?
- Use the "RetireKit" to understand cash flow, interest rates, and explore which pension option might be the best fit for you during retirement.
- As you get closer to your retirement date, contact a retirement-focused advisor at The Retirement Group and also read the applicable SPD Summary to start your retirement process.
- PG&E will need you to provide documents that show proof of birth, marriage, divorce, Social Security number, etc., for you and your spouse/legally recognized partner.
- PG&E has Beneficiary Designation online to make updates to your beneficiary designations, if applicable to your pension program. Please read your SPD for more details.

Interest Rates and Life Expectancy

In many defined benefit plans, like PG&E's, current and future retirees are offered a lifetime monthly pension benefit.
Something else to keep in mind is that current interest rates, as well as your life expectancy at retirement, have an impact on annuity payout options of defined benefit pension plans. Annuity payouts are typically lower in a low interest rate environment but tend to increase in a rising interest rate environment.
Additionally, projected pension annuity benefits for active employees will often decrease as an employee ages and their life expectancy decreases. This can potentially be a detriment of continuing to work, so it is important that you run your pension numbers often and thoroughly understand the timing issues. Other factors such as income needs, need for survivor benefits and tax liabilities often dictate the decision to take the type of annuity option on the pension.

As retirement is approached, couples may find themselves questioning whether they should select a pension lump sum or an annuity. The choice made will largely impact their retirement planning and even dictate which strategies they can or can’t implement in their finances. Meeting with a financial advisor is elemental in considering one’s retirement expenses & desired lifestyle, and ultimately, tailoring financial strategies to fit your needs & wants.

A strong option for retirees who wish to maximize their pension’s return is referred to as “Pension Maximization”, a strategy able to facilitate the pension-claiming process. This strategy states that a pension holder should select a single life annuity and invest the difference between this payout and that of a joint and survivor annuity to purchase a life insurance policy. Given that single life annuities have a higher payout than joint & survivor annuities, choosing a single life annuity will provide a higher monthly return while the pension holder lives, and purchasing a life insurance policy will provide a payout for the pension holder's spouse or family after he/she has passed.

Benefits and Drawbacks of Pension Maximization

Benefits of Pension Maximization:

Monthly income from your Pension is Maximized: Not only will a Single Life Annuity provide the highest monthly income, investing a portion of your pension in a life insurance policy will extend your pension’s returns by creating a payout for your loved ones.
You give yourself inheritance flexibility: In the case that you outlive your spouse, you are at liberty to designate your life insurance payout to other family members, this is especially appealing for people unsure that their spouse will out-live them.
Tax Free Payment: When your spouse (or children) receives the life insurance payout, it is tax-free. Life insurance is excluded from income tax whereas any pension annuity payout, regardless of who the receiver is, each payment will be treated as taxable income.

Drawbacks of Pension Maximization:

The Potential Loss of pension benefits: While Single Life Annuities tend to offer higher monthly payments, you may lose medical or other benefits if your employer offers them through a pension plan you did not elect.
Lackluster life insurance payouts: With life insurance payouts being a central component of this strategy, less-than-anticipated payouts may or may not steer you away from this financial route.
Insurance policies lapse, while pensions don’t: With life insurance at the center of this strategy, forgetting to renew your policy or pay monthly premiums can be a costly mistake. On the other hand, pension plans in the U.S. are up to a certain point, protected by the PBGC.

Overall, Pension Maximization is a useful financial strategy to those who are certain of their health condition, life expectancy, and are financially foreseeing for their loved ones after their own passing. On the other hand, individuals in a later stage of life or in poor health may not fully benefit from this strategy. Regardless of your situation, reaching out to a financial advisor is a safe way to decide whether or not pension maximization is right for you.

Professional help is available

Not sure what to do with your Retirement Savings Plan (RSP) account? Please call The Retirement Group at (800)-900-5867 for more information and we can get you in front of a PG&E-focused advisor. Details on your RSP will be in the distribution package from Fidelity, and you can find more information by logging on to your account at 401k.com or in the Summary of Benefits Handbook via mypgebenefits.com > Resources tab.

Company Match

Management and A&T Employees

The Retirement Savings Plan for Management and A&T employees offers two company matching benefits.

* 75% on contributions up to 6% of pay if you are a participant in the Final Average Pay Pension formula, or a

* A higher 401k company match of 75% on contributions up to 8% if you are a participant in the Cash Balance Pension.

Union Represented Employees

The Retirement Savings Plan for Union Represented Employees offers two company matching benefits as well.

* A company match of 60% on contributions up to 3% (with 1 - 3 years of service) or 6% (with 3+ years of service), or

* a 75% match up to 8% if employee is a participant under the Final Pay Formula of the Cash Balance Pension.

Vesting

You're immediately 100% vest in the value of your 401k account including all company matching contributions.

Check your beneficiary

Do you still have the right beneficiary for your RSP account? Review your beneficiary designation whenever you experience a significant life event like retirement, marriage, divorce or the death of a previously designated beneficiary. You can change your beneficiary anytime. Log on to NetBenefits at 401k.com or call Fidelity at 1-877-743-4015.

Next Steps:

Watch for your Participant Distribution Notice and Special Tax Notice Regarding Plan Payments. These notices will help explain your options and what the federal tax implications may be for your vested account balance.
"What has Worked in Investing" & "8 Tenets when picking a Mutual Fund".
To learn about your distribution options, call The Retirement Group at (800)-900-5867. Click our e-book for more information on "Rollover Strategies for 401(k)s"

When was the last time you reviewed your 401(k) plan account or made any changes to it? If it’s been a while, you’re not alone. 73% of plan participants spend less than five hours researching their 401(k) investment choices each year, and when it comes to making account changes, the story is even worse.

When faced with a problem or challenge, many of us are programmed to try to figure it out on our own rather than ask for help. The Christmas Eve ritual of assembling toys without looking at the instructions and that road trip when we refused to stop to ask for directions come to mind. But when we’re talking about 401(k) investing, choosing to go it alone rather than get help can really hurt.

Over half of plan participants admit they don’t have the time, interest or knowledge needed to manage their 401(k) portfolio. But the benefits of getting help go beyond convenience. Studies like this one, from Charles Schwab, show those plan participants who get help with their investments tend to have portfolios that perform better:

The annual performance gap between those who get help and those who do not is 3.32% net of fees. This means a 45-year-old participant could see a 79% boost in wealth at age 65 simply by contacting an advisor. That’s a pretty big difference.

Getting help can be the key to better results across the 401(k) board. A Charles Schwab study found several positive outcomes common to those using independent professional advice. They include:

Improved savings rates – 70% of participants who used 401(k) advice increased their contributions.
Increased diversification – Participants who managed their own portfolios invested in an average of just under four asset classes, while participants in advice-based portfolios invested in a minimum of eight asset classes.
Increased likelihood of staying the course – Getting advice increased the chances of participants staying true to their investment objectives, making them less reactive during volatile market conditions and more likely to remain in their original 401(k) investments during a downturn. Don’t try to do it alone.

In-Service Withdrawals

Generally speaking, you can withdraw amounts from your account while still employed under the circumstances described below.

It’s important to know that certain withdrawals are subject to regular federal income tax and, if you’re under age 59½, you may also be subject to an additional 10% penalty tax. You can determine if you’re eligible for a withdrawal, and request one, online or by calling your company Benefits Center.

Rolling Over Your 401(k)

As long as the plan participant is younger than age 72, an in-service distribution can be rolled over to an IRA. A direct rollover would avoid the 10% early withdrawal penalty as well as the mandatory 20% tax withholding. Your plan summary outlines more information and possible restrictions on rollovers and withdrawals.

Because a withdrawal permanently reduces your retirement savings and is subject to tax, you should always consider taking a loan from the plan instead of a withdrawal to meet your financial needs. Unlike withdrawals, loans must be repaid, and are not taxable (unless you fail to repay them). In some cases, as with hardship withdrawals, you are not allowed to make a withdrawal unless you have also taken out the maximum available plan loan.

You should also know that the plan administrator reserves the right to modify the rules regarding withdrawals at any time and may further restrict or limit the availability of withdrawals for administrative or other reasons. All plan participants will be advised of any such restrictions, and they apply equally to all employees.

Borrowing from your 401(k)

Should you? Maybe you lose your job, have a serious health emergency, or face some other reason that you need a lot of cash. Banks make you jump through too many hoops for a personal loan, credit cards charge too much interest, and … suddenly, you start looking at your 401(k) account and doing some quick calculations about pushing your retirement off a few years to make up for taking some money out.

We understand how you feel: It’s your money, and you need it now. But take a second to see how this could adversely affect your retirement plans.

Consider these facts when deciding if you should borrow from your 401(k). You could:

Lose growth potential on the money you borrowed.
Repayment and tax issues, if you leave your employer.

Net Unrealized Appreciation (NUA)

When you qualify for a distribution, you have three options:

Roll-over your qualified plan to an IRA and continue deferring taxes.
Take a distribution and pay ordinary income tax on the full amount.
Take advantage of NUA and reap the benefits of a more favorable tax structure on gains.

How does Net Unrealized Appreciation work?

First an employee must be eligible for a distribution from their qualified plan; generally, at retirement or age 59 1⁄2, the employee takes a "lump-sum" distribution from the plan, distributing all assets from the plan during a 1-year period. The portion of the plan that is made up of mutual funds and other investments can be rolled into an IRA for further tax deferral. The highly appreciated company stock is then transferred to a non-retirement account.

The tax benefit comes when you transfer the company stock from a tax-deferred account to a taxable account. At this time, you apply NUA, and you incur an ordinary income tax liability on only the cost basis of your stock. The appreciated value of the stock above its basis is not taxed at the higher ordinary income tax but at the lower long-term capital gains rate, currently 15%. This could mean potential savings of over 30%.

As a PG&E employee, you may be interested in understanding NUA from a financial advisor.

IRA Withdrawal

Your retirement assets may consist of several retirement accounts IRAs, 401(k)s, taxable accounts, and others. So, what is the most efficient way to take your retirement income? You may want to consider meeting your income needs in retirement by first drawing down taxable accounts rather than tax-deferred accounts. This may help your retirement assets last longer as they continue to potentially grow tax deferred. You will also need to plan to take the required minimum distributions (RMDs) from any employer-sponsored retirement plans and traditional or rollover IRA accounts. That is due to IRS requirements for 2024 to begin taking distributions from these types of accounts when you reach age 73. If you do not, the IRS may assess a 25% penalty on the amount you should have taken.

Two flexible distribution options for your IRA

When you need to draw on your IRA for income or take your RMDs, you have a few choices. Regardless of what you choose, IRA distributions are subject to income taxes and may be subject to penalties and other conditions if you’re under 59½.

Partial withdrawals: Withdraw any amount from your IRA at any time. If you’re 73 or over, you’ll have to take at least enough from one or more IRAs to meet your annual RMD.

Systematic withdrawal plans: Structure regular, automatic withdrawals from your IRA by choosing the amount and frequency to meet your retirement income needs. If you’re under 59½, you may be subject to a 10% early withdrawal penalty (unless your withdrawal plan meets Code Section 72(t) rules).

Your tax advisor can help you understand distribution options, determine RMD requirements, calculate RMDs, and set up a systematic withdrawal plan. Neither FSC nor its representatives provide tax or legal advice. Please consult your attorney or tax advisor for answers to your specific questions. Remember, The Retirement Group is not affiliated with PG&E.

HSA's

Health Savings Accounts (HSAs) are often celebrated for their utility in managing healthcare expenses, particularly for those with high-deductible health plans. However, their benefits extend beyond medical cost management, positioning HSAs as a potentially superior retirement savings vehicle compared to traditional retirement plans like 401(k)s, especially after employer matching contributions are maxed out.

Understanding HSAs

HSAs are tax-advantaged accounts designed for individuals with high-deductible health insurance plans. For 2024, the IRS defines high-deductible plans as those with a minimum deductible of $1,600 for individuals and $3,200 for families. HSAs allow pre-tax contributions, tax-free growth of investments, and tax-free withdrawals for qualified medical expenses—making them a triple-tax-advantaged account.

The annual contribution limits for HSAs in 2024 are $4,150 for individuals and $8,300 for families, with an additional $1,000 allowed for those aged 55 and older. Unlike Flexible Spending Accounts (FSAs), HSA funds do not expire at the end of the year; they accumulate and can be carried over indefinitely.

Comparing HSAs to 401(k)s Post-Matching

Once an employer's maximum match in a 401(k) is reached, further contributions yield diminished immediate financial benefits. This is where HSAs can become a strategic complement. While 401(k)s offer tax-deferred growth and tax-deductible contributions, their withdrawals are taxable. HSAs, in contrast, provide tax-free withdrawals for medical expenses, which are a significant portion of retirement costs.

HSA as a Retirement Tool

Post age 65, the HSA flexes its muscles as a robust retirement tool. Funds can be withdrawn for any purpose, subject only to regular income tax if used for non-medical expenses. This flexibility is akin to that of traditional retirement accounts, but with the added advantage of tax-free withdrawals for medical costs—a significant benefit given the rising healthcare expenses in retirement.

Furthermore, HSAs do not have Required Minimum Distributions (RMDs), unlike 401(k)s and Traditional IRAs, offering more control over tax planning in retirement. This makes HSAs particularly advantageous for those who might not need to tap into their savings immediately at retirement or who want to minimize their taxable income.

Investment Strategy for HSAs

Initially, it's prudent to invest conservatively within an HSA, focusing on ensuring that there are sufficient liquid funds to cover near-term deductible and other out-of-pocket medical expenses. However, once a financial cushion is established, treating the HSA like a retirement account by investing in a diversified mix of stocks and bonds can significantly enhance the account's growth potential over the long term.

Utilizing HSAs in Retirement

In retirement, HSAs can cover a range of expenses:

Healthcare Costs-Pre Medicare: HSA's Can pay for healthcare costs to bridge you to Medicare.
Healthcare Costs-Post Medicare: HSAs can pay for Medicare premiums and out-of-pocket medical costs, including dental and vision, which are often not covered by Medicare.
Long-term Care: Funds can be used for qualified long-term care services and insurance premiums.
Non-medical Expenses: After age 65, HSA funds can be used for non-medical expenses without incurring penalties, although these withdrawals are subject to income tax.

Conclusion

In summary, HSAs offer unique advantages that can make them a superior option for retirement savings, particularly after the benefits of 401(k) matching are maximized. Their flexibility in fund usage, coupled with tax advantages, makes HSAs an essential component of a comprehensive retirement strategy. By strategically managing contributions and withdrawals, individuals can maximize their financial health in retirement, keeping both their medical and financial well-being secure.

PG&E Benefits Annual Enrollment

As stated in your PG&E SPD, Annual enrollment for your PG&E benefits usually occurs each fall (Ex. Oct. 24 - Nov. 15). Before it begins, you will be mailed enrollment materials and an upfront confirmation statement reflecting your benefit coverage to the address on file. You’ll find enrollment instructions and information about your benefit options and contribution amounts. You will have the option to keep the benefit coverage shown on your upfront confirmation statement or select benefits that better support your needs. You can choose to enroll in eBenefits and receive this information via email instead.

Next Steps:

Watch for your annual enrollment information in the September/November time frame.
Review your benefits information and utilize the tools and resources available on PG&E's Benefits Center website.
Enroll in eBenefits.

Things to keep in mind:

47% of Americans cite healthcare as their greatest economic concern.
Medical bills are the No. 1 cause of bankruptcy in the United States.
For older Americans, healthcare costs represent the second-largest expense, behind housing.

Elected & Automatic Benefits

Elected Benefits
Retiree Medical Coverage*— If you’re eligible

Coverage you can elect.
A separate packet will be mailed to you with an enrollment form and details about your options.

Retirement service award**

A gift you can order within six months of your retirement date at no cost to you.
A separate packet will be mailed to you with gift options and a gold card giving you access to PG&E facilities and group discounts.

COBRA***

At your own expense, you can elect COBRA to continue:

Dental, vision, EAP and medical coverage for you and your eligible dependents—for 18 months after you retire.
Health Care FSA contributions on an after-tax basis through the end of the calendar year—if you’re enrolled in the FSA when you retire A separate packet will be mailed to you with costs and forms.

Automatic Benefits

Post-retirement life insurance*

Automatically provided at no cost to you.
A separate packet will be mailed to you with information about your coverage.

Unused vacation

Cash payout in your final pre-retirement paycheck of earned and unused vacation, Paid Time Off, floating holidays and service anniversary vacation.
To avoid having disproportionately high taxes withheld from your final check, ask your supervisor if you can “vacation out” and retire at a later date.

Unused Health Account Credits*

If you’re eligible for PG&E-sponsored retiree medical coverage and you have unused Health Account credits, you can continue to use them—even if you don’t enroll in a PG&E-sponsored retiree medical plan.

Retiree utility discount

If you retire from the utility, you’ll continue to get a 25% discount on utility rates as long as you live within PG&E’s service territory and you have a PG&E account in your name.

Short-Term & Long-Term Disability

Short-Term: Depending on your plan, you may have access to short-term disability (STD) benefits.

Long-Term: Your plan's long-term disability (LTD) benefits are designed to provide you with income if you are absent from work for six consecutive months or longer due to an eligible illness or injury.

Net Unrealized Appreciation (NUA)

Your life insurance coverage and any optional coverage you purchase for your spouse/domestic partner and/or children ends on the date your employment ends, unless your employment ends due to disability. If you die within 31 days of your termination date, benefits are paid to your beneficiary for your basic life insurance, as well as any additional life insurance coverage you elected.

Note:

You may have the option to convert your life insurance to an individual policy or elect portability on any optional coverage.
If you stop paying supplementary contributions, your coverage will end.
If you are at least 65 and you pay for supplemental life insurance, you should receive information in the mail from the insurance company that explains your options.
Make sure to update your beneficiaries. See PG&E's SPD for more details.

Beneficiary Designations

As part of your retirement and estate planning, it’s important to name someone to receive the proceeds of your benefits programs in the event of your death. That’s how PG&E will know whom to send your final compensation and benefits. This can include life insurance payouts and any pension or savings balances you may have.

Next Step:

When you retire, make sure that you update your beneficiaries. Your company have an Online Beneficiary Designation form for life events such as death, marriage, divorce, childbirth, adoptions, etc.

If you are unsure about PG&E benefits, schedule a call to speak with one of our PG&E-focused advisors.

Schedule a Call

For many retirees, understanding and claiming Social Security can be difficult but identifying optimal ways to claim Social Security is essential to your retirement income planning. Social Security benefits are not designed to be the sole source of your retirement income, but a part of your overall withdrawal strategy.

Knowing the foundation of Social Security, and using this knowledge to your advantage, can help you claim your maximum benefit.

It’s your responsibility to enroll in Medicare parts A and B when you first become eligible — and you must stay enrolled to have coverage for Medicare-eligible expenses. This applies to your Medicare eligible dependents as well.

You should know how your retiree medical plan choices or Medicare eligibility impact your plan options. Before you retire, contact the U.S. Social Security Administration directly at 800-772-1213, call your local Social Security Office or visit ssa.gov.

They can help determine your eligibility, get you and/or your eligible dependents enrolled in Medicare or provide you with other government program information. For more in-depth information on Social Security, please call us.

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Check the status of your Social Security benefits before you retire. Contact the U.S. Social Security Administration, your local Social Security office, or visit ssa.gov.

Are you eligible for Medicare or will be soon?

If you or your dependents are eligible after you leave your telecom industry company, Medicare generally becomes the primary coverage for you or any of your dependents as soon as they are eligible for Medicare. This will affect your company-provided medical benefits.

You and your Medicare-eligible dependents must enroll in Medicare Parts A and B when you first become eligible. Medical and MH/SA benefits payable under the company-sponsored plan will be reduced by the amounts Medicare Parts A and B would have paid whether you actually enroll in them or not.

For details on coordination of benefits, refer to your summary plan description.

If you or your eligible dependent don’t enroll in Medicare Parts A and B, your provider can bill you for the amounts that are not paid by Medicare or your company-specific medical plan … making your out-of-pocket expenses significantly higher.

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According to the Employee Benefit Research Institute (EBRI), Medicare will only cover about 60% of an individual’s medical expenses. This means a 65-year-old couple, with average prescription-drug expenses for their age, will need $259,000 in savings to have a 90% chance of covering their healthcare expenses. A single male will need $124,000 and a single female, thanks to her longer life expectancy, will need $140,000.

The ideas of happily ever after and until death do us part won’t happen for 28% of couples over the age of 50.3. Most couples save together for decades, assuming they would retire together. After a divorce, they face the expenses of a pre-or post-retirement life, but with half their savings.

If you’re divorced or in the process of divorcing, your former spouse(s) may have an interest in a portion of your retirement benefits. Before you can start your pension — and for each former spouse who may have an interest — you’ll need to provide your company with the following documentation:

A copy of the court-filed Judgment of Dissolution or Judgment of Divorce along with any Marital Settlement Agreement (MSA)
A copy of the court-filed Qualified Domestic Relations Order (QDRO)

Provide your company with any requested documentation to avoid having your pension benefit delayed or suspended. To find out more information on strategies if divorce is affecting your retirement benefits, please give us a call.

You’ll need to submit this documentation to your company’s online pension center regardless of how old the divorce is or how short the marriage is. *Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019

Social Security and Divorce

You can apply for a divorced spouse’s benefit if the following criteria are met:

You’re at least 62 years of age.

You were married for at least 10 years prior to the divorce.

You are currently unmarried.

Your ex-spouse is entitled to Social Security benefits.

Your own Social Security benefit amount is less than your spousal benefit amount, which is equal to one-half of what your ex’s full benefit amount would be if claimed at Full Retirement Age (FRA).

Unlike with a married couple, your ex-spouse doesn’t have to have filed for Social Security before you can apply for your divorced spouse’s benefit, but this only applies if you’ve been divorced for at least two years and your ex is at least 62 years of age. If the divorce was less than two years ago, your ex must already be receiving benefits before you can file as a divorced spouse.

In the process of divorcing?

If your divorce isn’t final before your retirement date, you’re still considered married. You have two options:

Retire before your divorce is final and elect a joint pension of at least 50% with your spouse — or get your spouse’s signed, notarized consent to a different election or lump sum.
Delay your retirement until after your divorce is final and you can provide the required divorce documentation.*

Source: The Retirement Group, “Retirement Plans - Benefits and Savings,” U.S. Department of Labor, 2019; “Generating Income That Will Last Throughout Retirement,” Fidelity, 2019

If you have a joint pension:

Start the joint pension payments. The joint pension is not automatic. Your joint pensioner will need to complete and return the paperwork from your company’s pension center to start receiving joint pension payments.
Be prepared financially to cover living expenses. Your spouse will need to be prepared with enough savings to bridge at least one month between the end of your pension payments and the beginning of his or her own pension payments.

Financial benefits of working

Make up for decreased value of savings or investments. Low interest rates make it great for lump sums but harder for generating portfolio income. Some people continue to work to make up for poor performance of their savings and investments.

Maybe you took a company offer and left earlier than you wanted and with less retirement savings than you needed.

Instead of drawing down savings, you may decide to work a little longer to pay for extras you’ve always denied yourself in the past.

Meet financial requirements of day-to-day living.

Expenses can increase during retirement and working can be a logical and effective solution. You might choose to continue working in order to keep your insurance or other benefits — many employers offer free to low-cost health insurance for part-time workers.

Emotional benefits of working

You might find yourself with very tempting job opportunities at a time when you thought you’d be withdrawing from the workforce.

Staying active and involved.

Retaining employment, even if it’s just part-time, can be a great way to use the skills you’ve worked so hard to build over the years and keep up with friends and colleagues.

Enjoying yourself at work.

Just because the government has set a retirement age with its Social Security program doesn’t mean you have to schedule your own life that way. Many people genuinely enjoy their employment and continue working because their jobs enrich their lives.