This monthly newsletter aims to track the interest rates that calculate the lump sum in the Chevron Retirement Plan and give an estimate of how it might affect your retirement benefit.
November Segment Rate Summary
The segment rates for November are 0.53%, 2.31%, and 3.09%. This brings the three-month average to 0.53%, 2.33%, and 3.17% for a February 2021 benefit start date. For Chevron employees hired before 2008, we estimate a decrease of about 0.15% in the lump sum benefit for an average vested 65-year old in February versus January; though please check your benefit calculator for your actual calculation.
All three segment rates decreased in November from October. The good news is that the rates did not increase as they have over the last couple of months. The bad news is that we still estimate a decrease in the lump sum for February retirees because of an existing “back-heavy” rate pattern, as discussed in the article linked below. The November rates are still higher on average than the August rate that fell out of the three-month average, making the three-month average higher in the first and second segments, which are the most important. This month’s segment rates break that pattern, which will make it much easier to see increasing lump sums if rates continue to fall.
How Does this Affect Me?
The Chevron Retirement Plan offers a substantial benefit to Chevron employees over many other companies’ plans. It is one of the few remaining retirement pension plans that still offers a lump sum benefit. Since the Pension Protection Act of 2006, the calculation of the lump sum has become more complicated now relying on corporate bond yield curves, known as segment rates, instead of the 30-year treasury rate that was used in the past. In a low interest rate environment, it is important for Chevron employees to understand how their lump sum is calculated and how quickly the benefit can change. As interest rates lower, the lump sum increases, and vice-versa. If rates increase 1% across the board, it could lower your lump sum by almost 10% depending on your age and length of service. This calculation applies only to Chevron employees hired before January 1, 2008.
Baird Retirement Management provides highly specialized retirement planning expertise for business professionals nearing retirement. Our perspectives are backed by our extensive experience, comprehensive industry knowledge and immersion in the latest retirement, income, and tax planning strategies. By focusing on select companies and industries, we can tailor our retirement planning advice to help meet the specialized planning needs and considerations of employees within a company or industry.
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