How to Choose the Best Pension Option for Boeing Retirees

Boeing Pension Value Plan

What’s Covered in This Review?

The Boeing Company made news recently when they announced a freeze for non-union employees’ pensions plans. Do you know how it affects your retirement? While there are plenty of articles written that cover the details of the announcement (here’s a thorough article by Reuters), in this independent review I’ll be covering the following information on The Boeing Company Pension Value Plan:

  • How The Boeing Company Pension Value Plan Works
  • How Benefits Are Paid to You
  • Taxation of Payment
  • Which Payment Option is Best
  • How Your Boeing Pension Affects Your Financial Plan

The Boeing Company does an excellent job of making information readily available. However, providing literature doesn’t always lead to understanding. In fact, according to the Employee Benefit Research Institute, only 14% of American workers believe they’ll have enough money to live out their later years comfortably. Understanding what your 401(k) and pension options are is important so you can know how they fit into your overall financial plan.

For those readers who have found my site for the first time and don’t know much about me, I’m a fee-only financial planner. I don’t work for Boeing or any affiliated companies nor do I receive any compensation from them. I have spent a great deal of time examining the summary plan descriptions and resources available to produce this review. Since I’m not tied to the company in any way, I offer an impartial and objective view. My hope is that I can help educate you so you can make well-informed and smart decisions. I’ll explain how you can ask questions at the end of my review.

The Boeing Company Pension Value Plan Key Features

Key Features
● The Company makes all contributions to the Plan; you are neither required nor permitted to make contributions.
● Retirement benefits grow through benefit credits, which equal a percentage of your eligible pay.
● Benefits also grow through interest credits based on the yield of the 30-year U.S. Treasury bond.
● You earn a right to pension benefits after you complete five years of service (or after reaching age 62 while employed with one year of service). Earning a right to pension benefits is known as “vesting.”
● Your Plan monthly benefit may include benefits transferred from a prior retirement plan. This transferred benefit grows with any pay increases and is called your “heritage benefit.”
● Your monthly benefit also may include a special indexing benefit if you were working at Jeppesen Sanderson, Inc., or Jeppesen DataPlan, Inc. (collectively, “Jeppesen”), or Airspace Safety Analysis Corporation (ASAC) when Boeing bought these units. This special benefit is called the Times Mirror indexing benefit.
● The Plan features a minimum benefit formula. Your Plan benefit will be the greater of the minimum benefit or the sum of your benefit credits, interest credits, heritage benefit (if any), and Times Mirror indexing benefit.
● Your pension benefits are insured, up to certain limits, by the Pension Benefit Guaranty Corporation, a U.S. Government agency.

How The Boeing Company Pension Value Plan Works

The Boeing Company Pension Value Plan is a defined benefit pension plan, which is a type of pension plan where the employer promises a monthly benefit in retirement. Under this plan, you receive benefit credits that are equal to a percentage of your eligible pay based on your age for each year you work for the company. This benefit amount grows with interest credits related to the yield of the 30-year U.S. Treasury bond. This formula allows you to see the value of your pension benefits in today’s dollars. Your plan value is the total of your benefit credits and interest credits. There are no individual accounts so when you retire, the plan converts your total credits to a monthly amount, which is payable for the rest of your life. The amount of your benefit depends on all of the following:

  • Your years of service with Boeing
  • When you retire
  • Whether you leave Boeing before retirement age
  • Your salary
  • Your salary growth

The Boeing Pension Value Plan uses two different formulas to determine your pension benefit.

Credit-Based Benefit – The credit-based benefit formula adds your benefit credits, interest credits, Heritage benefit, if any and Times Mirror indexing benefit, if any. The total is converted into a monthly annuity.

Minimum Benefit – The minimum benefit is $50 per month times the number of years of benefit service. The total is then converted into a monthly annuity.
After these two values are determined, you receive the greater of the two.

How Benefits are Paid to You

The Boeing Company Pension Value Plan has a number of payment methods available. They include:

  • A single life annuity
  • A 50, 75, or 100 percent surviving spouse option, if you’re married
  • A life annuity with a 10-year certain period
  • An accelerated income option
  • Lump-sum distribution

If you do not choose a payment method, the Pension Value Plan automatically will pay your benefit as a single life annuity if you’re single or as a 50 percent surviving spouse option if you’re married. Once you begin your benefit payment, you cannot change the method.

Single Life Annuity

A single life annuity is pretty straightforward. It’s a monthly benefit that will continue for the rest of your lifetime. No benefit payments are made after your death. A special note to those who are married, you must have your spouse’s notarized written consent. Another important point to note regarding medical benefits is that if you are married and elect this option, your surviving spouse may not be eligible for the Boeing retiree medical insurance coverage after your death.

50, 75 or 100 Percent Surviving Spouse Option

This option, also known as a joint-and-survivor annuity, is available for married employees. With this option, you receive a monthly benefit payment for the rest of your life. If you die before your spouse dies, your surviving spouse will receive a percentage of your monthly benefit for life. (Your “spouse” refers to the person to whom you’re married when you start receiving payments regardless of any changes in marital status after retirement.) The percentage amount is the amount you specify: 50, 75 or 100 percent. Joint-and-survivor annuity payments are lower than a single life annuity because the plan is paying a benefit over the lifetime of two people. If your spouse dies before you do, the benefit will revert back to the higher single life annuity for the rest of your life. You might be wondering, how much is my benefit reduced if I choose the 50, 75 or 100 percent option? The chart below shows the reduction based on each option. (Assumes you’re an active employee)

Benefit Reductions for the Surviving Spouse Option
If your spouse is...And you choose the 50% option, your benefit will be...And you choose the 75% option, your benefit will be...And you choose the 100% option, your benefit will be...
Within 10 years of your age95% of your single life annuity90% of your single life annuity85% of your single life annuity
More than 10 years younger than youReduced by an additional 1% for each full year of age differenceReduced by an additional 1% for each full year of age differenceReduced by an additional 1% for each full year of age difference
More than 10 years older than youIncreased by 1% for each full year of age difference, up to a maximum benefit of 99%Increased by 1% for each full year of age difference, up to a maximum benefit of 99%Increased by 1% for each full year of age difference, up to a maximum benefit of 99%

Life Annuity With a 10-Year Certain Option

The life annuity with a 10-year certain option guarantees you a monthly benefit payment for your entire life. In addition, if you die within 10 years after your benefit payments begin, your beneficiary will receive the same monthly benefit payment for the remainder of the 10 years. So for example, if you pick this option and die two years after your payments begin, your beneficiary will receive the same monthly benefit amount for the remaining 8 years of the guaranteed period. You can name any beneficiary you choose. If you’re married and want to pick this option, you must have your spouse’s written notarized consent.

Accelerated Income Option

If you retire before age 62 and two months, you can choose the accelerated income option. You may elect this option along with a single life annuity, the surviving spouse option (any percentage), or the life annuity with a 10-year certain option. The accelerated income option allows you to collect a larger than normal portion of your pension benefit until age 62 and two months and a smaller benefit afterward. Your single life annuity is reduced to pay for this option. If you’re married and pick a surviving spouse option, and die before reaching age 62 and two months, a percentage of the temporary supplement is paid to your spouse until the date you would have reached age 62 and two months. Your spouse would then receive the same percentage that applies to the surviving spouse option you elected. When you reach age 62 and two months (or would have reached that age), the temporary supplement will end and your benefit will be reduced. The reduced benefit is payable for life. If you are married, elect a survivor option and die before your spouse, benefits will continue to your spouse. If you elect the accelerated income option and the life annuity with a 10-year certain option and then die before age 62 and two months, your beneficiary will continue to receive the temporary supplement until the earlier of when you would have been age 62 and two months or the end of that 10-year period.

Lump-Sum Distribution

You may also be eligible for a lump-sum payment from the Pension Value Plan to another qualified plan such as an Individual Retirement Account (IRA). If you don’t roll over your lump-sum distribution and instead take direct payment from the plan, your distribution will be subject to a 20 percent withholding tax. Your payments may also be subject to a 10 percent early withdrawal penalty unless:

  • You are age 55 or older at the time of separation from service
  • You are age 59 1/2 or older at the time of distribution
  • The distribution was due to death or total and permanent disability
  • The money was distributed under a qualified domestic relations order
  • You have deductible medical expenses that exceed your retirement payments

If you roll over the lump-sum payment, you avoid the 20 percent withholding tax on the amount transferred, as long as the account you’re rolling into accepts rollover contributions. You also avoid the 10 percent penalty tax by rolling into a qualified plan.

Taxation of Benefits

Your benefits under this plan are not taxable to you when earned or credited to you, and you do not report them as income on your tax return. Your benefits are taxable at ordinary income tax rates when distributed to you as a retirement or other benefit. As discussed previously, a 20 percent tax withholding and 10 percent tax penalty may apply to certain distributions. You should always consult a qualified tax adviser before making distribution elections because there is no guarantee that the tax treatment of benefits won’t be altered by future changes in tax laws or regulations.

Which Payment Option is Best

I’ve discussed the pension options available in The Boeing Company Pension Value Plan. These options break down to different forms of monthly benefit payments or a lump-sum distribution. The option that is best for you really depends on your personal financial situation. A lump-sum can be an attractive option. You give up the right to monthly payments in the future for the present day value of those payments today. Having the ability to invest the way you want and having the money to pass on to your heirs also gives you some flexibility. You also might be able to find other options, such as an annuity, that provides greater guarantees than that of your pension. For some though, monthly payments might be more enticing. You give up the ability to pass the money to heirs (besides any period certain or survivor benefits) for the guaranteed payments. The security of this known value can be more attractive than having to make decisions about how to invest.

How Your Boeing Pension Affects Your Financial Plan

The benefit payment option you choose is an important part of your financial plan. Since the question we are looking to answer is how to choose the best option, you really need to understand how a pension fits into your overall financial plan before you choose. Take the time to have a financial plan developed. If you find that you don’t necessarily need a monthly payment, then a lump sum may be the best option. However, if you could use the guaranteed monthly payment, then that option might be the better fit. As you can see, it really depends on your personal situation.

Have Questions About Your Boeing Pension Value Plan? Notice Any Mistakes?

If you’ve found this review it’s because you’re concerned about which pension option is best for you. Figuring out the correct option for your unique circumstances can be a difficult task to conquer. If you have more questions and need some more specific help it’s very simple to reach out. Just use our secure contact form to ask a question. Your question is confidential and you’ll get a friendly reply within 24 hours to help point you in the right direction.

If you know of anyone who works at this company and might benefit from this educational review, please share this post with them. Doing so might just save them a whole lot of time and trouble as well! If you have a LinkedIn, Facebook or Twitter account you can click on any of the icons to the left to share this article. That way more people will be able to find and hopefully benefit.

Lastly, like all humans — I do make mistakes. If you see one on this review please reach out and let me know. I’m happy to admit when I’m wrong and correct things. Also, if you’re an investor and this review causes confusion or questions please feel welcome to reach out as well. I can’t always get back right away but will do the best I can to clear up your questions within a few days.

Best,

John

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