RS PLAN: 2015 Lump Sum Interest Rates Issued
Participants should consider the effect of all distribution options
The Internal Revenue Service and Pension Benefit Guaranty Corporation (PBGC) have issued the interest rates used to calculate Retirement Security (RS) Plan lump sum payments for 2015.
Different rates are used depending on when an employee earned benefits within the RS Plan. The GATT rate (30-year Treasury rate) generally applies to benefits earned before 2008. The Pension Protection Act (PPA) rates generally apply to benefits earned after 2007. PPA employs segmented rates to apply, among other things, an interest rate considered consistent with the period from retirement to the time a particular annuity payment would have been made. The PBGC rate generally applies to benefits earned before 2000. Each interest rate is used in combination with a different mortality table, which can have a significant effect on the lump sum amount.
| Rate | 2014 | 2015 |
| PBGC | 1.75% | 1.00% |
| GATT | 3.80% | 3.04% |
| PPA Segment 1 (payment in first five years) |
1.19% | 1.40% |
| PPA Segment 2 (payment in next 15 years) |
4.53% | 3.88% |
| PPA Segment 3 (payment out further than 20 years) |
5.66% | 4.96% |
What does this mean for the lump sum calculations of RS Plan participants considering retiring?
Generally, the value of a lump sum benefit increases when rates decrease. Since the PBGC, GATT and (combined) PPA rates are lower than last year’s rates, the lump sum factor for a particular age will be higher using the 2015 rates than using the 2014 rates. However, a number of other factors affect a lump sum payment, including the participant’s age, final average salary, benefit service and the timing of any employer plan amendments.
As a reminder, benefits administrators have the ability to model and view RS Plan benefit projections on the Employee Benefits website. Simply go to Administration > My Co-op’s Retirement > RS Plan Projections. Please note: The RS projection feature will be shut down from 8 am ET Tuesday, December 16, until noon ET on Wednesday, December 17, to allow I&FS to load and test the new factors.
Considering lump sums
Participants considering lump sums should thoughtfully review all distribution options and their personal plans for retirement income. Taking a lump sum provides the benefit at once, but participants must consider how they plan to save, spend or invest their lump sum. Participants who choose annuity forms of payment are not affected by lump sum interest rate changes.
An educational flier, “The Answers You Need, Weighing Your RS Plan Payment Options,” is available for you to share with employees. This flier discusses all benefit options in the RS Plan, including a broad selection of annuity choices, and describes how lump sums are calculated and how fluctuations in interest rates can affect lump sum values. The flier also reminds employees to review their overall financial readiness before making final decisions about retiring.
For questions, contact the Member Contact Center at 866.673.2299 or contactcenter@nreca.coop.