December Interest Rate Announcement Will Impact 2023 RS Plan Single Cash Benefit Payments

Retirement Security (RS) Plan benefits paid as a single cash payment (sometimes referred to as a “lump sum”) are variable year over year, with interest rates playing a large part in determining the value of a participant’s final benefit paid in that manner. Typically, RS Plan benefits paid as an annuity are not impacted by interest rate changes.

Interest rate impacts
As interest rates rise, the value of benefits paid as single cash payments will decline. Conversely, as longer-term interest rates decrease, single cash payment amounts will increase. RS Plan benefits paid as single cash payments in 2022 are based on interest rates determined in mid-December 2021 when interest rates were much lower than they are currently. Single cash benefit payments for 2023 retirements will be determined by interest rates released in mid-December 2022. If these interest rates follow the pattern of higher rates seen over the past several months, in most cases, a single cash distribution paid in 2023 will be less valuable than an equivalent one paid in 2022.

Benefit estimates allow for comparison
RS Plan benefit estimates are a great way to help your co-op’s employees understand how this valuable benefit fits into their overall retirement planning. And, for employees contemplating retirement dates at the end of 2022 or in early 2023, benefit estimates are even more important in our current interest rate environment. Use this flier, “Answers You Need: Weighing Your RS Plan Payment Options,” to provide your co-op’s participants with high-level information on how interest rates may impact certain benefit distribution decisions.

Important notes about benefit estimates
Remember, forward-looking estimates of an RS Plan benefit’s value are based on certain assumptions as to what interest rates used to calculate single cash payments may be at a future date. These assumptions cannot exactly predict where interest rates may be as of any future point in time, especially when market interest rates are rising or declining rapidly. As a result, a future benefit estimate statement’s displayed value may end up being overstated or understated when compared to the final value of the benefit calculation at the retirement benefit commencement date. This is why these forward looking calculations are called benefit “estimates.” If any of your potential retirees have questions regarding their RS Plan benefits and which benefit payment options may best meet their short- and long-term income needs, please encourage them to contact one of our Personal Investment & Retirement Consulting (PIRC) team members.

Final rates may indicate lower 2023 payments
We strongly encourage benefit administrators to run or re-run benefit estimates after interest rates are announced in mid-December. Doing so can provide participants contemplating retirement in 2022 or early 2023 with the most accurate information for this important decision. If a participant is currently only considering a 2023 retirement benefit commencement date, it may be helpful to provide them a benefit estimate for a 2022 benefit commencement date for comparison purposes.

Resources
RS Plan benefit estimates can be run on the NRECA Employee Benefits website: cooperative.com > My Benefits > Co-op Retirement > RS Plan Estimates. Additionally, participants needing help evaluating their options should be directed to NRECA’s PIRC team at 866.673.2299, option 6 or pirc@nreca.coop. PIRC team members are available Monday through Friday, 7:30 am to 4 pm, Central time.