RS Plan Interest Rates – New Timing Ahead
Making retirement decisions can be a stressful process—especially when there’s time pressure. For Retirement Security (RS) Plan participants who are considering whether to take a single cash payment in one calendar year versus the next, the decision window is short: typically about two weeks.
That’s because the interest rates NRECA will use to calculate payments in the upcoming year aren’t announced by the federal government until mid-December. In a fluctuating interest rate environment, the difference in the size of a cash payment in year 1 versus 2 can be substantial. For this reason, the timing has historically created challenges.
An improved experience is coming
Good news—that decision window will get longer starting next year. NRECA will use rates that are available in October instead of December for RS Plan single cash payment calculations. The new timing will go into effect near the end of 2025, for participants comparing 2025 vs. 2026 benefit commencements.
A fact sheet for your cooperative explains the timeline of events during 2024, when some internal NRECA processes are transitioning, and for 2025 and beyond. Your co-op will also receive a summary of material modifications (SMM) document in the second quarter of 2025, reflecting the change to the RS Plan. The SMM should be distributed to your participants.
Two key things to remember:
- The timing of announcing interest rates in 2024, for 2025 benefit commencements, will not change. The final rates for benefits commencing in 2025 will not be known until mid-December 2024.
- Starting in 2025, NRECA will announce final interest rates for benefits commencing in the coming year in mid- to late-October. For example, 2026 rates will be announced in October 2025. This timing will continue in subsequent years.
You may recall that NRECA recently began providing a mid-year update of interest rates in August. That update is designed to bring benefit estimates more in line with the actual interest rate environment at the time benefit estimate requests are made.
In 2024, NRECA will provide a mid-year update to projected 2025 rates in August. In October 2024, another mid-year update to projected 2025 rates will occur.
Special calculations applicable to 2025 single cash payments
In mid-December 2024, the new rates announced at that time will be added to NRECA’s administration system. Any 2025 single cash payment will be calculated twice—once using the December rate and again using the rate loaded in October—and the participant will be paid the higher amount. This “better-of” comparison is required by the IRS and will only occur for single cash payments with 2025 benefit payment dates.
Starting in 2025, the rates announced in October will become the new “final” rates. From that year forward, there will be no RS Plan rate update event in December. Participants weighing a retirement in one calendar year versus the next will have more than two months in which to make their decision. Remind your participants that requesting benefit estimates or option forms in a timely manner will help, too.
A Q&A sheet is available for your co-op to distribute to affected participants as needed. You might decide this sheet will be more useful to your participants in 2025. Again, please note that in 2024, there is no change to the timing of the final rates’ release.
Look for more information in the coming months. If you have additional questions after reviewing the fact sheet, please contact your co-op’s field representative.