Priority Alert: 2022 RS Plan Lump Sum Cash Payment Interest Rates Issued
The Internal Revenue Service has issued the interest rates used to calculate Retirement Security (RS) Plan lump sum cash payments in 2022.
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 three rate segments in order to apply an interest rate to each annuity period that would be considered consistent with the period from retirement to the time a particular annuity payment would have been made.
In the past, interest rates from the Pension Benefit Guaranty Corp. (PBGC) were used for calculating the portion of benefits accrued before December 31, 1999. The PBGC announced in September 2020 that it would no longer be publishing annual interest rate assumptions, effective December 31, 2020. Even though the number of RS Plan participants affected by this change was small, NRECA adopted a temporary methodology for calculating lump sums that effectively extended the PBGC interest rate for one more year. This extension was intended to provide affected participants more time to make retirement decisions. Starting in 2022, the PBGC interest rates will no longer apply in the determination of RS Plan lump sum benefits.
The RS Plan administration system has been updated to reflect the sunsetting of the PBGC rate. Therefore the PBGC rate will no longer appear on option form benefit summaries and special request estimates with a 2022 or later calculation date.
Each interest rate is used in combination with a different mortality table, which can have a significant effect on the lump sum amount.
| Rate | 2022 | 2021 |
| GATT | 1.94% | 1.62% |
| PPA Segment 1 (payment in first five years) | 1.02% | 0.53% |
| PPA Segment 2 (payment in next 15 years) | 2.72% | 2.31% |
| PPA Segment 3 (payment out further than 20 years) | 3.08% | 3.09% |
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What does this mean for RS Plan participants considering retirement?
Generally, the value of a lump sum benefit decreases when interest rates increase. Due to the increase in almost all the interest rates, the lump sum factor for a particular age generally will be lower using the 2022 rates than using the 2021 rates.
However, because the average change in interest rates is relatively small, it is difficult to predict if the 2022 lump sum amount will necessarily be smaller than the 2021 amount. A number of factors affect a lump sum payment, including pay, benefit service and age. This means that, while the lump sum interest rate changes listed above might cause a lump sum amount to be lower in 2022 compared with 2021, other factors could offset some or all of that decrease in the lump sum amount.
As a reminder, benefits administrators have the ability to model and view most RS Plan benefit estimates (projections) on the Employee Benefits website. Simply go to My Co-op’s Retirement > RS Plan Projections. Please note: RS Plan estimates ordered through the Employee Benefits website as of Thursday, December 16, 2021, will reflect the new rates.
Considering lump sum payments
Participants considering lump sum payments should thoughtfully review all distribution options and their personal plans for retirement income. Taking a lump sum provides the benefit all 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 various 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. Members of NRECA’s Personal Investment & Retirement Consulting team are also available for one-on-one conversations by calling 866.673.2299, option 6, or by email at pirc@nreca.coop.
If you have questions, contact the Member Contact Center at 866.673.2299 or contactcenter@nreca.coop.