PRIORITY ALERT: RS Plan Interest Rates Finalized for 2025 Benefit Payments
The Internal Revenue Service has released the interest rates used to determine calculations of Retirement Security (RS) Plan single cash payments in 2025. As a reminder, this year only, NRECA performed a “better-of” comparison of two sets of rates—September and November.
For RS Plans that use the traditional formula for calculating benefits (currently the majority of co-ops)
Because the September rates (see line B below) are more favorable for determining single cash payments than the November rates (line C), the September rates will be used to calculate payments under the traditional formula for 2025.
Due to the decrease in all the interest rates since last year, the single cash payment factor is generally higher using the September rates that are applicable to 2025 payments (line B) than using the rates applicable to 2024 payments (line A). Other factors also affect the amount of a single cash payment, including pay, benefit service and age.
In this 2025 transition year, because the September interest rates produce higher single cash payments than the November rates that were historically used, RS Plan participants will experience higher single cash payments in 2025 as compared to payments had this change in applicable interest rates not occurred.
Note that for participants who requested option forms after October 30, any single cash payment amount was based on the September rates (line B). No recalculation under the new rates will be needed.
For RS Plans that use the cash balance formula for calculating benefits
As a reminder, single cash payments are based on the account balance earned under the cash balance formula. For participants who wish to take their RS Plan benefit as an annuity, the account balance is converted to the various monthly benefit options using similar factors as used under the traditional formula—essentially the opposite type of benefit conversion to what’s done to determine the traditional-formula single cash payment amount.
For 2025 benefit commencement dates, cash balance designs will use the November PPA rates (line C) for the conversion of an account to an annuity and the November GATT rate (line C) will be used for the interest crediting rate for 2025.
In this 2025 transition year, because the November interest rates produce higher annuity payments than the September rates, RS Plan cash balance participants will experience higher annuity payments commencing in 2025 than they would have, had the transition to the September rates not occurred.
Note that 2025 is the only year in which the rates will be different for the two benefit formulas. Starting with 2026 benefit commencement dates, the final rates used for both traditional and cash balance benefits will be the September rates (released in October in the year preceding the benefit commencement date).
Resources for benefits administrators
Please refer to the July 24 article for details about the transition to the new rates-release timing.
As a reminder, you can model and view most RS Plan benefit estimates on the Employee Benefits website. Go to Co-op Retirement > RS Plan Estimates. Please note: Calculations of traditional formula benefits generated after October 23, 2024, have already reflected the final rates.
Resources for participants
An educational flier, “The Answers You Need: Weighing Your RS Plan Distribution 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 a single cash payment is calculated and how fluctuations in interest rates can affect the value of a single cash payment.
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 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.