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HP EDS pension lump-sum buyout offer May 2020  (Updated Sep 14, 2020.) Comments about this page to: info@hpalumni.org

Other info for EDS alumni -- whether or not you ever worked for HP: https://www.hpalumni.org/eds


Make sure that HPInc and Fidelity have your current postal address. Even if not classified by the company as a "Retiree" or if you are long gone from the company -- in case of class-action settlements, pension, or stock issues. (Some EDS people may have missed out on a wage-and-hour class-action settlement. If you were employed by EDS or "EDS, an HP Company" before January 1, 2009 you may have an EDS pension that you have forgotten about.) Update address at former company

This was discussed on the EDS Alumni LinkedIn Group and HPAA's Finance Forum: Join the HPAA Finance Forum

Best continuing discussion is on the independent "EDS Alumni" group on Facebook, operated by Melinda Lockhart: https://www.facebook.com/groups/370163043180343/


Payout -- when and how much? They have to follow IRS regulations. For example, they must declare the terms and dates in the original offer -- and can't change the terms or dates.

The "Opportunity is here" brochure says "...total lump-sum present value of your benefits as of August 1, 2020" and "Your actual lump-sum payment amount will be determined based on the IRS required interest rates and mortality table in effect for August 2020."

The brochure also says "October 2020" for each the three payout options under "How benefits are paid."

If you are having problems, see the legal contacts specified in the controlling legal document -- the "Summary Plan Description" -- which was not
included in the mailings.

The HPAlumni Assn has a copy of the SPD at
https://www.hpalumni.org/EDSRetirementPlanSPD-HP_Final_2012_HP_EDS_Retirement_Plan_SPD.pdf

Be sure to check our "How to decode an SPD" page. (For example, many of the postal contact addresses given in SPDs are extinct.)
https://www.hpalumni.org/SPD-decode


Aug 13 update: People who choose to take the lump-sum buyout report difficulties with transmitting the acceptance paperwork, the Spousal Consent form, confirmation paperwork, and payout amount. These issues -- and workarounds -- are being discussed on the "EDS Alumni" group on Facebook, operated by Melinda Lockhart: https://www.facebook.com/groups/370163043180343/

Aug 11 update: A member of the "EDS Alumni" group on Facebook ( https://www.facebook.com/groups/370163043180343/ ) reports that the official Fidelity website (https://hp.retirementelection.com/) now says:

"Your final lump sum is expected to be higher than what was communicated in your initial estimate because interest rates have declined from March to July. The exact amount of your final lump sum will be posted below in early September 2020."

"Please beware [sic] that if your election forms are not returned or not complete by August 17, 2020, you will not receive the lump sum despite your electronic submission."


Other EDS pension lump-sum payout offers were made in 2016 and 2019. Details: EDS Pension - 401(k) - Stock - Benefits

Deadline extended to July 22. People who have not elected to take the lump-sum buyout are being notified via email and website. One EDS Alumni LinkedIn Group member got this email: "Last chance: Deadline extended for lump-sum election opportunity. Election deadline extended to July 22: There’s still time to make an election." Another member reports that the NetBenefits website on Fidelity now says that the "...deadline for your decision on the lump sum benefit option has been extended to July 22nd, 2020." (July 15, 4PM and 11PM. July 16.)

You can back out, but the final deadline is unclear at this time. From a thread on Facebook:  (July 15, 6AM)

Ray: "If folks are unsure of what to do, select it now and you have until Oct 1 to back out. (you can back out, but not change to any of the 4 cash out options)."

Andy: "That's what I heard on one of the conference calls. But when I called Fidelity yesterday and spoke to a rep they told me I have until August 29 to cancel my election. Did you see the October 1 date in writing anywhere?"

Ray: "Andy, we heard it on the call too and my wife wrote it down. I spoke with my Fidelity guy yesterday and he said Oct 1. If anyone is unsure, call the HP Retirement Election at 1-866-602-0406."

Andy: "That's the number I called."

(The very active "EDS Alumni" group on Facebook, operated by Melinda Lockhart, is at: https://www.facebook.com/groups/EDSalumniDFW/ )

Summary:

To reduce HP's long-term pension costs, a lump-sum pension buyout offer has been made to some who have a legacy EDS pension plan and have not started taking monthly annuity payments. Deadline: July 15, 2020. Two members of the "EDS Alumni" group on Facebook report that the offer has also been made to some people who started collecting their EDS pension in October 2019 or later.  (July 16.)

Key points:

The account is growing at 5% per year if you left EDS after July 1, 1998. HP pension does not grow; this offer has not been made to legacy HP employees.

What if HP goes under? The plan is backed by a trust fund -- and is listed on the federal PBGC website as insured. (Full payout not guaranteed for larger pensions -- $5,812 per month maximum for someone who starts taking pension at 65. See this table:
https://www.pbgc.gov/wr/benefits/guaranteed-benefits/maximum-guarantee )

Fidelity is HP's financial advisor, not yours. The "Opportunity is here" booklet is a sales brochure. Member report: "The agent did say a risk is the fact that the fund is backed by HP" but didn't mention PBGC." [The Federal pension plan insurance program.]

From the non-profit Pension Rights Center: "Because of interest rate assumptions, loss of legal protections, and insurance of benefits, retirees will lose a significant part of the value of their pension by taking a lump sum. Often retirees think... they can do a better job investing it themselves in the stock market... rarely, if ever, can people replicate the security of a pension." Pension Rights Center

The most incisive member comments:

"Get advice from a CFP [Certified Financial Planner] acting as your fiduciary."

Yes:  "The most advantageous time to take a lump sum is when interest rates are low. Given that they are VERY low right now, this is probably a good deal for those whose financial circumstances allow them to treat it as an investment asset..."

No: "Do not take the cash value, I had two pensions, [EDS] and Deloitte. The [EDS] had three times the cash value of the Deloitte pension and nine times the monthly payout. In four years I have drawn out what was equal to the cash value. I wish I could find other annuities that paid such a return." 
Another member: "If your only source of funding is your pension, be very very risk adverse and that means fight shy of lump sums!!!!"

Read the fine print -- and the key legal document that is not included in the mailings -- as detailed below.


Key document not included in the mailing: "EDS Retirement Plan Summary Plan Description" (the "SPD") -- which covers many key details, including annual interest credit, QDRO, and surviving spouse provisions.

There are at least two vintages of the EDS plan. Download the SPD from Fidelity that specifically applies to you -- based on when you left EDS.

For example, the "Updated as of January 2012" copy of the SPD does not apply if you left EDS before July 1, 1998. 
It says on page 1: "Benefits for participants who terminated from EDS before July 1, 1998 are subject to separate provisions not described in this SPD. For more information about these benefits, contact the HP Retirement Services Center."
https://www.hpalumni.org/EDSRetirementPlanSPD-HP_Final_2012_HP_EDS_Retirement_Plan_SPD.pdf 

How to decode an SPD. (For example, many of the postal contact addresses given in SPDs are extinct.)  Decoding SPDs

If you left EDS on or after July 1, 1998 -- and have not cashed out or started taking the pension -- the account has been and will continue to grow at 5% per year. "Personal Pension Accounts ...continue to receive Interest Credits, even after ceasing to earn Pay-Based Credits. Your PPA is credited with Interest Credits at a predetermined rate that’s adjusted annually each January 1 subject to a minimum rate of 5% per year. Interest Credits continue to accumulate until your PPA is paid to you or converted to an annuity at retirement." [Page 9 of the Summary Plan Description.

Members report that this offer has not been made to people who have a legacy HP pension plan.

The fine print -- details of the offer:

- Estimated. "The estimate is based on applicable interest rates as of March 2020. However, your final benefit will be based on the actual interest rates applicable for August 2020, as well as the IRS mortality table in effect at that time, and may be higher or lower than the estimate provided on your Personalized Benefit Statement and the Retirement Election Website."

- Taxable. "Payments will begin in October 2020." "Your payment will be taxed as regular income in 2020. The IRS requires the Plan to withhold 20% of your benefit for federal taxes, and, if applicable, state taxes will be withheld. (Your actual tax liability, including local taxes, may be more or less than this amount.) In addition, you may be subject to tax penalties if you are under age 59 1/2. For details, refer to the Special Tax Notice on the Retirement Election Website."

- If you left EDS on or after July 1, 1998 -- and have not cashed out or started taking the pension -- the account will grow at 5% per year. "Personal Pension Accounts ...continue to receive Interest Credits, even after ceasing to earn Pay-Based Credits. Your PPA is credited with Interest Credits at a predetermined rate that’s adjusted annually each January 1 subject to a minimum rate of 5% per year. Interest Credits continue to accumulate until your PPA is paid to you or converted to an annuity at retirement." [Page 9 of the Summary Plan Description. This SPD does not apply if you left EDS before July 1, 1998.]  The legacy HP pension plan for HP employees does not have an interest credit feature.

- If also in other HP pension plans. "If you have a benefit in the Digital Equipment Corp Pension Plan, HP Retirement Plan, Deferred Profit-Sharing Plan (DPSP), or Cash Account Pension Plan (CAPP), you may choose a lump sum payment outside of this election opportunity, subject to Plan provisions."  "If you have more than one HP pension benefit... Your election during this limited-time opportunity will apply to all of your benefits." [Pages 1 and 2 of the second brochure]

Additional options if you don't want to take a lump sum "...you can choose to: ...begin monthly annuity payments in October 2020, or wait until retirement age to commence your benefit"

- If married. "If you are married and wish to elect a lump sum or any monthly annuity option other than a joint and survivor monthly annuity with your spouse as beneficiary, your spouse must provide consent by signing a Spousal Consent Form..."

- Minimum. "To be eligible for this limited-time offer, the lump-sum present value of your accrued benefit as of August 1, 2020 must be at least $5,000."

U.S.-only. Employees "not subject to U.S. federal income taxation" were not eligible for the U.S. EDS Retirement Plan. [SPD]

- Read the SPD. "In the event that there is any discrepancy between the Plan documents and this Election Guide, the Plan documents will prevail."

Contacts:

- Main number for HPInc pensions: 1-800-457-4015, M-F 7:30 AM to 11:00 PM Central Time. Outside the US, call 1-508-787-9902 collect.

- The Fidelity number given in the lump-sum offer brochures is different 1-866-602-0406 -- and has longer hours.

- Website: The official Fidelity "HP Retirement election" website is at https://www.hp.retirementelection.com

What are the key factors to consider? 

We have a page with advice on buyouts from AARP, the non-profit Pension Rights Center, and from HP. And member comments from private and online HPAA discussions.  Plus: What if HP goes out of business? 
Go to: 
https://www.hpalumni.org/lumpsumfactors

Fidelity is HP's financial advisor, not yours.  

This campaign is designed to reduce the risk to HP from certain legacy EDS pension obligations. The color brochure says: "...speak with a Fidelity Representative at no cost to you. These representatives can help you understand how this decision may affect your personal financial situation and help with your overall retirement planning and investment strategy."

Elsewhere, however, a tiny footnote warns you: "Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation." 

Member report: "The agent did say a risk is the fact that the fund is backed by HP." The Fidelity agent didn't mention the federal PBGC insurance. The EDS Summary Plan Description says: "Your pension benefits under the EDS Retirement Plan are insured, up to certain limits, by the Pension Benefit Guaranty Corporation (PBGC), a quasi-governmental agency. If the Plan terminates (ends) without enough money to pay all benefits, the PBGC will step in to pay pension benefits..." (page 34 of the SPD)

The EDS pension plan has survived the sale to GM in 1984, spin-out from GM in 1996, sale to HP, and the split of HP into HPInc and HPE.

One person referred to EDS founder Ross Perot on the EDS Alumni LinkedIn Group: "Ross is the gift that doesn't stop giving."

We have copies of the mailing:

If you did not receive the second mailing, we have copies, including brochure, webinar schedule, and a Personalized Benefit Statement:

HP_2020_DeriskingElectionGuide_050120_v2_spreads.pdf "Opportunity is here" [Fidelity's filename makes the objective clear -- de-risking.]

Webinar Schedule (June 16 and June 30)

Benefit Statement - page 1 [Member's info amount redacted.]

Benefits Statement - page 2

The official Fidelity "HP Retirement election" website is at https://www.hp.retirementelection.com

 

Why do companies offer lump-sum payouts?

"De-risking is an important tool for effective management of an employer sponsored defined benefit pension plan. The risk may be transferred to former employees by offering these former employees an immediate lump sum benefit from the pension plan in lieu of a monthly annuity sometime in the future."
--from the Society for Human Resource Management website

 

We have a page with advice on buyouts from AARP, the non-profit Pension Rights Center, and from HP. And member comments from private and online HPAA discussions.  Plus: What if HP goes out of business? 
Go to: 
https://www.hpalumni.org/lumpsumfactors


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