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EDS pension lump-sum offer May 2020  (Updated July 2, 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


[Being discussed on the EDS Alumni LinkedIn Group]

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.

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 or pension 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

Key document not included in the mailing: "EDS Retirement Plan Summary Plan Description" (the "SPD") -- with many key details, including annual interest credit 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 

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 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.]

- 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."

- Note that Fidelity Brokerage Services is a sales company. "...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" "Fidelity does not provide legal or tax advice... Consult an attorney or tax professional regarding your specific situation." "We encourage you to carefully evaluate your personal situation and talk to a trusted financial advisor to determine the right choice for you."

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.]

Webinar Schedule (June 16 and June 30)

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

Benefits Statement - page 2

Common questions:

What if HP goes out of business?

The EDS pension plan is backed by a trust fund (SPD page 33) set up by EDS decades ago, currently administered by Fidelity.

- 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.

The 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)

The plan is listed on the PBGC website as an insured single-employer plan. Go to the Insured Plans Search page and enter "HP Inc" in the search window. Like the FDIC, which insures banks, and the NCUA, which insures credit unions, the PBGC is funded by premiums paid by plan sponsors, investment income, and recoveries.

However, the PBGC does not guarantee full payout for larger pensions. For example, $5,812 per month maximum for someone who starts taking their pension at age 65. Here's the table with the maximum amounts: PBGC Maximum Monthly Guarantee Tables

Why do companies offer lump-sum payouts on defined-benefits plans?

"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

What are the key factors to consider?

From the second HP brochure:

"Things to consider. Everyone’s financial situation is unique. Spend some time thinking about your retirement goals and how the different payment options can help you reach them. Consider:

- Time horizon: Your age, remaining working years, and expected retirement date

- Other sources of retirement income: For example, Social Security, other pension benefits, savings plan balances, and personal savings

- Risk tolerance and investment responsibility: Your comfort level with market fluctuations, investment decisions, and the risk of not earning the return that you expect from your investments. Earning lower investment returns or living longer than expected may result in you outliving your assets if you choose the lump-sum payment

- Tax consequences: How taking a lump-sum cash payment vs. a rollover may impact your tax liability

- Beneficiaries: The ability to provide benefits to a spouse, domestic partner, or other eligible beneficiary"

HP_2020_DeriskingElectionGuide_050120_v2_spreads.pdf

From AARP financial columnist Jane Bryant Quinn:

"Risky Pension Bets -- You might be making one if you take a lump sum early"
https://jbquinn.com/?p=787 

"Managing Your Money Manager -- Demand these things from your financial adviser"
https://jbquinn.com/?p=921 

From the Pension Rights Center, a non-profit consumer organization:

"While a lump sum seems like a lot of money, it will short-change most retirees... 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.

“...only those with serious illnesses or who believe they don’t have much time left should even consider it. ...sick people may live longer then they think."

"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.

"...often have to pay high fees to investment advisors and to mutual funds who take no responsibility if the market dips and their investments lose value...

"...You will lose the automatic survivors benefits... Women typically live longer than men so losing that annuity is going to put a spouse at dire risk of losing out..."

http://www.pensionrights.org/blog/treasury-notice-puts-retirees-pensions-risk


Member comments from private and online discussions:

"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."

"You need to evaluate your health, family situation, and finances."

"I don't want the lump sum because I will need this amount when I retire."

"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, which is to say those who don't need it for essential income."

"The cash is ours to pass to heirs if we have it in our IRA but not if it is in an annuity."

"Everyone’s metrics are different and this decision should not be emotional or looked at as a windfall. My key metric is the answer to only one question: if I am not here will my wife and family require the ‘guaranteed’ pension?"

"What happens if the lump sum is much lower than the estimated amount stated on the brochure?"

"It is well worth the effort to investigate the options presented by HP. The option I chose was not the expected option. Please do your homework."

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


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