GE Pension Buyout

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ixohoxi
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GE Pension Buyout

Post by ixohoxi » Thu Oct 10, 2019 1:56 pm

I started my career at GE in 1987 and worked there for 12 years. During that time i vested in their DB pension plan.

This week GE froze its pension for current employees, and offered a buyout to former employees who have not started receiving benefits. I received (online) a buyout letter which spelled out my options.

Option 1: lump sum payable in December 2019. $74,992
Option 2: begin receiving reduced monthly annuity payments now. $383/month
Option 3: receive monthly annuity payments at age 60 (I am almost 55 now). $737/month starting in 5 years
Option 4: receive monthly annuity payments at age 65. $761/month starting in 10 years

I went on immediateannuities.com and found that a SPIA that begins paying $737/month starting in 5 years (comparable to option 3) would cost $139k if purchased now. I feel like options 1, 2, and 4 are inferior to option 3. Is there anything else I should take into account?

Options 1 and 2 will be expiring next month but 3 and 4 will stay on the table (unless GE''s pension fund becomes insolvent, which could happen. In that case there is PBGC with a significant haircut)

Is it likely that GE will sweeten the deal next year to get more takers?
Last edited by ixohoxi on Thu Oct 10, 2019 4:16 pm, edited 1 time in total.
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

UpperNwGuy
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Re: GE Pension Buyout

Post by UpperNwGuy » Thu Oct 10, 2019 1:59 pm

I would assume that the pension fund is likely to become insolvent, and that is what motivated the offers.

ShowMeTheER
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Re: GE Pension Buyout

Post by ShowMeTheER » Thu Oct 10, 2019 2:11 pm

Don’t count on any sweetener - it’s uncommon for those already termed. I agree that #3 is a nice option but also keep in mind it’ll be a solid 15 years from now until you are feeling the ‘win’ from that. Depending on the rest of your situation, you may consider the lump sum just to be done with it all.

Longdog
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Re: GE Pension Buyout

Post by Longdog » Thu Oct 10, 2019 2:25 pm

ixohoxi wrote:
Thu Oct 10, 2019 1:56 pm
I started my career at GE in 1987 and worked there for 12 years. During that time i vested in their DC pension plan.

This week GE froze its pension for current employees, and offered a buyout to former employees who have not started receiving benefits. I received (online) a buyout letter which spelled out my options.

Option 1: lump sum payable in December 2019. $74,992
Option 2: begin receiving reduced monthly annuity payments now. $383/month
Option 3: receive monthly annuity payments at age 60 (I am almost 55 now). $737/month starting in 5 years
Option 4: receive monthly annuity payments at age 65. $761/month starting in 10 years

I went on immediateannuities.com and found that a SPIA that begins paying $737/month starting in 5 years (comparable to option 3) would cost $139k if purchased now. I feel like options 1, 2, and 4 are inferior to option 3. Is there anything else I should take into account?

Options 1 and 2 will be expiring next month but 3 and 4 will stay on the table (unless GE''s pension fund becomes insolvent, which could happen. In that case there is PBGC with a significant haircut)

Is it likely that GE will sweeten the deal next year to get more takers?
I agree with your assessment. I’d pick what’s behind door number 3. Not sure why you think there’d be a haircut if PBGC takes over since you’re well under their cap.
Steve

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MillennialFinance19
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Re: GE Pension Buyout

Post by MillennialFinance19 » Thu Oct 10, 2019 2:29 pm

If you're already set for retirement without this money, then I would likely take the lump sum. Why sit around wondering if it will be further reduced in the future? If your finances are good, you can take immediate control of the money and make it work for you. Just my $.02.

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anon_investor
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Re: GE Pension Buyout

Post by anon_investor » Thu Oct 10, 2019 2:31 pm

It might be helpful to know the rest of your situation (e.g. health, paying for kid's college, other pensions, retirement investments, taxable investments, want to leave an inheritance, etc.).

Since you are 15+ years away from RMDs (maybe even longer if they raise the age), in some situations, it may make more sense to take the lump sum, roll it into an IRA, where you could maybe do Roth conversions annually to create a tax free bucket of money for added flexibility, etc.

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ixohoxi
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Re: GE Pension Buyout

Post by ixohoxi » Thu Oct 10, 2019 2:33 pm

Longdog wrote:
Thu Oct 10, 2019 2:25 pm
I agree with your assessment. I’d pick what’s behind door number 3. Not sure why you think there’d be a haircut if PBGC takes over since you’re well under their cap.
Thanks, i did not know about the cap, I will do some reading.
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

EnjoyIt
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Re: GE Pension Buyout

Post by EnjoyIt » Thu Oct 10, 2019 2:43 pm

I think this is a math problem with the following two options:
Option 1 take the lump sum and you have a 100% chance guarantee of receiving $74,992
Option 3 is to receive an annuity worth $139k in 5 years times the odds of GE's pension not becoming insolvent + the PBGC offer's value times the odds of the pension becoming insolvent.

For arguments sake as an example the odds of the pension going insolvent is 50% and the value of PBGCs offer is worth $70k the math would look like ($139k * 50%) + ($70k * 50%) = $104.5k

Don't forget that over the next 5 years if you took a lump sum that value would grow. A 4% conservative growth rate would be $91.2K. If you prefer a 5% growth then it would be worth $95.7k

Based on the math above and that GE has a 50/50 chance of getting their act together and PBGC is a 50% haircut, the pension is the better option.

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FiveK
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Re: GE Pension Buyout

Post by FiveK » Thu Oct 10, 2019 3:19 pm

ixohoxi wrote:
Thu Oct 10, 2019 1:56 pm
I feel like options 1, 2, and 4 are inferior to option 3. Is there anything else I should take into account?
#3 is definitely better than #4.

Choosing among #1, #2, and #3 depends on your expectations for your investment rate of return and your age at death.

You can see the pure math calculations in rows 73-117 of the 'Misc. calcs' tab in the personal finance toolbox spreadsheet (works best in Excel). Overlay those with the above expectations, and....

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Stinky
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Re: GE Pension Buyout

Post by Stinky » Thu Oct 10, 2019 3:46 pm

ixohoxi wrote:
Thu Oct 10, 2019 2:33 pm
Longdog wrote:
Thu Oct 10, 2019 2:25 pm
I agree with your assessment. I’d pick what’s behind door number 3. Not sure why you think there’d be a haircut if PBGC takes over since you’re well under their cap.
Thanks, i did not know about the cap, I will do some reading.
I’d also take door #3. It’s much better than #2 or #4.

I would also question whether there would be a haircut with PBGC.
It's a GREAT day to be alive - Travis Tritt

Ddd7651
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Re: GE Pension Buyout

Post by Ddd7651 » Thu Oct 10, 2019 4:01 pm

*deleted for bad math*
Last edited by Ddd7651 on Fri Oct 11, 2019 6:58 am, edited 1 time in total.

BigJohn
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Re: GE Pension Buyout

Post by BigJohn » Thu Oct 10, 2019 4:05 pm

A potential implication not mentioned yet is the impact on taxable income and Roth conversions. This is very dependent on your retirement plans and financial situation but, if you plan to do conversions post retirement but pre-SS and RMDs, any of the pension options will increase your taxable income. The lump sum rolled over into an IRA defers that income and gives you more room for conversions in lower brackets before RMDs start. This wasn’t the only factor but it was one of the reasons I took my pension as a lump sum.

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Re: GE Pension Buyout

Post by JAZZISCOOL » Thu Oct 10, 2019 4:08 pm

RE: "DC pension plan"

Important possible correction - I believe you mean DB (Defined Benefit) pension plan - not DC (e.g. 401(k) plan).

This is based on recent news I have read regarding GE's pension, for example:

https://www.bloomberg.com/news/articles ... -8-billion

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welderwannabe
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Re: GE Pension Buyout

Post by welderwannabe » Thu Oct 10, 2019 4:08 pm

PBGC itself isn't in great fiscal shape. While it may get fixed/bailed out, it might not. Certainly something to factor into a decision.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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ixohoxi
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Re: GE Pension Buyout

Post by ixohoxi » Thu Oct 10, 2019 4:15 pm

JAZZISCOOL wrote:
Thu Oct 10, 2019 4:08 pm
RE: "DC pension plan"

Important possible correction - I believe you mean DB (Defined Benefit) pension plan - not DC (e.g. 401(k) plan).

This is based on recent news I have read regarding GE's pension, for example:

https://www.bloomberg.com/news/articles ... -8-billion
You're right, I should have written DB, I will edit the OP.
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

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ixohoxi
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Re: GE Pension Buyout

Post by ixohoxi » Thu Oct 10, 2019 4:23 pm

anon_investor wrote:
Thu Oct 10, 2019 2:31 pm
It might be helpful to know the rest of your situation (e.g. health, paying for kid's college, other pensions, retirement investments, taxable investments, want to leave an inheritance, etc.).

Since you are 15+ years away from RMDs (maybe even longer if they raise the age), in some situations, it may make more sense to take the lump sum, roll it into an IRA, where you could maybe do Roth conversions annually to create a tax free bucket of money for added flexibility, etc.
I have a mix of taxable, tax-deferred, and Roth assets. I am planning to retire in 3-5 years and then do Roth conversions while delaying SS. So the lump sum could play into my conversion plan.
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

Trader Joe
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Re: GE Pension Buyout

Post by Trader Joe » Thu Oct 10, 2019 4:31 pm

ixohoxi wrote:
Thu Oct 10, 2019 1:56 pm
I started my career at GE in 1987 and worked there for 12 years. During that time i vested in their DB pension plan.

This week GE froze its pension for current employees, and offered a buyout to former employees who have not started receiving benefits. I received (online) a buyout letter which spelled out my options.

Option 1: lump sum payable in December 2019. $74,992
Option 2: begin receiving reduced monthly annuity payments now. $383/month
Option 3: receive monthly annuity payments at age 60 (I am almost 55 now). $737/month starting in 5 years
Option 4: receive monthly annuity payments at age 65. $761/month starting in 10 years

I went on immediateannuities.com and found that a SPIA that begins paying $737/month starting in 5 years (comparable to option 3) would cost $139k if purchased now. I feel like options 1, 2, and 4 are inferior to option 3. Is there anything else I should take into account?

Options 1 and 2 will be expiring next month but 3 and 4 will stay on the table (unless GE''s pension fund becomes insolvent, which could happen. In that case there is PBGC with a significant haircut)

Is it likely that GE will sweeten the deal next year to get more takers?
The math says that you are correct (Option 3). The reality of the current GE situation tells us that Option 1 is the best choice. I wish you all the best.

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Ged
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Re: GE Pension Buyout

Post by Ged » Thu Oct 10, 2019 4:53 pm

Here is a link to the PBGC ERISA max guarantee amounts.

https://www.pbgc.gov/wr/benefits/guaran ... -guarantee

They seem to be substantially higher than the amounts under discussion for this case.

SandysDad
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Re: GE Pension Buyout

Post by SandysDad » Thu Oct 10, 2019 5:18 pm

ixohoxi wrote:
Thu Oct 10, 2019 2:33 pm
Longdog wrote:
Thu Oct 10, 2019 2:25 pm
I agree with your assessment. I’d pick what’s behind door number 3. Not sure why you think there’d be a haircut if PBGC takes over since you’re well under their cap.
Thanks, i did not know about the cap, I will do some reading.
#3 is the correct financial answer. GE is lowballing they buyout prices imho. I hope the community being offered this gets good advice not to take it

Your assessment and modeling on immediateannuities was the right approach.

bradinsky
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Re: GE Pension Buyout

Post by bradinsky » Thu Oct 10, 2019 6:53 pm

Even though #3 appears to be the best option, I would take the cash offer(#1) & run. Currently, there are way too many red flags at GE to feel comfortable with the future payments. I’d love to believe that they will survive intact, and even thrive, but I wouldn’t bet on it. #3 says you took that gamble. Good luck to you in making a difficult decision!

Brad

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Re: GE Pension Buyout

Post by gch » Thu Oct 10, 2019 7:10 pm

Ddd7651 wrote:
Thu Oct 10, 2019 4:01 pm
Take the money and run. It is a rip off. I'll pick an age for fun. I think you will live to 85. You are 55 now.

75000 earning 7% interest for 30 years is around $571000,earning 6% is $431000, 5% is $324000, 4% is $232000

If you take $737 per month for 25 years, if you start in 5 years, you get $221000.

If you live longer, taking it now is exponentially better.

Please take the money and don't risk it.
You’re valuing 100% of his lump sum invested over 30 years, but not valuing any of his $737 per month invested over 25-x years. If you assume both to be 100% invested until he “dies” at 85 you’d get:
7% - 580k
6% - 500k
5% - 433k
4% - 376k

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Wiggums
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Re: GE Pension Buyout

Post by Wiggums » Thu Oct 10, 2019 7:16 pm

Unfortunately the quarterly financials won’t be released until October 30. But if you believe the CEO, GE is supposed to be doing significantly better in 2020.

Where as I don’t disagree with taking option one which is the sure thing, if your retirement savings are robust enough, I’m going To suggest that you roll the dice and take option number three.

Good luck to you.

grenadaRocks
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Re: GE Pension Buyout

Post by grenadaRocks » Thu Oct 10, 2019 7:56 pm

How do companies like GE come up with these buyout numbers, are they mandated to use an IRS or other regulatory agency formula?

I assume if GE sees it has retires and pensioners accepting the lumpsump with the current calculation, why would they offer better later? Has any company ever offered a "sweeter" deal, doesn't it getter more "bitter" in subsequent iteration for buyouts? Is the thinking that if GE turnaround does take off, then any subsequent buyout later would be financially better?

For those that do not decide to go with the lump sump, and have more time than the OP's 5 years, its a bit difficult to quantify the value of the constant worry, the risk of the pension fund going belly up, having to negotiate with other agencies, etc.

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FiveK
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Re: GE Pension Buyout

Post by FiveK » Thu Oct 10, 2019 8:02 pm

grenadaRocks wrote:
Thu Oct 10, 2019 7:56 pm
For those that do not decide to go with the lump sump, and have more time than the OP's 5 years, its a bit difficult to quantify the value of the constant worry, the risk of the pension fund going belly up, having to negotiate with other agencies, etc.
Alternatively:
For those that do decide to go with the lump sump, and have more time than the OP's 5 years, its a bit difficult to quantify the value of the constant worry, the risk of the market going belly up, having to choose and maintain an asset allocation and take withdrawals, etc.

Different people worry about different things. ;)

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Re: GE Pension Buyout

Post by JAZZISCOOL » Thu Oct 10, 2019 8:31 pm

grenadaRocks wrote:
Thu Oct 10, 2019 7:56 pm
How do companies like GE come up with these buyout numbers, are they mandated to use an IRS or other regulatory agency formula?

I assume if GE sees it has retires and pensioners accepting the lumpsump with the current calculation, why would they offer better later? Has any company ever offered a "sweeter" deal, doesn't it getter more "bitter" in subsequent iteration for buyouts? Is the thinking that if GE turnaround does take off, then any subsequent buyout later would be financially better?

For those that do not decide to go with the lump sump, and have more time than the OP's 5 years, its a bit difficult to quantify the value of the constant worry, the risk of the pension fund going belly up, having to negotiate with other agencies, etc.
GE should have provided the exact way they calculate the lump sum in the material OP received. My understanding is that the IRS has specific interest rates that are used to calculate the present value and a mortality table:

"Rules on distributions: lump sum must be no smaller than the lump sum calculated using mandated mortality and interest rate (IRC 417(e)), spouse consent necessary for any non joint and survivor form of benefit (joint and survivor percent must be 50% or larger)"

Source: Wikipedia

Also see:

https://www.irs.gov/retirement-plans/mi ... ment-rates

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Re: GE Pension Buyout

Post by JAZZISCOOL » Thu Oct 10, 2019 8:45 pm

UpperNwGuy wrote:
Thu Oct 10, 2019 1:59 pm
I would assume that the pension fund is likely to become insolvent, and that is what motivated the offers.
Several quotes from The Wall Street Journal article 10/7/19:

"GE’s traditional pension and post-employment benefits programs, which were underfunded by $27 billion as of the end of 2018, are one of the company’s biggest liabilities. The company said the latest changes could reduce its pension deficit by as much as $8 billion. "

"GE had funded 76% of its projected pension obligations at the end of 2018, according to Milliman, compared with 91% funded at IBM. The median funding level was 89% for the group."

"The company said the changes would cut its pension deficit by up to $8 billion and its net debt by up to $6 billion. On Monday, it said moves in the past month will cut debt by $9 billion to $11 billion. The company has been selling assets, including its locomotive business, to reduce the roughly $100 billion in debt it had at the start of 2019. "

For those who subscribe:

https://www.wsj.com/articles/ge-unveils ... ge=1&pos=1

Also, some libraries carry the WSJ (for free).

fatmike91
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Re: GE Pension Buyout

Post by fatmike91 » Thu Oct 10, 2019 8:49 pm

I would take the lump sum. I would not want a sizable chunk of my retirement tied to GE's future.

/

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ixohoxi
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Re: GE Pension Buyout

Post by ixohoxi » Thu Oct 10, 2019 8:50 pm

grenadaRocks wrote:
Thu Oct 10, 2019 7:56 pm
I assume if GE sees it has retires and pensioners accepting the lumpsump with the current calculation, why would they offer better later? Has any company ever offered a "sweeter" deal, doesn't it getter more "bitter" in subsequent iteration for buyouts? Is the thinking that if GE turnaround does take off, then any subsequent buyout later would be financially better?
In this thread, three progressively sweeter offers were described. viewtopic.php?f=2&t=274727
RoxieII wrote:
Mon Mar 04, 2019 10:06 pm
DH worked at a company for all of five years and became vested in their pension plan. Many years after he left the company they offered him a lump sum to cash out at a premium or to start his pension. My impression was they wanted to "get him off the books". In any event we did not receive the offer in time or likely would have accepted. They sent a second offer a year later. Again, we missed the offer, even called and tried to take advantage of it, but they said we missed the window. The next year, the third offer came and it amounted to about twice the first lump sum or a COLA pension with joint survivor ship that he could start immediately.
I would assume the initial offer was a lowball and they would float a second offer for beneficiaries that were on the fence. (not because the company turned the corner)
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

BigPrince
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Re: GE Pension Buyout

Post by BigPrince » Thu Oct 10, 2019 8:56 pm

fatmike91 wrote:
Thu Oct 10, 2019 8:49 pm
I would take the lump sum. I would not want a sizable chunk of my retirement tied to GE's future.

/
I agree.

Take lump sum and don't wait for GE to impose a worse deal.

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ixohoxi
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Re: GE Pension Buyout

Post by ixohoxi » Thu Oct 10, 2019 8:58 pm

JAZZISCOOL wrote:
Thu Oct 10, 2019 8:31 pm
GE should have provided the exact way they calculate the lump sum in the material OP received. My understanding is that the IRS has specific interest rates that are used to calculate the present value and a mortality table:
Here is how GE described their calculation in their letter. Short answer, they quoted mortality tables and some specific interest rates/time periods. So it is actuarially based, like a SPIA, but the lump sum equivalent is smaller owing to the perceived risk of the alternative (option 3).
For this Company-provided benefit, including the Pre-1989 Contributions, the lump sum amount is the total value at December 1, 2019 of your Company-provided benefit payable beginning at age 65, determined as follows. Each monthly payment that you would have received is valued based on the chance that you would live until that payment date (based on average life expectancy) and an interest rate assumption. Your lump sum amount is the sum of each of these values. These values are calculated using the applicable interest rates and mortality table required by section 417(e) of the Internal Revenue Code. The applicable mortality table is the 2019 mortality table under the Pension Protection Act. The applicable interest rates used are 3.43% for payments during the first five years, 4.46% for payments during the following 15 years and 4.88% for payments made more than 20 years in the future.
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

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sergeant
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Re: GE Pension Buyout

Post by sergeant » Thu Oct 10, 2019 11:00 pm

ixohoxi wrote:
Thu Oct 10, 2019 8:50 pm
grenadaRocks wrote:
Thu Oct 10, 2019 7:56 pm
I assume if GE sees it has retires and pensioners accepting the lumpsump with the current calculation, why would they offer better later? Has any company ever offered a "sweeter" deal, doesn't it getter more "bitter" in subsequent iteration for buyouts? Is the thinking that if GE turnaround does take off, then any subsequent buyout later would be financially better?
In this thread, three progressively sweeter offers were described. viewtopic.php?f=2&t=274727
RoxieII wrote:
Mon Mar 04, 2019 10:06 pm
DH worked at a company for all of five years and became vested in their pension plan. Many years after he left the company they offered him a lump sum to cash out at a premium or to start his pension. My impression was they wanted to "get him off the books". In any event we did not receive the offer in time or likely would have accepted. They sent a second offer a year later. Again, we missed the offer, even called and tried to take advantage of it, but they said we missed the window. The next year, the third offer came and it amounted to about twice the first lump sum or a COLA pension with joint survivor ship that he could start immediately.
I would assume the initial offer was a lowball and they would float a second offer for beneficiaries that were on the fence. (not because the company turned the corner)
I wouldn't give much weight to the post in the linked thread. The anecdote she gave lacked almost any detail. Most buyouts do not get sweeter. I would take #3.
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SDLinguist
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Re: GE Pension Buyout

Post by SDLinguist » Fri Oct 11, 2019 12:07 am

Every ESPP thread has the same question when people ask if they should sell. I am going to rephrase it here:

If you had $75,000 would you invest it all inn GE right now?

In essence that is what you are doing by taking any of the options which aren't #1. Are you willing to bet $75k on GE following through on any of the other options?

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Re: GE Pension Buyout

Post by IHateCasinos » Fri Oct 11, 2019 3:26 am

bradinsky wrote:
Thu Oct 10, 2019 6:53 pm
Even though #3 appears to be the best option, I would take the cash offer(#1) & run. Currently, there are way too many red flags at GE to feel comfortable with the future payments. I’d love to believe that they will survive intact, and even thrive, but I wouldn’t bet on it. #3 says you took that gamble. Good luck to you in making a difficult decision!

Brad
+1
This is the real-life example of the terribly immoral thing that GE has done to their employees pension funds!!
Red flags? Those red flags are already on fire! Take option #1 today.
I have read Markopolous's entire analysis, and it is mostly verifiably correct.

I am sorry to read of someone's actual settlement on this board. Here, we all try to offer safe, sensible and careful advice. Especially where someone talks about investing someone else's money. That is exactly the opposite of what GE did with your Pension funds in the last 20 years.
Take Option #1 today.
Its not even worth trying any calculation on the other 3 options. What the Vultures have not already stolen, the lawyers will certainly pick clean when the GE truth comes into the light.
My condolences,
M

snowox
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Re: GE Pension Buyout

Post by snowox » Fri Oct 11, 2019 3:59 am

Take the money and run. GE is so messed up there is no way I would trust to get anything from them at a later date.

CurlyDave
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Re: GE Pension Buyout

Post by CurlyDave » Fri Oct 11, 2019 4:13 am

The lump sum now is the only option which puts you in control of your own destiny.

The rest of the options leave GE's financial wizards in control of your future. You have already seen their track record.

Almost no matter how well they do, you can do better on your own.

I would choose #1 and never look back.

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Re: GE Pension Buyout

Post by Longdog » Fri Oct 11, 2019 5:43 am

ixohoxi wrote:
Thu Oct 10, 2019 4:23 pm
anon_investor wrote:
Thu Oct 10, 2019 2:31 pm
It might be helpful to know the rest of your situation (e.g. health, paying for kid's college, other pensions, retirement investments, taxable investments, want to leave an inheritance, etc.).

Since you are 15+ years away from RMDs (maybe even longer if they raise the age), in some situations, it may make more sense to take the lump sum, roll it into an IRA, where you could maybe do Roth conversions annually to create a tax free bucket of money for added flexibility, etc.
I have a mix of taxable, tax-deferred, and Roth assets. I am planning to retire in 3-5 years and then do Roth conversions while delaying SS. So the lump sum could play into my conversion plan.
I’m curious-how would you model the lump sum/annuity/Roth conversion options in a way that produces a quantifiable value that would allow you to compare the options objectively? What assumptions would you make for future tax rate, growth rate, asset mix, risk of not receiving the promised future pension amount, etc.? Or would you not bother to do that?
Steve

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Re: GE Pension Buyout

Post by Valuethinker » Fri Oct 11, 2019 5:56 am

ixohoxi wrote:
Thu Oct 10, 2019 1:56 pm
I started my career at GE in 1987 and worked there for 12 years. During that time i vested in their DB pension plan.

This week GE froze its pension for current employees, and offered a buyout to former employees who have not started receiving benefits. I received (online) a buyout letter which spelled out my options.

Option 1: lump sum payable in December 2019. $74,992
Option 2: begin receiving reduced monthly annuity payments now. $383/month
Option 3: receive monthly annuity payments at age 60 (I am almost 55 now). $737/month starting in 5 years
Option 4: receive monthly annuity payments at age 65. $761/month starting in 10 years

I went on immediateannuities.com and found that a SPIA that begins paying $737/month starting in 5 years (comparable to option 3) would cost $139k if purchased now. I feel like options 1, 2, and 4 are inferior to option 3. Is there anything else I should take into account?

Options 1 and 2 will be expiring next month but 3 and 4 will stay on the table (unless GE''s pension fund becomes insolvent, which could happen. In that case there is PBGC with a significant haircut)

Is it likely that GE will sweeten the deal next year to get more takers?
I would agree that Option 3 looks the most attractive.

If there is a survivor benefit associated with Option 3 or Option 4 (or 2) then this is an important additional benefit.

You also are, I think, reviewing PBGC rules:

- assume PBGC takes over the fund, what would your payouts be?

On the PBGC itself needing a bailout, whatever the politics it's hard to imagine that legislators would leave so many of their constituents, from a demographic that has a high propensity to vote, in the lurch. I have lots of worries about US public sector pension plans in many states and municipalities, but PBGC?

(an exception is the multi-employer PBGC scheme which covered, for example, many small trucking companies. On the PBGC website there is a clear warning about the underlying financial situation. That would make me very risk adverse and prefer a lump sum).

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Re: GE Pension Buyout

Post by Ddd7651 » Fri Oct 11, 2019 6:57 am

gch wrote:
Thu Oct 10, 2019 7:10 pm
Ddd7651 wrote:
Thu Oct 10, 2019 4:01 pm
Take the money and run. It is a rip off. I'll pick an age for fun. I think you will live to 85. You are 55 now.

75000 earning 7% interest for 30 years is around $571000,earning 6% is $431000, 5% is $324000, 4% is $232000

If you take $737 per month for 25 years, if you start in 5 years, you get $221000.

If you live longer, taking it now is exponentially better.

Please take the money and don't risk it.
You’re valuing 100% of his lump sum invested over 30 years, but not valuing any of his $737 per month invested over 25-x years. If you assume both to be 100% invested until he “dies” at 85 you’d get:
7% - 580k
6% - 500k
5% - 433k
4% - 376k
True. I combined spending it vs investing it on two options. Long day...

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Re: GE Pension Buyout

Post by djpeteski » Fri Oct 11, 2019 7:01 am

I am taking #1 all day long as the confidence in GE being able to maintain payments is suspect.

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ixohoxi
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Re: GE Pension Buyout

Post by ixohoxi » Fri Oct 11, 2019 7:57 am

I just realized that the lump sum calculation is based on the Option 4 (age 65) payment, plus interest/mortality. This is not very competitive with option 3. Taking what I learned about PBGC into account, I am going to plan on option 3. I will post back to this thread if other offers materialize.

If the numbers were closer, I would probably use Bigfoot48's Retiree Portfolio Model to analyze the alternatives.
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

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Re: GE Pension Buyout

Post by Stinky » Fri Oct 11, 2019 8:04 am

ixohoxi wrote:
Fri Oct 11, 2019 7:57 am
I just realized that the lump sum calculation is based on the Option 4 (age 65) payment, plus interest/mortality. This is not very competitive with option 3. Taking what I learned about PBGC into account, I am going to plan on option 3. I will post back to this thread if other offers materialize.

If the numbers were closer, I would probably use Bigfoot48's Retiree Portfolio Model to analyze the alternatives.
As I posted upthread, I think this is a good decision.

Could you share with us what you learned about PBGC coverage. Specifically, what happens to your benefits if GE ceases performing on its pension obligation before you start drawing benefits? And what happens to your benefits if GE ceases performing after you start drawing benefits?

Are you made whole by PBGC in all cases, since GE has made a promise to you and your amount is below the PBGC limits?
It's a GREAT day to be alive - Travis Tritt

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Re: GE Pension Buyout

Post by chicago_meatball » Fri Oct 11, 2019 8:29 am

I’m sure this thread is being watched by many other ex-ge peeps. Here are my thoughts.

For the people saying take the money and run, is there a dollar too low for you to accept? 60k?, 40k? 20k is still better than 0.

I don’t see the link to GE if this is backed by the government insurance. Like the OP, I’m well below the monthly max and would expect to continue to be made whole. Even if there was a 10-15% haircut, that’s still well above the annuity option 1 would purchase.

Anyway, I’m holding on option 3. The annuity I could purchase with my option one was $700 compared to my $1700 pension in 20 years. Id say they are half way to a serious offer at this point.

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Re: GE Pension Buyout

Post by LadyGeek » Fri Oct 11, 2019 9:11 am

This thread is now in the Personal Finance (Not Investing) forum (pension).
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Re: GE Pension Buyout

Post by winT » Fri Oct 11, 2019 9:42 am

Good to know that you are selecting option 3.

Another past GE employee here. I saw my offer letter today. Can the OP share details about what can go wrong with PBGC (do they give full benefit if you are under 5000$ limit? Can they reduce the benefit?). Here are the options I am given:
Lumpsum: $34,700
Annuity starting at age 60: $682 /month
Annuity starting 12/2019: $152 /month

Unlike OP, I have lot of time (19yrs) until I turn 60 and lot of things can change by that time. Putting $34,700 into a compound interest calculator tells me that this amount can grow to a little over $100K over 19 yrs with 6% return and will generate half of the promised annuity using 4% rule.

I am not confident about GE's future during these 19yrs which is a long time anyway. But can one count on PBGC - what is the risk?

Thanks in advance for your opinions.

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Re: GE Pension Buyout

Post by Meg77 » Fri Oct 11, 2019 10:07 am

winT wrote:
Fri Oct 11, 2019 9:42 am
Good to know that you are selecting option 3.

Another past GE employee here. I saw my offer letter today. Can the OP share details about what can go wrong with PBGC (do they give full benefit if you are under 5000$ limit? Can they reduce the benefit?). Here are the options I am given:
Lumpsum: $34,700
Annuity starting at age 60: $682 /month
Annuity starting 12/2019: $152 /month

Unlike OP, I have lot of time (19yrs) until I turn 60 and lot of things can change by that time. Putting $34,700 into a compound interest calculator tells me that this amount can grow to a little over $100K over 19 yrs with 6% return and will generate half of the promised annuity using 4% rule.

I am not confident about GE's future during these 19yrs which is a long time anyway. But can one count on PBGC - what is the risk?

Thanks in advance for your opinions.
I don't know much about PBGC, but I just want to say that in your situation I would definitely take the lump sum. For one thing, you could earn more than 6% on your money (not that it's guaranteed of course). But even if you do only get 6% returns over the next two decades, you're benefitting from additional flexibility that comes with the liquidity, and from having control of that asset which you can leave to heirs when you die or use for other opportunities or emergencies that arise - neither of which is possible with a pension. Also, you shouldn't compare their payout with what the 4% rule would provide to you. A more appropriate comparison would be what a single premium deferred annuity would pay - which will be higher than 4%.

But given the relatively low value of this pension compared to the rest of your financial world (especially in 20 years when $682 a month may barely pay one small utility bill after inflation), I wouldn't even want the hassle of keeping up with this thing and having one more account.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: GE Pension Buyout

Post by ixohoxi » Fri Oct 11, 2019 10:12 am

PBGC is essentially reinsurance funded by premiums paid by pension plans. Their guarantee is valid regardless of whether the plan continues to pay premiums or not.
GE's plan falls under a Single Employer Plan in PBGC's system. I searched on PBCG's site to make sure and there they are. https://www.pbgc.gov/search-insured-plans?key=ge
If GE goes bankrupt, the PBGC guarantee is based on the date they declare bankruptcy. However if my benefits start sooner, it would be based on the date my benefits commence.
They have a table of the maximum monthly payment they would guarantee based on the retiree's age on the date above. https://www.pbgc.gov/wr/benefits/guaran ... antee.html
Since mine is well under the limit, it should be guaranteed 100% but that assumes PBGC remains above water. Right now PBGC's assets outweigh their liabilities slightly. If GE sinks it would swing the other way but not catastrophically. https://www.forbes.com/sites/kenkam/201 ... bf76eb68e3 (the table in the Forbes article is the annual limit and not the monthly)
Henceforth, content shall be my aim, and anticipation my joy. -Alfred Billings Street

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Re: GE Pension Buyout

Post by JAZZISCOOL » Fri Oct 11, 2019 10:40 am

I agree with this from another BH:

"The math says that you are correct (Option 3). The reality of the current GE situation tells us that Option 1 is the best choice. I wish you all the best."

As the WSJ stated (posted above):

"GE had funded 76% of its projected pension obligations at the end of 2018, according to Milliman, compared with 91% funded at IBM. The median funding level was 89% for the group."

The funded status of the GE pension of 76% is well below the 89% funded status for the median plan (probably all corporate ERISA plans in the group they use). Even with the PBGC insurance, I personally wouldn't want to worry off and on for years about the overall financial situation of GE.

If one takes the lump sum, you will have control of your money without the worry of GE's finances or the PBGC possibly getting involved. IMO, that future worry and stress is worth something but is very hard to quantify and must be an individual choice.

YMMV.

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Re: GE Pension Buyout

Post by DarthSage » Fri Oct 11, 2019 12:13 pm

Another vote for Option #1--take the money and run.

I have very little faith in GE at this time. When I worked there, back in the Stone Age, it was like they had a license to print money. Today, not so much.

That said, I don't think they're going to fall off the Stock Exchange or anything. I just don't trust them. If the OP has more faith than I do, Option #3 is the best of the remaining choices.

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Re: GE Pension Buyout

Post by lzh01 » Fri Oct 11, 2019 7:41 pm

chicago_meatball wrote:
Fri Oct 11, 2019 8:29 am
I’m sure this thread is being watched by many other ex-ge peeps. Here are my thoughts.


Yep count me as another. Same basic offer. $101.5 now or $1500/month at 65.

I have a good 18 years to go though so I’m leaning towards taking the lump sum. Main reason is I prefer the control and flexibility it provides. If I wanted to spend a little more at the beginning of retirement I potentially could. Or I could go even less and preserve the principle and manage the tax rate. And the other nice thing is being able to leave to heirs.

And as some here have indicated, I don’t trust those jokers running the business. The company nearly went under in 2008 and they stupidly sell profitable businesses such as mine. Would almost want to stay in just to spite except that it’s my money!

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Re: GE Pension Buyout

Post by InvestorThom » Sat Oct 12, 2019 6:10 pm

Can lump sum pension payouts be rolled over into an IRA. Or are they considered taxable income in the year received?

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