Thursday, May 26, 2005

Inactive Vested Transferring Employees

Given the importance of this issue to many of us, could you please put it in a top post? I just entered this info in comments to the first post. Thanks...
Concerning whether the HAPC gets COLA adjustment for "Inactive Vested Transferring Employees", I wrote to UC benefits and asked them. Here is their response, verbatim:

Unfortunately, we are do not
know the answer to your question. The language in the RFP has not been define and probably won't be until the contract is awarded, sometime after December 1, 2005. Right now there are many questions but no answers, we hope to have some in the near future.

Obviously, this is a new class of retirees, that requires a separate decision. If anyone else has received different information, please post.

Inactive Vested Transferring Employees will be an useful choice for some. You will preserve UC affiliation for your previous years, but be with the new pension from now on. It is probably best for those 53 and up, as those furthest from retirement will need to 'guess' what inflation will do between now and retirement.

Take the average of your last three years salary. Take your years of service on the day the contract ends. Take the multiplier of the year you plan to retire. (Accrued sick leave does not enter into this calculation.) Remember that your salary and service credit are frozen and will not grow. Also you are not eligible for health care from UC. Don't forget inflation.

For those 48- this retirement at age 60 will be based on a 14 year old salary, which is kind of risky.

The details, like whether there is a spousal continuance or COLAs, will be interesting.
This is important-so read the retirement document. Quote
"When the inactive member retires or elects a lump sum cashout, the HACP is increased to include a COLA of 2 percent compounded annually between the separation date and the retirement date (or the actual CPI increase over that same period, if lower)."
So inactive status is not as gloomy as portrayed. If you go inactive for 10 years, inflation does not erode your retirement or cashout as bad as you think.In fact at the end of 10 years your HACP could have a 1.22 multiplier added to it if the CPI is 2% a year.
So I plan to go inactive UC. Work for 5 years under the new contractor, and actually have 2 retirements. The UC retirement will grow based on the CPI, the other retirement will probably be fixed. Most likely I will have a 5 year nest egg of matching 401K monies also.Considering the way things are going under Bush, its not all bad. In fact its a bit diversified, which I like.
I one opts for "Inactive Vested Transferring" status, at what point can one start drawing on the UC retirement? If the answer is when you stop working, then how is this a better option than just transferring all service credit etc. to the new contract?
The only reason to do this is, because you don't trust the new corporation that will run LANL. It may not be there in 20 years, and you are relying on DOE to continue to transfer benefits to the subsequent contractor.

Financially, you lose: no medical insurance, not clear that sick leave will count, the new pension of the next contractor will be significantly lower than the current factors we have.

If you continue without going inactive, you get a better pension factors, and if history repeats itself, average salary raises (except the last year or two) are significantly higher than the 2% COLA.

I will probably continue and NOT go inactive, but I reserve final judgment till we learn all the factors.
For employees under 50, they cannot retire, so they can only be Transfer Employees or Inactive Vested Transfer Employees (if they already have 5 years with UCRS). In either case, they take their sick leave with them to the LLC, and retire later. We don't know at this point if Pension Plans I and II will count sick leave as service at retirement, that will be dependent on the final contract. UC pledged today to "mirror" the current plan, so we might assume that Plan I will count sick leave if UC wins. Retiree medical insurance is not an issue for those now under 50.

For those over 50, they have the additional option of taking retirement now, and coming to the new LLC as a third class of employee, Retiree. They immediately get retiree medical insurance, but this medical plan will be transferred to the new LLC, who must provide the existing LANL retirees a substantially equivalent medical insurance to the one they now have. UCRS does not pay LANL retiree medical, the LANL contract does. Since the new contractor will already be paying their medical insurance, it is unlikely that retirees will get double covered as a new employee. Both classes of Transfering Employees will get medical from the new LLC. So the statement that one may lose financially regarding medical insurance doesn't make apparent sense in any of these scenarios.

The Transferring Employee is the only one to go to Pension Plan 1, which should have the same strong benefits we currently have UCRS. All other employees, including Inactive Vested, go to Plan II, which will be within 5% of an industrial comparator group and therefore almost certainly of lower value. The Transfer Employee has to trust that (1) UCRS will willingly hand over the full value of their current pension to the new LLC in order to initially fund Plan I, and (2) that Plan I will be solvent for many decades.

The Inactive Vested Transfer Employee instead leaves his original pension value with UCRS (and his HACP will grow with COLA), and takes the Pension Plan II that will probably be a DCP that puts matching cash in his 401(k) every year. As other posters have noted, the total dollar loss at retirement by splitting between two plans may not be that great, and you get some diversity in your pension payments.
We could use a financial planner to answer this question facing everyone considering going Inactive Vested.

If I go inactive vested in my 40s, then anytime during my 50s I can request to retire from UCRS. The early I ask, the lower my annual payment due to the age factor, but the more years I receive it. Since I quit in my 40s, each additional year I wait does not add to my years of service, but rather only increases my age factor. Is there an optimal age to retire that maximizes benefits?

I can imagine that the answer depends on (1) how long you expect to live and therefore continue to draw annual benefits, and (2) how much interest you expect to earn on the money you save in the early years.

The additional complexities are your tax bracket: If you continue to work in your 50s, the retirement income could get unduly clobbered by higher taxes and you would benefit by waiting until 60. Social Security recipients face the same questions about taking early but lower vs. later and higher social security payments.

So is there a formula to use on how to optimize the "inactive vested" benefit we can get from UCRS during our 50s? Or is there an alternative and simpler basic philosophical approach to this planning?
To get the most out of the UCRS system, one needs to maximize the working years into UCRS such that you can achieve the 2.5 multiplier at age 60+ with as many years of service credit as possible.

Going cold-inactive on UCRS and starting on a new pension will never amount to what you would get out of UCRS alone... "1+1<2" if you split your career over two pension plans.
5/26/2005 08:37:54 PM says "(and his HACP will grow with COLA)" - remeber, this HAS NOT been decided yet, according to UC benefits!

The decision is not one a financial planner can help with. There are 2 options if you want for sure to continue working:
1) Continue with the new contractor without vesting - your retirement will de measurably better, but you are relying on the new corporation and DOE to be around in 20-30 years to make sure there are still funds to pay the pension.

2) continue WITH vesting. A previous poster said 1+1<2, i.e., you will get less, but at least we BELIEVE that UC will be around and financially stable to provide our pensions in 30 years.

Are you a risk taker? Try 1. No risk - try 2. This is real life. In real life there are no guarantees.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?