Friday, February 24, 2006
Caught at that “awkward age”
Submitted by Anonymous:
Caught at that “awkward age” – 55 years old in May 2006:
Conclusion: For “older” employees especially, and for all employees to some extent the LANS TCP1 proposal is not close to “substantially equivalent in the aggregate” to the current UC benefits.
If an employee goes inactive vested in UCRP s/he is forced into TCP2. If that employee works less than 10 years in TCP2 s/he will not have assured (much less subsidized) medical benefits upon retirement. Not having access to medical insurance after retirement is a huge issue that will force many over-50 employees to roll over into TCP1. There needs to be a provision in TCP2 that an employee who goes inactive vested in UCRP with 10+ years of service credit be assured of access to the group medical plan.
So, assuming an over-50 employee does as s/he must to maintain assured access to medical and rolls over into TCP1:
List of proposed modifications in TCP1 to mitigate both the certain and the potential shortages detailed below:
Require that TCP1 will track UCRP benefits for some period of time – e.g. age factors, employer contribution to insurance premiums, leave time. The only requirement now is that on June 1, 2006 all of these factors are substantially equivalent.
Add domestic partner benefits to the extent allowed by law to match the current UCRP domestic partner benefits.
Replicate severance pay eligibility & policies in TCP1.
Replicate worker job protection policies (action track, no sudden job loss without cause).
Require an annual audit to assure that sufficient funds are placed in the TCP1 retirement fund that it is funded a level actuarially equivalent to the UCRP plan. DOE should be required to explicitly promise to make up any difference that develops.
Require some “benefit element” that would compensate for the reduced limit on tax deferred savings.
Detailed analysis of shortages for employees rolling over into TCP1:
Take the case of an employee who:
is not financially able to retire before June 1, 2006
plans to retire within the next 10 years and
needs to have assured (and ideally subsidized) retiree insurance benefits.
Going inactive vested in UCRP and thus being forced into TCP2 is not a viable option because of the loss of retiree medical benefits.
Similarly, taking the lump sum cashout is not viable because of the loss of retiree medical benefits. Even if an employee were to take the lump sum cashout would also cause a large loss of lifetime retiree benefits – but that’s a whole other calculation.
In the case where the employee in the hypothetical (and very possible) case detailed below of a 55 year old employee retiring from UCRP in May, 2006 to guarantee insurance coverage, the cost would be ~$472,000 (*) even it the employee is hired by LANS (and this is not guaranteed if the employee retires under UCRP). If the employee ends up with no job the cost increases tremendously.
So, we (those of us meeting the three criteria enumerated above) are left with no choice – we are forced to roll over into TCP1. This is very coercive on people who are ~50 years old and up. (One might wonder if this has a disparate impact on older workers in violation of the Age discrimination in Employment Act, ADEA.)
For these employees, how does rolling over into TCP1 compare to the “what would have been” retiring at age 60 from UCRP – the substantial equivalency in the aggregate?
Pluses (relative to having been able to stay in UCRP) for rolling over into TCP1 and retiring at age 60:
None that I can think of.
Minuses (relative to having been able to stay in UCRP) for rolling over into TCP1 and retiring at age 60:
No severance pay in the case of a RIF
Reduced defined contribution program amounts (from $40,000/yr to $20,000/yr.)
No protection from firing without cause (LANS will be an “at will” employer)
No guarantee that TCP1 will continue to track LANL / UC benefits:
accrual rate of vacation
accrual rate of sick leave
number of paid holidays
employer contribution to insurance
Reduced / eliminated domestic partner benefits
I’ll take a hypothetical situation very similar to my situation to put ballpark monetary values on some of the minuses listed above. In May, 2006 I will be 55 years old with 23 years of service credit, an HAPC of $10,000 / month and ~1 year of accrued sick leave. I assume full contingent annuitant continuance and that either my wife or I will live to 85 years of age.
In the case of a budget shortfall that requires a RIF, under the current UC-LANL policy I would be given 60 days to look for a job and would receive the maximum severance pay of 39 weeks ~$110,000.
I will have my mortgage paid off in 1 ½ years and planned to use the “freed up” money to fully fund the 457(b) plan at $20,000 / yr for the remaining 3 ½ years before retirement at age 60. Assuming a 35% tax bracket ~$24,500 in tax savings.
If I am not summarily fired this has no impact. Let’s take a rather extreme hypothetical case where I am summarily fired in a year and would not have been had the UC-LANL rules applied, I would retire involuntarily at age 56 with 24 years of service vs. voluntarily retiring at age 60 with 28 years of service credit. The difference in life time annuity, assuming full contingent annuitant continuance, would be ~$416,000 (~$1,965k - ~$1,549k).
If there are no reductions in any of the benefits (relative to what would have been with LANL-UC) there is no impact. However, I will calculate an approximate monetary value of various conceivable reductions implemented 1 year from now (4 years before I retire).
age factors – imagine the maximum age factor being reduced by 10% (from 2.5% to 2.25%) ~$200,000. Also imagine the possibility of the retirement age for the maximum 2.5% age factor increasing…
accrual rate of vacation – if reduced from 2 dys / month to 1 ½ days per month impact would be ~$11,000
accrual rate of sick leave – if reduced from 1 ½ days / month to 1 day / month and if the employee needed all of the accrued sick leave ~$11,000
number of paid holidays – reduced by 3 days (e.g. energy conservation day, Friday after thanksgiving, presidents’ holiday) ~$5,500
employer contribution to insurance premiums could be reduced or eliminated for medical, vision and / or dental. This could be over $30,000 for a couple if all employer contributions were eliminated.
Domestic partner benefits – this does not directly affect me and I have not done the monetary impact calculations on this. In no way am I intending to minimize this issue – it is potentially a huge reduction for a significant fraction of the LANL workforce and a matter of justice. It is interesting to note that in the Thursday, Feb. 16 LANS presentation at LANL the LANS representative asserted that federal law prohibits at least some of the domestic partner benefits and this is apparently false – either knowingly (a lie) or out of ignorance (surprising and disappointing).
(*) – Retire at 55 with 23 years of service credit and 1 year of sick leave with HAPC = $10,000 / month with one annuitant living to age 85 lifetime retirement income = ~$47,700 / year * 30 years = ~$1,431,000. Assuming employee were rehired by LANS at the same salary, the additional retirement benefit would be 9.5% matching 401(k) for 5 years ~$57,000.
Retire at 60 with 28 years of service credit and one year of sick leave with the same HAPC of $10,000 / month and same age at death. Lifetime retirement income ~$78,400 / year * 25 years = ~$1,960,000.
Difference = $1, 960,000 – ($1,431,000 + $57,000) = ~$472,000.
I won't rehash that here but will note that we were promised two options to lock in (real, not fake i.e."cloned") UCRP benefits:
(1) retire before June 1 under UCRP
(2) go in-active vested under UCRP and transfer over employment to LANS.
DOE has made its feelings known to UC about UC's plan to screw over LANL employees and retirees. Hopefully discussions are taking place in the background.
This issue needs resolution. I am in the older worker category of the post, and was leaning towards retirement to get UCRP pension and medical benefits and take my chances on a rehire. In my mind and for my situation the pros outweighed the cons (many of which were listed in the post). But with the UCRP pension plan screwed over for LANL people, this option (which was promised) is not really viable. In fact, lump sum, which has disadvantages noted by the poster, at least offers peace of mind in no longer having to trust those who seem untrustworthy.
I am very cautious about dispensing "advice" in a public forum, for all the obvious reasons. So treat it as a suggestion for your consideration.
My own primary reason for having chosen the annuity was the availability of medical insurance through UC benefits. I knew all along this was not guaranteed, but I felt it was my best chance to have insurance until I became eligible for Medicare. If I was faced with the decision that you are faced with today, I probably would "lump out," and immediately, if not sooner, search for some form of "catastrophic" hospitalization coverage that I could pay for with some of my own "lump sum" money.
I agree whole heartedly that an important life quality in retirement is peace of mind. And I hope, as you and others do, that the outrageous UCRP-LANL proposition is defeated.
The indication is that the Deputy Secretary of Energy is reviewing a draft order to this effect. It is not an NNSA action and NNSA is not in favor.
So, we at least need to consider that NO option may guarantee medical benefits other than "access" in the future. For me (<50), this may sway the equation to inactive vested, transfer into TCP2 and lump-sum from UCRP sometime downstream.
Just thought someone may care...
I'm 55 with 28 years. 300 hours vacation, 3200 sick, higher salary. My wife is 55 with 26 years. 200 hours sick and vacation.
Several options here:
1) She takes annuity. I take lumpsum. We get medical through her. I lose sick time converted to service. Lower immediate income but income will be taxed at a lower rate. Will have to find other work for next 5 years but keep being told that a "Q" is like gold. Have some irons in the fire. If something pans out prior within next few weeks this may be option.
2) I take annuity. She takes lumpsum. Medical through me. Sick counts as service. Higher immediate income but income taxed at higher rate. Will still have to find some sort of income for 5 years but less desperate.
3) She takes annuity. Medical through her. I go inactive vested. I go to LLC TCP2 same job and salary for now. I ride it for a year or more or until I see what LLC is doing. If things look like they are going to hell then retire out of inactive vested with lumpsum. Page 4 of the Summary Plan Descriptions Retirement Plan w/SS dated July 2004 seems to imply that lump sum cashout is an option in inactive membership. Buys more time to think and find alternatives.
Right now option 3 is not looking too bad. Much less stressful. It helps that both of us worked for UC so we aren't so locked into the insurance thing.
Any thoughts from anyone?
When you can't see the down card, and it won't flop for a while, play the ones you can see.
From your analysis, I would go with option 3. This gives you essentially a new job with immediate vesting and a known salary. You can always look elsewhere later.
By the UCRP booklet, you can lump-sum later.
Also, inactive vested into TCP2 takes your sick leave with you. While it won't be worth anything at separation, it would remain available if an illness were to occur.
Since this is free advice, it is worth every penny.
Most of the jobs I could find at were for people who are younger than 36.. lots of contractors looking for Q cleared people to go to Iraq and such. The others were for paper pushing jobs and sales-like jobs (you have a Q, we need someone who can walk behind the fence and sell our product.)
The most likely area that you can get a job with a Q clearance is around the East Coast Metroplex (D.C to Boston) with the most around DC to Philadelphia area.
I think a more appropriate moniker for you would have been embarrassmentofriches.
On a different note, some of the people I thought would have retired say they are now going to rollover to TCP1, for a variety of reasons. Watch how that plays out as well.