| Company Name | For plan years beginning in | Year | Month | First Segment | Second Segment | Third Segment | Plan Type |
| HP | All | 2025 | January | 4.74% | 5.55% | 5.92% | |
| HP | All | 2024 | January | 4.89% | 5.14% | 5.29% |
Interest rates are heading in the wrong direction for HP employees who are considering the lump sum option on their pension payment. Interest rates hit a record low for individuals that commence their benefits in October of 2020 but have ticked up for those commencing their benefits in November. Over the last year, interest rates have dropped dramatically which has greatly increased many lump sum payments. However, if interest rates begin to climb many people's lump-sum payments could decrease. Should you desire to take your pension as a lump sum, HP will use interest rates and your age to calculate your lump sum payment. When interest rates move up or down, your pension lump sum amount will move in an inverse relationship.
Your pension is calculated based on your last date of employment and benefit start date. The benefit calculation is a defined benefit based on your years of service and final average pay. These are used to determine your single life annuity. All other forms of pension payments are based on this figure.
HP Pension Lump Sum Calculation:
When HP employees elect the month they would like to begin their pension, HP looks back two months to calculate the rate used for the pension disbursement.
For example, if you are planning to retire and start your pension in November 2020, HP would use the rates available in September 2020 (two months prior to your month of retirement). This table shows each month and their rates as they stand today:
HP Segment Rates for December 2020:
September-20
0.51
For a December 2020 pension commencement date, you will use the October segmented rates.
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For lump-sum conversions, the annuity is discounted to a present value using the first segment rate for the first five years of expected payments, the second segment rate for the next 15 years of expected payments and the third segment rate for all years of expected payments over 20.
Because the annuity is discounted based on mortality as well as interest rates, the present value of each monthly payment reduces as the probability of living to receive each payment reduces. The older you are when you commence your pension benefit, the fewer the number of years that will be valued using the third segment rate (20+ years) and, conversely, the younger you are, the greater the number of years that will be valued using the third segment rate.
This methodology essentially means that there will be a unique monthly interest rate (lump-sum
conversion factor) for each year and month of birth.
How Do Rate Changes Affect Your HP Pension?
Because pension pricing is based on interest calculations, making a slight adjustment in your retirement date may have a significant financial impact on your pension due to changing rates each month.
Everything else held equal, a lower interest rate will produce a higher lump sum. The exact changes depend on your specific age, but on average a 1% change in rates can equate to an 8% to 12% change in lump sums. So, on average, a 1% change could increase or decrease your pension lump sum by roughly 10%.
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The changes from just June 2020 to September 2020 may account for a 1% - 3% increase in lump sums. However, if you look at where rates were in September 2019, they have come down quite a bit. For September 2019, the blended rates were 2.13 / 3.07 / 3.65. That is a drop of 0.76% in the 2nd segment which tends to have the strongest effect. A drop of 0.76% from September 2019 to September 2020 may have caused your pension to rise by 7% - 9%. For someone with a $500,000 lump sum, that could mean a move of as much as $45,000. For a $1,000,000 lump sum, it would be roughly $70,000 to $90,000. Going forward, if rates start to move back up, you could see your pension lump sum start to drop. The rates are updated monthly, so you have month to month options to commence your pension once you have retired. You do not have to commence your pension as soon as you retire. You have the option to defer it. That may be beneficial if rates are dropping and/or you are under 60 years old. If you take your pension prior to age 60 there are age penalties and you will not receive 100% of your pension benefit.
Given the current interest rate environment, it is highly suggested you discuss your options with
The Retirement Group and allow us to monitor the rates and keep you up to date on the monthly
changes. We can provide a complimentary cash flow analysis to show you how various retirement
dates may play out.
It is important to remember the pension annuity may be a better fit no matter how attractive the
pension lump sum may be. Every situation is unique, and a cash flow analysis will allow you to
compare all pension options.
How does HP Inc. ensure that the pension plan benefits will remain stable and secure for employees in the future, and what measures are being implemented to mitigate financial volatility associated with these benefits? Employees of HP Inc. should be particularly aware of how the transition of their pension payments to Prudential will affect their financial security and what protections are in place to ensure that these payments are maintained without disruption.
HP Inc. ensures pension plan benefits remain stable and secure by transferring the payment obligations to Prudential, a highly-rated insurance company selected through a careful review by an Independent Fiduciary. This move is aimed at reducing financial volatility associated with HP's pension obligations while maintaining the same benefit amount for retirees. Prudential's established financial stability provides additional security to employees(HP Inc_November 1 2021_…).
What specific details can HP Inc. employees expect to learn in the Welcome Kit from Prudential, and how will these details help them understand their new payment system? HP Inc. pension participants will need to familiarize themselves with the information outlined in the Welcome Kit to make informed decisions regarding their pension benefits going forward.
The Welcome Kit from Prudential will provide HP Inc. employees with instructions to set up an online account, along with details on managing payments, tax withholdings, and other resources. This information will allow employees to familiarize themselves with Prudential’s system and ensure a seamless transition without disruptions(HP Inc_November 1 2021_…).
In what ways does the selection process for Prudential as the insurance provider reflect the commitment of HP Inc. to the well-being of its employees? Understanding the rationale behind this decision will give HP Inc. employees insights into the fiduciary responsibilities and governance processes that protect their retirement benefits.
The selection of Prudential reflects HP Inc.'s commitment to employee well-being, as it involved the Independent Fiduciary conducting an extensive review of insurance providers. Prudential was chosen based on its financial strength and ability to manage pension payments securely, showing HP's focus on protecting retirement benefits(HP Inc_November 1 2021_…).
How will the annuity payments from Prudential differ from the previous pension payments in terms of tax implications and reporting for HP Inc. employees? It is crucial for employees of HP Inc. to comprehend the tax treatment of their new annuity payments to avoid any potential pitfalls in their personal financial planning.
The annuity payments from Prudential will be taxed similarly to the previous pension payments, though employees will receive two separate 1099-R forms for 2021 (one from Fidelity and one from Prudential). For future years, only a single form will be issued. This ensures employees are aware of how to manage tax reporting(HP Inc_November 1 2021_…).
What resources are available to HP Inc. employees seeking assistance regarding their pension benefits, and how can they effectively utilize these resources to address their concerns? Knowing how to access support and guidance will empower HP Inc. employees to manage their retirement benefits proactively.
HP Inc. employees seeking assistance can access live customer support through Fidelity or contact Prudential directly after the transition. Additionally, the Welcome Kit will include important contact information for managing their benefits, making it easy for employees to address concerns(HP Inc_November 1 2021_…).
How can HP Inc. employees verify the financial health and stability of Prudential, and why is this factor important in the context of their pension benefits? Employees must ask how Prudential's financial standing influences their view of long-term pension security and what metrics or ratings they should consider.
HP Inc. employees can verify Prudential’s financial health by reviewing Prudential's annual financial reports, which are publicly available. Prudential’s strong financial ratings were a key factor in its selection, assuring employees of long-term pension security(HP Inc_November 1 2021_…).
What steps should HP Inc. employees take to update their personal information, such as banking details and tax withholding preferences, following the transition to Prudential? Understanding these processes will ensure a smooth continuation of benefits for HP Inc. employees as they adapt to the new system.
Employees do not need to re-submit their personal information to Prudential, as HP will securely transfer all necessary data, including banking and tax withholding preferences. This ensures the continuation of pension payments without the need for employee intervention(HP Inc_November 1 2021_…).
How does HP Inc. plan to address potential changes in the financial landscape that may affect pension benefits, and what role does the insurance contract with Prudential play in this context? HP Inc. employees should be informed about the company's strategic outlook and how it aims to safeguard pension assets against economic uncertainties.
HP Inc. plans to address potential financial changes through its contract with Prudential, which guarantees pension payments will remain the same. Prudential manages these risks as part of its core business, providing added security against economic volatility(HP Inc_November 1 2021_…).
In what circumstances might HP Inc. employees see changes in their net pension payments following the transition to Prudential, despite assurances that payment amounts will remain unchanged? This understanding will help employees manage their expectations regarding future payments and any adjustments they may need to make.
Employees might see changes in their net pension payments due to tax adjustments or changes in withholding instructions, but the gross payment amount will remain unchanged. Any garnishments or other deductions will continue as before, ensuring consistency in payment structure(HP Inc_November 1 2021_…).
How can HP Inc. employees contact the company directly to learn more about the pension transition process, and what channels are available for them to have their questions addressed? Clear communication lines are essential for HP Inc. employees to ensure they receive timely and relevant information regarding their pension situations.
HP Inc. employees can contact the company through the Fidelity support line or directly through Prudential for any questions about the pension transition. The Welcome Kit and other resources will provide contact details, ensuring employees have access to timely support(HP Inc_November 1 2021_…).