When I’m attempting to place a client in a specific job they almost always have questions about pension plans. Since the recent Coronavirus hysteria I’d noticed that a lot of my PG&E clients in particular have had questions about their pensions. So to try and help them out I did a deep dive and here’s what I found.
If you have a monthly annuity and you start your pension on your retirement date, your first monthly pension payment will be made on the first of the month after you retire—not on your retirement date—and your first payment will include your first and second monthly benefits. The way your pension is calculated depends on the type of formula you have and your employment classification.
- Employees hired before 2013 may have the final pay formula—or a combination of the final pay formula and the cash balance formula.
- All employees hired in 2013 and later have the cash balance formula
Cash balance formula
The cash balance formula lets your pension benefit accumulate for each year you work in a pension-eligible position—not just at the end of your employment.
All employees hired in 2013 and later, or employees hired before 2013 that chose the cash balance formula can accrue annual pay credits based on full years of age and full years of credited service—plus, your account is credited with interest on the last day of each calendar quarter.
Annual pay credits
Annual pay credits are based on a point system of full years of age and full years of credited service as of December 31 each year:
55 years old + 21 years of service = 76 points (55 + 21) This person would get an annual pay credit of 9% of pay.
The younger you are when you retire, the more your benefit may be reduced to reflect what’s likely to be a longer retirement period.
Pension payments can’t be changed or stopped:
After you start receiving your monthly pension payments, they’ll continue for life
- You can’t change any of your pension elections for any reason after your pension start date.
- Your payments can’t be stopped or suspended even if you’re rehired or reinstated by PG&E, unless there is a legal reason requiring a hold on your pension benefit.
Delaying your pension
Planning a new career after you retire? Have a new job lined up?
You can delay the start of your pension, whether you have the final pay formula or the cash balance formula. You’re not required to start your pension to receive retiree medical coverage, and you’re not required to elect retiree medical coverage to receive your pension. If you delay your pension, you’ll still be considered a retiree for all your other retirement benefits.
Starting a delayed pension: If you decided to delay your pension when you retired and you later want to start your pension, you must notify the PG&E Pension Call Center at least 90 days but no more than 180 days before you want your pension to start. If you’re retiring early and you delay the start of your pension, your benefit may increase.
Final pay formula
Do you have an early retirement reduction? It will decrease for every month that you delay the start of your monthly pension payments—until you qualify for an unreduced pension. The later you start your pension payments, the smaller the reduction for early retirement.
If you come back to work for PG&E
If you’re rehired or reinstated by PG&E:
- You’ll keep your pension,
- Any monthly annuity payments will continue while you work,
- You’ll earn income as an active employee.
Benefits for pension-eligible rehires:
If you’re rehired as a pension-eligible employee, you’ll be eligible for a new pension benefit under the cash balance formula as if you were a newly hired employee—except you’ll be immediately vested.
The new cash balance benefit will be added to your unchanged original pension payment after you retire a second time.
Did you contribute to the Retirement Plan before 1973?
Check your personalized Pension Election and Authorization form. It will show your contributions if you made any.
When do you want your refund?
You can get your refund in the same year as your first pension payment (your pension start date) or in the next year after your pension start date.
Refund election dates are tied to your pension start date—not to your retirement date. If your pension is delayed, your refund will also be delayed.
Here are your choices:
- Refund will be paid in the same year as your pension start date
- Refund will be paid in the same month as your first pension payment
- Refund may be paid on a different date than your first pension payment
- Refund will be paid the year after your pension start date
- Refund will be paid in January of the following year
- Refund may be paid on a different date than your January pension payment
Taxes and timing of your refund.
Your contributions were made on an after-tax basis, but the interest you accrued has been tax-deferred. Federal laws require that you receive the credit for your nontaxable contributions over your expected lifetime.
This means if you take a refund now, most of the refund will be taxable in the year you receive it.
Even if you don’t take a refund of your contributions, your monthly pension payment will contain a portion that is not taxable until either:
- The full value of your after-tax contributions has been returned to you, if you don’t take a refund
- The full value of your after-tax contributions has been accounted for, if you do take a refund.
If you’re married
If you die before your entire contribution is returned to you or is fully accounted for, your spouse will be able to deduct the remaining nontaxable portion from your tax return for the year in which you die.
If you live past the life expectancy used in your benefit calculation, then your full pension payment will be taxable after you have received your entire contribution or after it has been fully accounted for.
Refunds and rollovers
Most of your cash refund will be taxable in the year you receive it. PG&E will withhold required taxes from your cash refund.
The rollover amount won’t be taxable until you withdraw the money from your tax-qualified plan. No taxes will be withheld from the direct rollover of your interest as long as you complete the rollover within 60 days of the date on your rollover check. If you’re late delivering the rollover funds, you may have immediate income taxes and IRS early withdrawal penalties on the amount of your rollover.
One of your biggest decisions will be how you want your pension to be paid.
Both the final pay formula and the cash balance formula allow the following monthly annuities. You can be single or married to elect any of these options:
Single life pension
This option pays you a monthly benefit for your lifetime, and stops the first of the month after your death. No payment will be made to any other person after your death.
If you elect this option, you won’t be able to change your election even if you later marry or want to add a joint pensioner other than your spouse.
Federal law requires that your spouse be paid at least a 50% joint pension unless you and your spouse elect otherwise. Your spouse will have to provide notarized consent if you choose the single life pension.
Regular joint pension
This option pays you a reduced monthly benefit (compared to a single life pension) for your lifetime—plus, after your death, it pays a further benefit to any one person you choose for his or her lifetime. Your basic monthly pension benefit will be reduced to reflect the additional value of this option to your joint pensioner.
Your percentage options may be limited if your joint pensioner isn’t your spouse and is more than 10 years younger than you are.
If your joint pensioner dies before you do, your benefit will continue as the reduced monthly pension payment for your lifetime. No payment will be made to anyone after your death.
Special joint pension
This option pays you a reduced monthly benefit (compared to a single life pension and a regular joint pension) for your lifetime—plus, after your death, it pays a further benefit to any one person you choose for his or her lifetime.
If your joint pensioner dies before you do, your benefit will increase or “pop up” to the original single life pension benefit—as if you had never elected a joint pension. This increased benefit will be payable for your lifetime, but no payments will be made to anyone after your death.
Your basic monthly pension benefit will be reduced by more than it would for the regular joint pension. That’s because this option offers greater value to you if your joint pensioner dies first. If you die first, your joint pensioner’s monthly benefit won’t increase beyond the percentage you elect.
You can’t change your joint pensioner
If you elect a joint pension, the person you designate as your joint pensioner will be the only person to receive the joint survivor’s benefit when you die.
You won’t be able to designate a different joint pensioner to receive your survivor’s benefit—and you won’t be able to remove the joint pensioner you elect. This rule applies even if:
- You later divorce or sever ties with your joint pensioner
- You later marry a new spouse
- Your joint pensioner dies
Relative value of joint pension options
Your personalized pension benefit estimate shows a relative value percentage for each of the joint survivor’s pension options, so you can compare:
The relative values are determined using interest rates and life expectancy assumptions specified by the IRS. The relative value compares the actuarial equivalent of your unreduced single life pension to each joint pension option amount based on the life expectancy of you and your joint pensioner.
If you or your joint pensioner live longer than the assumptions, the actual value of your lifetime payments will be greater than the stated value because you’ll receive the payments for a longer period of time.
Pension Plan: Payment Options
Thinking about what to do with your pension is an important part of planning for your retirement at PG&E. What is best for you and your family?
- How do interest rates affect your decision?
- PG&E will need you to provide documents that show proof of birth, marriage, divorce, Social Security number, etc., for you and your spouse/legally recognized partner.
- PG&E has Beneficiary Designation online to make updates to your beneficiary designations, if applicable to your pension program.