The last few weeks have been a turbulent time for all of us. I’ve had a number of clients reach out to me asking about their pension plans. I noticed many of these people reaching out happened to be Sempra/SDG&E clients. Because of that I’ve decided to write this blog post addressing their concerns. Here is a deep dive into the Sempre/SDG&E employee pension plan.
Whether you’re changing jobs or retiring from SRE, knowing what to do with your hard-earned retirement savings can be difficult. An employer-sponsored plan, such as a Pension & 401(k), may make up the majority of your SRE retirement savings, but how much do you really know about that plan and how it works? There are the seemingly endless rules that vary from one retirement plan to the next, early out offers, interest rate impacts, age penalties, & complex tax impacts.
“Workers are far more likely to rely on their workplace defined contribution (DC) retirement plans as a source of income. 8 in 10 believe this will be a major or minor source of income in retirement. 3 in 4 expect income to come from their personal retirement savings or investments.”
– Employee Benefit Research Institute
As of March 2019, 71% of full-time private-sector American workers had access to an employer retirement plan, but only 59% chose to participate. Regardless of what you choose to do with the funds from your employer retirement plan, you’re already ahead of 44% of all workers.(1)
Cash Balance Plan
The current Pension Plan for San Diego Gas & Electric employees is what’s referred to as a Cash Balance Plan. If you were a participant in the old Pension Plan at the time it was converted to a Cash Balance Plan in 2003, your starting plan balance was dependent on several factors including when your participation in the plan began and how many years of service you had at the time of the conversion. Regardless of your employment status at the time the pension plan was converted to a Cash Balance plan, you will always receive the greater of your Cash Balance plan account or the present value of your June 30, 2003 benefit under the prior plan (referred to as the Grandfathered Frozen Benefit).
The company currently contributes 7.5% of your pay into the Cash Balance Plan account for you. You will also accumulate interest credits in your account which will increase the total value over time. This is at no cost or contribution on your part.
When it is time to receive your pension benefit, you can elect to take it as a lump sum or an annuity. A lump sum is a one time payment that will allow you to access your full benefit immediately. Often a lump sum is rolled over into an IRA to further defer any income taxes. An annuity is a series of monthly payments that you will receive for the rest of your life.
Lump sum distribution calculations from the SDG&E Frozen Grandfathered Benefit Plan are based on prevailing interest rates at the time an employee retires or separates from service. Generally, the lower the interest rate, the higher the lump sum distribution value and vice versa. Starting on January 1, 2008, the Pension Plan began using the provisions of the Pension Protection Act of 2006 (see below for more information) and phased out the use of the 30-Year GATT rate, which was replaced by the “CCBR”, or, Composite Corporate Bond Rate.
- Historically, the Corporate Bond Rate has run between 1% to 2.0% higher than the GATT rate.
The Pension Protection Act of 2006
As of 2013, the plan has fully phased in the use of the “three segment” Composite Corporate Bond Rate (CCBR) described in the above section. So lump sum conversions of the Frozen Grandfathered Benefit Plan calculated in 2013 and beyond are based upon 100% of the prior year November month average of the CCBR.
Changes to Your Plan Administrator
As of January 2018, My Retirement Connection is the plan administrator for Sempra’s pension benefits.
You can access your benefits here at:
- Their website: myretirementconnection.ehr.com,, or by
- Phone: 855-376-7237 (Monday-Friday, 7:00am – 5:00 pm PST)
Deferred Compensation Plan
The deferred compensation plan is a good way to avoid taxes up front, but there are additional risks and consequences as a result.
The money that is deferred into the Deferred Compensation Plan is an unsecured liability for Sempra. This is important because if Sempra were to file for bankruptcy, this liability would likely go to creditors instead of employees. It would be used as collateral for the company not being able to pay off its debt. This presents unnecessary risk in your retirement plans.
A harsh consequence of the deferred compensation plan is that you can no longer do Roth conversions after retirement. In the early years of retirement, retirees may convert their retirement account into a Roth IRA to defer taxes. These conversions will count as income, but they will likely be the only income as long as the retiree has not started taking social security yet. This small amount of income likely puts the retiree in the 12% tax bracket, allowing more of the retirement account to go to the Roth IRA. However, this strategy would not work if the retiree receives deferred compensation distributions during the early years of retirement. The retiree would likely be pushed into a higher tax bracket and would not be able to contribute as much money to the Roth IRA.
- The Retirement Group or www.theretirementgroup.com
- “Retirement Plans-Benefits & Savings.” U.S. Department of Labor, 2019, www.dol.gov/general/topic/retirement.
- “Generating Income That Will Last throughout Retirement.” Fidelity, 22 Jan. 2019, www.fidelity.com/viewpoints/retirement/income-that-can-last-lifetime.
- SRE Summary Plan Description, 2018