PENSION 2019

Why? in 2020 and after you keep the pension you had and it continues to grow in value although at a slower rate than under prior benefit design. You can always count on the public domain for incredibly reliable misinformation.

Note to anybody still at Merck or any other organization for that matter. Don't be lazy. Get your benefit documents directly from HR to include the current separation package details. They are and always have been available to any employee that takes the time to track them down (which isn't difficult).

Finally, of course the organization is acting in its own best interest first. It is by design what an organization will do. The more your contributions and talents amount to, the more you will be worth to it. They will always seek to obtain the resources needed to operate and succeed at the lowest possible cost to them.

 

Not true. Read and understand the legacy summary plan descriptions. Whatever a person earned up until the end of 2019 will sink (at a rate of 1% up = 20% drop) when interest rates start to rise.

All of the pension earned under the old plan will float with interest rates. All cash balance earned in 2020 and beyond will not float.

A pretty big gamble to stay as interest rates are pretty low right now.

 

If you don’t believe the “public domain” call Ernst and young tomorrow and ask them.

Ask them the direct question: “Will the pre-2020 pension earned float with interest rates?”.

 

OK here’s conceptually how it works. Whatever monthly pension you’ve earned up to this point will be locked in, so there’s no adjustment for inflation over time. So say your pension is calculated at 3300 per month; there is no adjustment for inflation going forward. Secondly if you want to take the lump sum, which is probably the right thing to do, there is risk on the amount you would receive based upon the rise in interest rates. So say your pension is worth 3300 per month. Think of the lump sum like a mortgage in reverse. 3300 per month today, at today’s rate (say 4%) would “buy you” a bout


a 500k 30 year mortgage (or lump sum). If rates were to go to say 5%, you could only get ~ 470,000 mortgage (or lump sum), if rates go to 6% it would be about 420,000.

 

Sales rep, 28 years $5,890 a month. Am I safe?

 

absolutely not

 

if you are taking the lump sum, you need to pay close attention to interest rates. It is not that difficult to figure out that a 1% increase in interest rates makes that $500k drop to $400k. If interest rates were to rise by 2% that $500k drops to $300k.

 

Interest rates have been falling to stable for over 10 years. If interest rates rise significantly, which I am not expecting, the lump sum payouts would drop significantly. Depending on the potential rise in rates, payouts could be reduced by hundreds of thousands. Nobody know where rates are going but those are the risks.

Another issue to keep in mind is the pressure on the pension from future retirements. Last year the fund balance fell 300 million dollars due probably to retirements. Maybe someone who is an expert in pensions might want to comment on the potential future surge in retirements and the funds available. Are there enough funds in the pension to satisfy needed payouts?

 

Just to be clear, a rise in rates from 4% to 5% WILL NOT drop the lump sum by 20%....That is bad, erroneous information. Yes, it will go down but not 20%. The person stating this is trying to apply simple math and it just does not work that way.

 

Since Merck is now out of the pension business you would think they'd at least want to clear off some of their books. For those who left before the end of 2019 & chose the lump sum, why not pay them out and clear the books? I know countless examples of people who left well before 50 with 20 years in and chose the lump and have to wait for payout due to age requirements. With Keytruda taking in 12 billion a year, what's a couple hundred million to Merck? Plus, cleaner pension obligations off the books makes M & A a bit easier.

To the poster, the pension fund is well funded. After all, the same fund pays the top brass right down to the lowly pc rep. Believe me, they ain't gonna stiff the top execs out of their overpriced, undeserved payouts!

I say pay out and clean the books. They have ample experience with this after laying off tens of thousands over the years. Anyone know how much Merck has paid out in WARN and severances in the past 15 years? It must be a whopping amount.

 

If large pharma past experience guides the future then buy out offers will likely begin happening in the next 12-24 months; it will start with ex-MRK folks; a lump sum offer will be sent. You are correct, MRK would like to have pension liability off the books. If/when this happens spend a few hundred and discuss with CFP or other financial professional to make the right decision.

 

But there is still a pension plan, now growing at slower rate with cash balance. I don't believe they can buy out unless they end the pension plan.

This did happen at another company I worked at long ago. They offered the usual buyout pittance so I will make them pay me 400 a month at age 65. Which btw is how these buyouts work, if it comes to it. When all the math is done they are putting all the risk with you to earn a superior return for a longer time. Nobody has to take a buyout although a defunct pension gets sold to an insurance company and backed by PBGC.

 

When pensions are converted to annuities through insurance companies they are not typically covered by pension guarantee Corp.

 

While you are working, learn to invest. I took the cash buyout of my pension in 2014. Last year alone I grew my pension by an additional $1.1 Million. If I would have taken the annuity I would not have been able to live on what they would have given me. I'd still be working for a lesser company dropping samples. Start investing now then when your retire your just investing with more zeros at the end. I wish I would have started earlier, I'd own an island by now.

 

black

 

It would be nice if they did this for retired SGP employees we never had the option of a lump sum

 

That is awesome! I too did the same and have done very well.

 

The pension plan will only continue to grow if interest rates stay the same. When they start rising the lump sum option will go away since a two percent increase will wipe out 40% of the lump sum. All will be forced into a non cola and non-growing annuity.

 

It is unfortunate that the same poster keeps posting Bad information. A 2% rise in interest rates will not cut your lump sum by 40%. That is just complete bullshit. It is fair to say that a rising interest-rate will erode your lump sum but to say a 2% increase in rates is directionally correct but is way way way wrong in the magnitude.