https://www.digitaljournal.com/pr/exxonmobil-pension-lump-sums-are-dropping-due-to-surging-interest-rates
ExxonMobil employees could see the value of their pension lump-sums significantly reduced, if interest rates continue to rise. ExxonMobil interest rates have recently increased for those who begin commencing their benefit in March through May of 2022. When interest rates move up or down, an employee’s pension lump-sum amount will move in an inverse relationship. With both short-term and mid-term blended rates rising over the last month, these higher rates will result in lower lump-sums for those retiring in the second quarter of 2022, with the exception of grandfathered employees.
For grandfathered employees, ExxonMobil will take the average Treasury Rate for the fourth, fifth, and sixth months prior to the quarter they elect to “commence” their pension benefit. Grandfathered employees were at least 64 years old, with at least 24 years of ExxonMobil service by December 31, 2021.
If an employee was not at least 64 years old with at least 24 years of ExxonMobil service by December 31, 2021, then they are not grandfathered into the old pension calculation method. In calculating this employee’s lump sum, ExxonMobil will use the average of the short, intermediate and long-term corporate bond segment rates for the fourth and fifth months prior to the quarter the employee plans to commence their pension benefit.
Due to the pandemic, interest rates dropped dramatically. This resulted in an increase in lump-sum payments, culminating in record highs for individuals who commenced their benefits in the first quarter of 2021. However, since then, rates have increased, causing a reduction in pension lump-sums.
When an ExxonMobil employee chooses their retirement date they need to be aware that the date they select can have a large impact on the value of their lump-sum. In fact, on average a 1% rise in interest rates can equate to an 8% to 12% reduction in an ExxonMobil employee’s lump-sum. So, for someone with a $500,000 lump sum, that could mean a reduction of about $50,000. A $1,000,000 lump sum would drop by roughly $100,000. Conversely, if interest rates were to rise by 1% an ExxonMobil employees could expect to see an 8% to 12% increase in their lump-sum. While rates have not increased by 1% since the 2021 low quite yet, the 10 year Treasury Rate has soared. This is typically seen as an early indicator that rates will continue to rise.
Inflation can be detrimental to either pension option. Inflation can often cause a rise in interest rates which, as discussed earlier, reduces lump-sum values. Inflation can also reduce the value of an employee’s annuity. The annuity is a fixed payment, therefore if inflation increases by 10%, an employee’s annuity payment will become 10% less valuable.