This monthly newsletter aims to track the interest rates that calculate the lump sum in the Chevron Retirement Plan and give an estimate of how it might affect your retirement benefit.
July Segment Rate Summary
The segment rates for July are 3.67%, 4.67%, and 4.73%. This brings the three-month average to 3.51%, 4.69%, and 4.73% for an October 2022 benefit start date. For Chevron employees hired before 2008, we estimate the lump sum benefit to decrease about .85% for an average vested 65-year-old in October versus September, though please check your benefit calculator for your actual calculation.
For the first time since November of last year, we see an overall decrease in the segment rates. While the first segment rose slightly, the second and third segments both decreased in July. Even with the decrease in the segment rates month over month, the lump sum calculation still decreased as the new segment rates replaced the lower, more favorable April rates in the three-month average. This rate decrease breaks the “back-heavy” rate pattern, which will make it more likely that future segment rate decreases will lead to an increase in the lump sum, or at least a smaller decrease. As corporate yields begin to level off, we expect much fewer sharp rate increases, especially in the second and third segments as they are further insulated from Fed rate increases than the first segment.
To read more about how to spot patterns in the segment rates to predict movement in the lump sum, including back-heavy and front-heavy patterns, please visit the updated link below.
How Does this Affect Me?
The Chevron Retirement Plan offers a substantial benefit to Chevron employees over many other companies’ plans. It is one of the few remaining retirement pension plans that still offers a lump sum benefit. Since the Pension Protection Act of 2006, the calculation of the lump sum has become more complicated now relying on corporate bond yield curves, known as segment rates, instead of the 30-year treasury rate that was used in the past. In a low interest rate environment, it is important for Chevron employees to understand how their lump sum is calculated and how quickly the benefit can change. As interest rates lower, the lump sum increases, and vice-versa. If rates increase 1% across the board, it could lower your lump sum by almost 10% depending on your age and length of service. This calculation applies only to Chevron employees hired before January 1, 2008.
Baird Retirement Management provides highly specialized retirement planning expertise for business professionals nearing retirement. Our perspectives are backed by our extensive experience, comprehensive industry knowledge and immersion in the latest retirement, income, and tax planning strategies. By focusing on select companies and industries, we can tailor our retirement planning advice to help meet the specialized planning needs and considerations of employees within a company or industry.
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