Earning Cash Balance Pay Credits

Transcription

1 You Have a Choice New Cash Balance Pension You Have a Choice The important thing to understand is this: If you were hired through December 31, 2012 you don t have to change to the new cash balance pension but you will, in fact, have a choice. Employees hired before 2013 will not have to change to the new cash balance pension but will have a choice. You will be offered a one-time opportunity in 2013 to choose to continue with the current Retirement Plan (pension) formula and Retirement Savings Plan (401(k)) benefits or to move to the new cash balance pension plus enhanced 401(k) company match benefit $0.75 per dollar on your contributions up to 8% of pay with your choice effective starting January 1, If you re expecting to work for multiple employers, the cash balance program may be a more valuable option. But if you re planning to stay with PG&E for the remainder of your career, the current retirement program may be best for you. The choice is yours. If you do elect the cash balance pension, your Retirement Plan benefit will consist of your December 31, 2013 accrued benefit under the current pension formula plus the cash balance benefit earned starting January 1, Your benefit as of December 31, 2013, under the current pension formula, will not be converted into a starting cash balance account. More information will be available later this year and in 2013, in advance of the one-time election period. New employees hired on or after January 1, 2013, will be automatically enrolled in the new cash balance program with the higher 401(k) company match. July

2 Eligibility All employees hired before 2013 can elect the new cash balance benefit going forward from January 1, New employees hired January 1, 2013, and later, will automatically receive the cash balance pension. Cash Balance Pension Benefits The new cash balance pension is a defined benefit pension included in the current Retirement Plan you simply earn a pension benefit using a different formula. The cash balance benefit is based on pay plus interest credits accumulated over your entire career. It tracks your benefit as if it were an individual account much like a 401(k) plan. You can watch your individual account grow over time with company contributions and interest. Unlike the current pension benefit, when your employment ends, you have a choice of taking your cash balance benefit as a lump-sum payment that can be rolled into another employer s plan or an individual IRA, or taking it as a fixed monthly pension for the rest of your life. Retirement Benefits If you elect the cash balance plan, your total retirement program benefits will include: Your accrued final average pay benefit as of December 31, 2013, plus Your accrued cash balance benefit from January 1, 2014, through the end of your PG&E employment, plus The accumulated value of your contributions plus company matching contributions in your 401(k) account. Your benefit under the current pension formula won t be converted into a starting cash balance benefit. Instead, it will be frozen as of December 31, 2013, and paid to you as a monthly pension when you retire. If you choose to take a monthly pension at retirement, your cash balance benefit will be converted to a monthly annuity and added to your final average pay benefit. The cash balance benefit will be funded by PG&E you do not need to contribute to the account. July

3 Cash Balance Credits On the last day of each year, your cash balance account will be credited with: A percentage of your annual pay for the year, plus Annual interest based on an average of the 30-year Treasury rates for the year. The money in your account will accumulate with pay credits and interest, and you can watch your account grow over time. Earning Cash Balance Pay Credits Your annual pay credits are based on a point system of age plus years of service. The older you are and the more years of service you have, the higher the percentage of pay credits your cash balance account will receive: Points (age + service) Less than 40 5% % % % % 80 or more 10% Pay Credits (% of annual base pay) Example: Age Years of Service = 42 points (6% pay credits) Vesting You re 100% vested in the value of your cash balance account after three years of service. Under the current pension formula, you re vested after five years of service. If you elect to participate in the cash balance pension, you ll be fully vested in both your frozen final average pay benefit and in your new cash balance pension benefit after just three years of service. July

4 Enhanced 401(k) Benefits If you participate in the cash balance pension, you ll receive a higher company match on your 401(k) contributions: $0.75 per $1 up to 8% of your pay To get the higher match, you must be: Enrolled in the cash balance pension and Contributing to the 401(k) plan. If you participate in the cash balance pension and you re not already enrolled in the 401(k) plan, you ll be automatically enrolled in the 401(k) plan at the 8% match level. If you continue with the current pension formula, you ll also keep the current 401(k) match of $0.75 per $1 up to 6% of your pay. Portable Benefits If you leave PG&E before you retire and if you re vested in your cash balance account, you ll be eligible to receive your full account balance. There are no reductions for early retirement. Lump-sum payouts can be rolled into another employer s retirement plan or into an IRA. Payout Options When you leave the company whether before or at retirement you ll be able to choose a lump-sum payout or a monthly pension benefit. You may elect to receive the monthly pension benefit for your lifetime, or choose any of the same spouse and beneficiary options available under the current benefit formula today. Survivor Benefits Like the current final average pay benefit, vested cash balance benefits are available to a surviving spouse or named beneficiary. If you die before retiring, your spouse or named beneficiary will be eligible to receive your entire vested cash balance account as a pre-retirement death benefit, payable immediately after your death. Under the current pension formula, your spouse or named beneficiary is eligible to receive a pre-retirement death benefit equivalent to 50% of your vested benefit as of the date of your death, with payments starting the first of the month after you would have turned 55 or as of the first of the month after your death. If you retire and you elect an annuity, your cash balance pension benefit will be payable in accordance with the form of annuity you elect, just like the current final average pay benefit. However, if you retire and you elect a lump sum, there will be no continuing survivor benefits once you receive your lump-sum payment. July

5 Which Retirement Program is Better for Me? Combined, the new cash balance pension and higher 401(k) match offer a way to build substantial retirement income. If you re expecting to work for multiple employers or if you have long service and want to retire in a few years, the new cash balance pension and higher 401(k) match may be an attractive option. If you re planning to stay with PG&E for the rest of your career and you have more than a few years until retirement, the current retirement program may be a more valuable option for you. Personalized information will be available in 2013 to help you decide which retirement program is best for you. In the meantime, here s how the two programs compare: Pension Overview Benefit formula Current No changes Defined benefit final average pay pension Pays a monthly pension benefit for your lifetime based on pay and service at retirement or termination 1.7% x final 36-month average base pay x credited service New Optional for current employees Account-based, defined benefit cash balance pension Pays your choice of a monthly pension for your lifetime or a lump-sum payout of accumulated annual pay credits plus interest at retirement or termination Annual pay credits are based on a point system of age + service Example: Age years of service = 45 points: Less than 40 points 5% of annual base pay points 6% of annual base pay points 7% of annual base pay points 8% of annual base pay points 9% of annual base pay 80 points or more 10% of annual base pay Annual interest credits are based on 30-year Treasury rates Vesting 5 years of service 3 years of service Portability Benefit reductions for early retirement Type of benefit 401(k) Employer Match Automatic Enrollment Not portable if you leave PG&E before retirement pension payments can begin at age 55 or later Yes Monthly annuity for life $0.75 per $1 on your contributions up to 6% of pay None Portable once vested, you can elect a lump sum or begin monthly benefits for life whenever your employment ends No the full account balance is payable when you leave PG&E, regardless of age Actuarial reductions may apply if you elect monthly pension payments Choice of monthly annuity for life or lump-sum distribution that can be rolled into an IRA or other qualified employer plan $0.75 per $1 on your contributions up to 8% of pay Available only if you participate in the new cash balance pension benefit If you participate in the cash balance pension benefit and you re not already enrolled in the 401(k) you ll be automatically enrolled at the 8% match level July PG&E refers to Pacific Gas and Electric Company, a subsidiary of PG&E Corporation Pacific Gas and Electric Company. All rights reserved.