Notice to Participants in the Visa Retirement Plan

Transcription

1 Notice to Participants in the Visa Retirement Plan In August, Visa announced that the Visa International and Visa USA Boards recently endorsed a new retirement plan formula that replaces the current benefit with a cash balance formula. The Visa Retirement Plan will begin transitioning to the cash balance plan benefit formula effective January 1, In addition, certain Retirement Plan enhancements became effective October 1, This notice provides you with information about how these changes will affect benefits under the Retirement Plan in general. You also have access to Visa s Retirement Plan Comparison Tool, a website that provides financial models showing the effect of the cash balance plan changes on your personal retirement situation. Current Retirement Plan Benefit Formulas Your benefit under the Retirement Plan is currently calculated using a formula that takes into account all of the following factors: Your benefit service with Visa Your final average earnings Your age when you leave Visa Your age when you begin receiving Plan benefits Under the pre-2002 component of the Retirement Plan (applicable to participants hired prior to October 1, 2002), if you retire at age 65 with 25 or more years of benefit service, your monthly income from the pre-2002 Retirement Plan is equal to: 46.25% of your monthly final average earnings. If you retire at age 65 with fewer than 25 years of benefit service, your benefit is reduced proportionately, such that your monthly pre-2002 Retirement Plan benefit beginning at age 65 is equal to: 46.25% of your monthly final average earnings X Your completed years of benefit service, including a partial year based on completed months 25 years Under the 2002 component of the Retirement Plan (applicable to participants hired or rehired on or after October 1, 2002), if you retire at age 65, your monthly income from the 2002 Retirement Plan is equal to: 1.25% X Your completed years of benefit service, including a partial year based on completed months (up to 35 full years) X Your monthly final average earnings Special rules apply to participants who have earned benefits under both the pre-2002 Retirement Plan and the 2002 Retirement Plan. These employees receive two separate benefits; the first under the pre-2002 Retirement Plan and the second under the

2 Retirement Plan. Therefore, if you participate in both Plans and retire at age 65, your monthly benefit is equal to: 1.25% X Your completed years of benefit service, including a partial year based on completed months (up to 35 full years) X Your monthly final average earnings But, at least as big as: Your monthly benefit under the pre-2002 Retirement Plan Cash Balance Plan Benefit Formula Effective January 1, 2008, the Retirement Plan will begin transitioning to a cash balance plan benefit formula. Under the cash balance plan benefit formula, 6% of your eligible monthly pay (generally base pay, overtime pay, shift pay and annual incentive award) will be credited each month to a notional cash balance account in your name in which your retirement benefit will accrue while you are employed with Visa. Your cash balance account will also be credited with interest each month at an annualized rate equal to the 30-year U.S. Treasury Bond annual interest rate which is the average rate for November of the previous year. Three-Year Grandfather Period The change to a cash balance plan benefit formula will take effect on January 1, 2008 for employees hired or rehired on or after such date. However, for employees hired before January 1, 2008 (and not rehired thereafter), your current Retirement Plan benefit formula will be grandfathered for a three-year period. This means that during that period, grandfathered employees will continue to earn benefits under their current Retirement Plan benefit formula described above and the benefit you have earned as of December 31, 2010 (the last day of the grandfather period) or the date you terminate employment, if earlier, will be preserved. After that date, you will not accrue any additional benefits under the current Retirement Plan benefit formulas and all future benefits you accrue will be under the cash balance plan benefit formula. Distribution of Benefits When you terminate employment with Visa and you are vested, you will receive your Retirement Plan benefit earned up to December 31, 2010, along with the amount credited to your cash balance account, if any. As provided under the current Retirement Plan, you may elect a lump sum or an annuity form of payment; however, you will be required to take your entire benefit both the benefit earned up to December 31, 2010 and the amount credited to your cash balance account generally in the same form and at the same time. * As is the case under the current Retirement Plan, the lump sum value of your monthly lifetime benefit increases or decreases based on future changes in interest rates and mortality tables. 2

3 Important Information Regarding Your Current Retirement Plan Benefit Under the current Retirement Plan benefit formulas, when you reach age 50 with 10 years of service under the pre-2002 Retirement Plan or age 55 with 10 under the 2002 Retirement Plan, your monthly benefit increases due to early retirement subsidies and other factors. If you are not yet eligible for these increases on December 31, 2010 (or your termination of employment date, if earlier), you will continue to earn service for early retirement purposes with respect to your current Retirement Plan benefit as you continue to work at Visa. When you eventually leave Visa, if you have met the applicable age and service requirements, your Retirement Plan benefit earned up to December 31, 2010 (or your termination of employment date, if earlier) will receive the early retirement subsidy. However, under the cash balance plan benefit formula, the lump sum value of your benefit at any age is simply the amount of your cash balance account. This means that unlike the current Retirement Plan, no early retirement subsidy will be applied to your cash balance plan benefit. Also, if you are currently a married participant in the pre-2002 plan, you may elect to retire and receive benefits in a 50% joint and survivor annuity payment option. This option pays 50% of your monthly lifetime benefit to your spouse for life after your death. Your monthly lifetime benefit under this option is subsidized so that it provides the same monthly benefit as a single life annuity would. Under the cash balance plan benefit formula, you will continue to be able to elect a 50% joint and survivor payment option; however, your monthly lifetime benefit under the cash balance plan formula will be reduced to account for your and your spouse s life expectancies. As a general rule, this means that for benefits accrued under the cash balance plan benefit formula, the amount of your monthly 50% joint and survivor annuity payment option will be approximately 9% less than the amount of your monthly single life annuity payment option. The benefit you have earned under the pre-2002 Retirement Plan benefit formula will not change, meaning that it will continue to provide for a 50% joint and survivor annuity payment option at retirement that pays you the same monthly benefit as a single life annuity payment option. How the Cash Balance Change Will Affect the Amount of Your Retirement Benefit First, it is important to reiterate that the normal retirement life annuity benefit you will have earned under the current Retirement Plan formulas through December 31, 2010 can never be reduced or taken away. In fact, it will generally grow in value as you get closer to normal retirement age (age 65) and it remains eligible to receive the early retirement subsidy if you eventually meet the age and service requirements while actively employed. (Please keep in mind that - as is always the case - the lump sum option can go up or down based on changes in interest rates and other factors.) However, for many employees, this change to a cash balance plan benefit formula will represent a reduction in the amount of benefit you may earn from the Retirement Plan in the future. In general, the cash balance plan benefit formula produces greater benefits during the early part of your career and lesser benefits for those in the later part of their career. To help you understand this, the following tables show the lump sum value of a retirement benefit for several hypothetical employees at different ages and at different times in the future. The tables show the lump sum value for various participants who are currently earning $100,000 per year. The first dollar amount shown (Old) represents the retirement benefit assuming no change to the current Retirement Plan formula. The second dollar amount shown (New) represents the benefit based on the change to a cash balance plan benefit formula as described above. 3

4 If you were hired before October 1, 2002, use this chart to review the relative impact of the cash balance plan benefit formula changes. Age and Service at January 1, 2008 In 3 Years (2011) In 5 Years (2013) Lump Sum Value of Benefit (in thousands) In 10 Years (2018) At Age 55 At Age 65 Age 30 with 6 Age 35 with 10 Age 45 with 15 Age 55 with 20 Old New Old New Old New Old New Old New $20 $20 $30 $40 $70 $95 $1250 $595 $1915 $1140 $45 $45 $60 $65 $120 $130 $1035 $535 $1585 $925 $125 $125 $420 $370 $720 $470 $720 $470 $1090 $670 $580 $580 $685 $610 $780 $630 N/A $780 $630 For example, if you are 45 with 15 at January 1, 2008 and you terminate your employment with Visa in 2018 (in ten years), then the estimated lump sum value of your retirement benefit under the pre-2002 Retirement Plan formula would have been $720,000, while your retirement benefit under the cash balance plan benefit formula is $470,000. If you were hired after September 30, 2002, use this chart to review the relative impact of the cash balance plan benefit formula changes. Age and Service at January 1, 2008 In 3 Years (2011) In 5 Years (2013) Lump Sum Value of Benefit (in thousands) In 10 Years (2018) At Age 55 At Age 65 Age 25 with 3 Age 35 with 3 Age 45 with 3 Age 55 with 3 Old New Old New Old New Old New Old New $10 $10 $15 $25 $45 $80 $825 $680 $2115 $1465 $20 $20 $30 $35 $75 $90 $390 $300 $1350 $715 $30 $30 $50 $50 $150 $115 $150 $115 $635 $335 $55 $55 $90 $75 $240 $150 N/A $240 $150 For example, if you are 35 with 3 at January 1, 2008 and you terminate your employment with Visa in 2018 (in ten years), then the estimated lump sum value of your 4

5 retirement benefit under the 2002 Retirement Plan formula would have been $75,000, while your retirement benefit under the cash balance plan benefit formula is $90,000. Key Assumptions Used in the Tables Current Pay $100,000 Lump Sum Interest Rates 5.5% (GATT), 4.0% (PBGC) Cash Balance Plan Interest Crediting Rate 5.5% Salary Growth Rate 4.0% Marital Status at Retirement: Married Retirement Plan Comparison Tool Website The tables above provide you with an estimate of the general impact of the Retirement Plan s transition to a cash balance plan. However, since everyone s situation is unique, Visa has provided you with access to a Retirement Plan Comparison Tool website. The tool allows you to model the financial impact of the cash balance changes on your particular situation. This tool can be accessed from any computer with internet access so you can model your situation either at work or at home. Simply go to this is the same website as the Retirement Benefits Estimator (RBE). If you have not accessed the RBE, you should enter your User ID, which is your five-digit employee number (add a leading zero if needed), and the default password. The default password is the last four digits of your social security number immediately followed by your four-digit year of birth. If you have accessed the RBE previously, enter the User ID (your five-digit employee number) and your personal password. If you have forgotten your personal password, click the Forgot My Password icon. Retirement Plan Enhancements Effective October 1, 2007 Vesting Currently, Visa Retirement Plan participants become 100% vested in their benefits after five. Effective October 1, 2007, participants with one hour of service on or after that date will become 100% vested in their benefit after only three. Pre-Retirement Death Benefits The Visa Retirement Plan currently provides that if you die prior to commencing retirement benefits, a death benefit is paid to your surviving spouse who has been married to you for at least one year prior to your death. If you are a participant in the pre-2002 Retirement Plan and you do not have a surviving spouse when you die, your pre-2002 Retirement Plan death benefit is paid to your dependent children under age 21. The value of this death benefit is approximately half the value of the benefit you have earned up to the time of your death i.e. it is approximately equal to the survivor s portion of the 50% joint and survivor annuity payment option. Effective October 1, 2007, the value of the death benefit is increased to be equal to the entire value of the benefit you have earned up to the time of your death. If you are unmarried, you may designate a beneficiary to receive your pre-retirement death benefit from the Retirement Plan (except that death benefits earned under the pre-2002 Retirement Plan will continue to be paid automatically to your dependent children under age 21, if any). In addition, the one year of marriage requirement for pre-retirement spousal death benefits is eliminated. If you do not 5

6 name a beneficiary, or your beneficiary pre-deceases you, your death benefit from the Retirement Plan will be paid to your children or if you do not have any children, to your estate. Visa Retirement Plan Beneficiary forms are available on InSite or on Questions For additional information on these changes, please read the Frequently Asked Questions (FAQs) that can be accessed on Visa s intranet. To access the FAQs, go to If you still have questions, contact HR at for Visa USA and Inovant participants, or for Visa International and LAC participants. 9/25/07 8:51 AM () 6