Questions and answers about retirement issues

by Joe Chambers

There have been many questions recently about retirement. Because of the older workforce and many members at Briggs near retirement, most questions have been from Briggs employees. Therefore these questions and answers will be about the Briggs and Stratton retirement. There are some differences at Strattec, so consult your pension summary and contract at Strattec, or call the Union office if you have similar questions at Strattec.

Credited Service vs. Service

At the time of retirement, members sometimes question why their credited service, which determines the multiplier for their pension, is lower than they expected. This amount is often .1 to .25 years lower than they expect resulting in a pension multiplier of about 29.8 instead of 30.0, when retiring 30 years after the date of hire.

First, let's look at the definitions of some terms used in our pension plan. The following definitions are from Summary of Briggs & Stratton Retirement Plan. The same language is contained in the plan document.

" Service is used to determine eligibility for a pension. It consist of a participant's last period of continuous employment up to December 31, 1975, based on the provisions of the plan in effect at the time, plus one year for each calendar year beginning with 1976 and ending with the year in which the employee's normal retirement date occurs in which he has at least 1,000 hour of employment."

"A participant with service before and after January 1, 1976, and who has between 9-10 or 29-30 years of service at the beginning of the calendar year, will receive another year of service when he completes 1,000 hour of employment during that calendar year, or on the anniversary date of his employment, if earlier. Such anniversary date will be deferred to make up for any periods of strike or personal leaves of absence."

"Credited Service is used to determine the amount of pension. Credited Service prior to December 31, 1975 consists of the last period of continuous employment up to that date based on the provisions in the prior plan. After January 1, 1976, a participant receives one year of Credited Service for each calendar year beginning in with 1976 in which he has at least 2,000 hours of employment and a prorated portion of a year for fewer than 2,000 hour of employment."

"Hours of Employment means all hours for which an employee is compensated including overtime hours (but no premium hours), vacation hours, plus periods of leave of absence for military service, disability, administrative leave or lay-offs, if the employee returns within the period authorized by such leave or layoff. Periods of strike or personal leaves of absence will not count as hours of employment."

As explained in the above language from the Pension Plan, Service is used to determine your eligibility to retire; Credited Service is used to determine your monthly benefit.

Because of the strike in 1974, Service is reduced by .07 years.

Because of a change in the law effective in 1976, reflected in the plan above, you now receive one year of service for any calendar year you have 1,000 or more hours of employment, but you must have 2,000 hours of employment for one year of credited service. That means that most people have credited service reduced by some amount because of the 89 day strike in 1983. Some people may also have less then a full year for a year they took a personal leave of absence. There is 80 hour of "play" in a normal year of 52, 40 hour weeks, and overtime can make up for some of the time off, only during the year it is worked. You never get more than one year of service or credited service in any calendar year.

$21,000 Lump Sum

The new contract provides a $21,000 lump sum pension payment upon retirement for employees hired before 1980. There continue to be many questions about this payment. The payment is $21,000 payable to people who either give four months notice prior to retirement, or obtain a waiver of the four months notice from the company. The company will give the waiver if a suitable replacement has been found for the employee before the four months. With the number of people on layoff, the waiver is easy for most people to obtain. If you are on a job that requires substantial training, you may not be able to get the waiver.

The bonus is paid upon retirement. This means it normally is paid soon after the first check is paid. The bonus can be paid in three forms.

1. The retiree may elect to take a cash payment. This may result in tax penalties if the retiree is under age 59½. It is also subject to normal taxes.
2. The retiree may elect to roll the payment into an IRA. This defers taxes on the payment and if left in the IRA until age 59½, there will be no penalty.
3. The retiree may elect to have the $21,000 paid as an annuity added to their pension. This will increase their pension by a set amount each month. The amount it will increase the pension will be different for every person based on their age and life expectancy at the time of retirement.

In addition to the lump sum payment, the $21,000 is added to the employee's earnings in determining their pension payment. This will increase the multiplier by $3.675 for an employee above minimum.

An employee with 30 years of Credited Service, that was entitled to a pension higher than the minimum before the $21,000 was added to their earnings, would see an increase of about $110 in monthly pension, before any adjustments for survivor options.

$1,000 Lump Sum payment

The contract also provides a $1,000 lump sum payment for all non-disability retirees if they provide 60 days notice in advance of their effective date of retirement. There is no possibility of getting a waiver on this 60 day notice requirement. This payment is made with the first pension check and taxed as your normal pension payment is taxed.

Insurance for Retirees

Members who retire with 30 years of service before age 65 will have Company paid medical, dental and vision benefits continue until the retiree reaches age 65. The Company will pay the full cost for up to 10 years, but not beyond the age of 65. For any balance between the 10 year maximum and age 65, Company contributions will be limited to the extent as provided for working members. This coverage is for the retiree and spouse and or children.

Note that this coverage ends at the time the retiree turns 65. They may purchase coverage through the company at a group rate to supplement Medicare and for spouses and children. Members should plan for this increased expense, members with a younger spouse will want to plan for even higher cost until the spouse is eligible for Medicare.

There is open enrollment each year for retirees with Company paid health insurance to change providers or insurance plans.

At the time of retirement, the insurance coverage that the member had chosen for their last year of employment will continue until the next open enrollment period. If you have chosen an inexpensive plan, or opted for no insurance to be on your spouse's insurance, that option will remain in effect through the entire year. There is no opening to change coverage at the time of retirement.

Members that retire with less than 30 years of service will also be able to purchase insurance through the company at the group rate. This option must be made at the time of retirement. It cannot be made at a later date.

Survivorship options

The pension plan is based on payments for the member's normal lifetime. The plan funding is calculated using actuarial assumptions that assume some of us will live to a ripe old age and some of us may not live until we are able to collect our pension. Each retiree's benefit entitlement is based on only their expected lifetime. In order to permit some people to provide for spouses or others after their death, the pension plan provides for optional survivor benefits.

There are three types of survivor options available. They are:

1. 50% Joint and Survivor Option - The employee receives a reduced pension for life. After his or her death, their surviving spouse receives a lifetime pension equal to 50% of their reduced pension.
2. 100% Joint and Survivor Option - The employee receives a reduced pension for life. After his or her death, their surviving spouse receives a lifetime pension equal to 100% of the reduced pension.
3. 10 Year Certain and Life Option - The employee receives a reduced pension for life. If he or she should die before receiving 10 years of pension payments, his or her pension continues to his or her spouse or other beneficiary for the remainder of the ten-year period. The employee may change beneficiaries at any time.

Only the 50% Joint and Survivor option is available on the disability pension. The 50% and 100% Joint and Survivor options are only available for a surviving spouse. An unmarried retiree cannot choose these options.

All options have the reduced amount calculated based on actuarial assumptions so the aggregate of the pension payable is actuarially equal to the single life pension with no provision for survivors.

At the time a member reaches age 55 with 10 years of service, age 65 with 5 years of service or 30 years of service at any age, they will be eligible for these options. If no option is selected at that time, the 50% Joint and Survivor Option is automatic unless the member and their spouse opt otherwise in writing. The spouse must approve any option less than the 50% Joint Survivor Option.

There is a charge of ½% per year reduction in pension for the 50% Joint Survivor Option or 10 Year Certain option, or 1% per year for the 100% Joint Survivor Option for the time the option is in effect if the option is revoked or changed prior to retirement. 50% and 100% Joint Survivor options are automatically revoked upon divorce or the death of the spouse prior to retirement. These options cannot be revoked or changed after retirement though the beneficiary on the 10 Year Certain Option can be changed. The spousal benefit is payable to only the spouse you have at the time of retirement. If divorce or death changes the situation after retirement, the beneficiary cannot be changed to a later spouse.

There is also a similar charge for having the option in effect while an active employee with 10 or more years of service at age 55 who has not yet reached either the normal retirement age (65) or 30 years of service. If you have an option in effect prior to retirement, it is like an insurance that will pay a benefit beyond the basic period of your lifetime if you die prior to retirement. This comes at a cost.

These benefits are important to many members, but they do sometimes raise questions. They are intended to be almost cost neutral to the plan. This means that they take the same pool of money calculate to redistribute it over a potentially longer period of time when calculated for 2 possible life expectancies, instead of one. In most cases it is not free to have the option in effect.

There are many other questions that members have regarding their pension and retirement. Members should obtain a benefit calculation from the pension department early so that they may understand an plan for their retirement.