Some people who were laid off (or I guess some legitimately retired, but that’s rarer) left AT&T with the option to take their Pension as 100% lump sum. And others, are being offered an opportunity to take a lump-sum buyout of their pension. Those who qualify for this special buyout were notified via a mailer sometime in early July.

This discussion is less relevant to those folks being offered the special lump-sum buyout as you don’t have any choice in when you choose to take that lump sum. The money comes in October. When in October? I don’t know yet.

But those people who left with these terms have a choice of when they can take that lump sum. This is where it gets a little tricky in understanding ways to try to “time it just right” to maximize the amount you get.

NOTE: I am not personally a financial advisor, so you should consult someone and not just take random advice off the internet.

But since I read everything and research everything, people usually ask me for my opinion. And I’m happy to share what I’ve learned and read, and the resources I use. So here goes….

A big question everyone (those who have a choice of WHEN they take their lump sum if they choose that option) seems to be worried about is WHEN to take the lump in order to maximize the amount they’ll receive.

Why would the amount differ, you might ask? GREAT QUESTION. The lump-sum amount is a calculation, which based on a bunch of variables. The intent of the calculation is to determine today’s value of tomorrow’s money. So they’re calculating the dollar value in today’s money (your lump sum) of that pile of money you’re entitled to (your cash balance pension) in order to allegedly offer a fair value for those who choose to take it as a lump sum.

So there are all sorts of fancy financial terms for it, but we all know that money today is worth more than money tomorrow (due to inflation and the fact that you can invest money today and grow it into even more money for tomorrow). This is why if you win the lottery if you are a disciplined person, take the cash…. not the annuity.

With all that said, even if waiting 1 month gives you just an extra $500, why not do that, right? Get an extra $500 bucks for just waiting 30 days. That’s not a bad return for doing nothing.

The trouble is, it’s kinda hard to know what the lump sum will be, and understand all the factors that go into determining that.

This happens to also be a question that came up on the Pension Offer webinar. One participant was planning to take their lump sum on 8/1, but was wondering if they should wait, as rumor has it that the Fed is lowering interest rates.  They said the difference in their lump sum amount would be about $1,000, AND that it would go down by $1,000 per month for each month they waited!

Now that got my attention. And here’s why. That’s an awfully large amount to shift when interest rates, in general, don’t shift a whole lot, not by a whole percentage point. They do shift up or down on a monthly basis.

I’m not sure where that quote of losing $1,000 per month came from (I’ve asked this person, so hopefully he can provide some details).

From what I’ve researched, the interest rate that is used to calculate pension lump sums is called the CCBR (Corporate Composite Bond Rate). You can see a history of the CCBR on the IRS website. You can see, it changes monthly, but in general, it moves in FRACTIONS of a percentage, not in whole percentages month over month.

So either that person’s pension cash balance is very large (and I have 30 years with the company, the last 12 as a Director, and my pension cash balance is respectable, but not millions) or maybe that notion that he’s losing $1,000 per month off his lump sum for every month after August he doesn’t take his lump sum is wrong.

So here’s my OPINION [take it for what it’s worth, but my logic is usually pretty sound] 

Here’s what I believe are relevant facts:

  • The interest rate the pension lump sums are calculated with is called the CCBR or CBR (corporate composite bond rate).
  • the CBR changes monthly (maybe daily? but it’s published by the IRS and that table shows it monthly.)
  • The IRS publishes the CBR
  • The CBR that the IRS publishes hasn’t been updated online since 2018
  • When interest rates go up, your lump sum goes down and vice versa.

What I don’t know and can’t seem to find out is what the rules (if there are any) are around what date (and therefore what corresponding CBR) is used to determine the lump sum amount.

That’s really important.

For example.  Does AT&T use the current month’s CBR?  If you have a window of time to elect your lump sum, is the date they use the date you make your election, or the date they receive it, or the first business day of the month in which you’ll receive your payout?  See what I mean – there are a lot of potential dates here… and if the lump sum is determined by a rate that is set on a date, I want to know what the date rules are.

I read in either the financials section of the AT&T annual report or in the AT&T Pension Plan documents, that there are a couple of different ways the company can calculate the lump sum amount for people. If that is true, I also assume that AT&T will choose the accounting method that works best for them – e.g., whatever burdens them with a lower payout to you.

So that’s the long way of saying, most of you probably don’t have all the information you need to make a truly informed decision about WHEN to take your lump sum. You’re missing critical data — you need to find out what the rate is, and sort of try to predict whether you think that rate will go up or down to know whether it’s worth delaying taking your lump sum payment.

I wish I had a crystal ball. I also wish they didn’t lay me off then none of this would be relevant to me! But I digress…

But since nobody has a crystal ball, it’s pretty hard to judge whether you think rates will go up or down. The Fed is actually announcing today at 2pm ET whether they will raise or lower interest rates. Word on the street is that they will go lower, and nicely. It’s the third year of a presidential term and historically, that’s good for the stock market since the guy in office wants the economy to be good in order to get re-elected.

If rates go down, and the CBR follows it, then the current value of the lump sum payout should go up. That’s a good thing. Even for those who can’t choose when to take it… it’ll be higher than it would be if interest rates were steady or went up.

SO…. this is all to just say….. remember, while it’s important to understand how all this works, and try to get the best deal for yourself, it’s impossible to predict the future.  AND, in many cases, the difference in the lump sum final amount is going to be minuscule in the BIG PICTURE…. meaning if you lump sum amount goes down by $5K, well, that’s not great, but you can make up that $5K, usually pretty easily, if you’ve invested well and ESPECIALLY if you have time on your side.

Anyone watching their investment accounts of late will know that your balance can increase by way more than $5K in a day if the right fund/stock pops a bit on some good news. So really, if you are going to take the lump sum it’s really really hard to predict whether the CBR is going up or down and therefore when to take that lump sum. It’s like timing the market perfectly – it’s usually pure luck [or insider trading!]

To close out the question – “should I take my lump sum on 8/1, or wait?” I said, “if it were me, I’d wait.” Here’s why. We think rates are being lowered, we don’t know which rate AT&T will use or what rate was used to calculate the 8/1 lump sum amount. So, it’s likely the lump sum payout will be the same, or a bit higher if he waits. The reason being – if AT&T has to use the current CBR and that goes down because interest rates were just lowered, that’s good. If however, AT&T uses a CBR from an earlier date, it’s not likely any worse than the one used for the 8/1 calculation. So there’s little to lose by just waiting a couple of months. That’s my logic.

So this is just to share what I think, why I think it, and remind everyone to keep it in perspective.  It’ll help make the decisions easier I think.

Best of luck to everyone.