COMMUTATION OPTION FACT SHEET (For Participants joining the Plan on or before April 14, 1998 Gross Plan)

Transcription

1 COMMUTATION OPTION FACT SHEET (For Participants joining the Plan on or before April 14, 1998 Gross Plan) Q: What is a commutation? A: A commutation is a conversion of a portion of your pension, into a single payment, called a lump sum. Q: What is the largest amount I can commute? Q: When will I receive my lump sum payment? A: You will normally receive your payment within 10 business days after you retire. Q: How do I elect a commutation? A: You can elect to commute up to one third of your pension into a lump sum payment. Q: When must I make my election to commute? A: You must elect the commutation prior to your retirement. Q: Can I elect the currency of my lump sum payment? A: No. All commutations are payable in US dollars. A: You should complete an Application for Payment of Pension, Form 159, and return it to the Pension Department at least 10 days prior to your retirement. Q: Should I commute? A: Only you can make this decision. On the following pages you will find some of the issues you should consider in making your decision. Q: How do I get more information? A: You can call the Pension Information Line, x82977, or send an to: 1pension@worldbank.org

2 Issues to Consider FOR Commuting If you have determined that you can live on less than your full pension, then you can commute the excess (but only up to one third 1 of your pension). When you commute, you will receive a lump sum payment to save or spend as you wish. The lump sum provides you with liquidity during retirement. If you save it, you can spend it when you choose. If you are comfortable investing your own money, the lump sum provides you with immediate investment capital upon retirement. The lump sum you receive will become a part of your estate, so that you can control its distribution upon your death. If you expect to have a shorter than average life expectancy, you can commute in order to use the money during your lifetime. When you commute, the benefits payable upon your death are not affected. The surviving spouse pension or the lump sum payable to your designated beneficiary will be the same, regardless of whether you commute or not. If you are non-resident for income tax purposes in the US when you receive your commutation payment, you will not pay US income tax on it. Issues to Consider AGAINST Commuting If you have determined that you need your entire pension to live on, then you may not want to reduce your pension by commuting. When you retire, you will receive cash from the separation grant and for any unused annual leave. You may not need any additional cash. If you are uncomfortable with investing, then you may prefer not having to manage the investment of the lump sum. Even if you are comfortable managing the investment of your lump sum now, you may not feel as comfortable when you get older. The payment of your pension is guaranteed by the Bank. You may not wish to risk losing your lump sum if your investment results are unfavorable. You will receive cost-of-living increases on your reduced pension only. You will not receive cost-of-living increases on the amount of pension commuted into the lump sum. When you commute, your pension is reduced permanently. If you are in good health and expect to have at least an average life expectancy or better, you may not want to risk using up your lump sum and living on a reduced pension. 1 Limitations of SRP Benefits In some cases your benefit may be limited to less than one-third of your pension. Please contact Pension Administration for details.

3 Calculation of the Lump Sum The lump sum is calculated by multiplying the amount of monthly pension you commute by a factor, which is based on your age as of your birthday closest to your retirement. The factors are expressed as the amount of lump sum you receive (in US dollars) for each $10 of monthly pension that you commute. These factors are based on a life expectancy of approximately age 87 (regardless of the age at which you retire) and 6% interest. ($1,500 / 10) X 1, = $227, Income Taxation of the Commutation Payment in the U.S. Disclaimer: The material provided about taxation is for information purposes only - it is not tax advice. If you have any questions about your own personal tax situation, you should consult with a professional tax advisor. Age Factor 50 1, , , , , , , , , , , , , , , , For example, if you elected to commute $1,500 of monthly pension, and you were 60, you would receive a lump sum payment of $227,502.00, computed as follows: If you are a U.S. national, approximately 95% of your commutation will be subject to tax. If you are not a U.S. national, then your commutation will be subject to U.S. income tax if you are a resident for U.S. income tax purposes when you receive your commutation payment. In that case, approximately 60% of your commutation will be subject to tax. You can defer paying tax through use of the rollover described below. These taxable percentages vary from individual to individual, and you should consider them as general estimates. If your nationality changed to U.S. during service, the percentage will be between the estimates for U.S. and non-u.s. nationals. Rollover to defer tax If your commutation is subject to tax, you can defer paying some or all of the tax by rolling over to an Individual Retirement Account (IRA) some or all of the taxable amount of your

4 commutation. If you do not have an IRA, you can create one solely for the purpose of accepting your rollover. The amount you rollover will not be subject to tax until it is distributed from your IRA. You will receive further information about rollovers at the time you request a commutation. Income Taxation of the Commutation Payment in the U.S. (cont.) U.S. income tax residency There are two ways in which you can become resident for U.S. income tax purposes. One is by obtaining a permanent resident visa or green card. The other is by satisfying the substantial presence test, described below, in any particular calendar year. If you obtain a permanent resident visa while you are still in service, you will be a resident at the time you retire, and your commutation will be taxable. If you are not a resident when you retire, generally by holding a G-IV visa while in service, and you remain in the U.S. following your retirement, then the taxability of your commutation will depend on whether and when you become resident. Substantial presence test Assuming that you are not a resident when you retire, and you are employed full-time by the Bank Group during the three years prior to retirement, you will become resident under the substantial presence test in the year you retire if you are present in the U.S. for at least 183 days during that year. (Days when you are a full time employee or a spouse of a full time employee, of the World Bank Group or certain other international organizations are not counted.) If your retirement date is July 2 or later, and you remain in the U.S. for the rest of the year, you will not be present for 183 days. Thus, you will not be resident in that year, and your commutation will not be taxable. If your retirement date is prior to July 2, and you remain in the U.S. for the rest of the year, you will be present for at least 183 days. Thus, you will be resident in that year, and your commutation will be taxable. First day of residency If you become resident by obtaining a permanent resident visa, you will be considered a resident as of the day your application for permanent residence is approved, not the day you actually receive your green card. If you become resident by meeting the substantial presence test, you will be considered resident as of your first day of presence, which in most cases will be the first day following your retirement date. If you obtain a green card and also meet the substantial presence test in the same year, you will become resident as of the earlier of the first days of residency for each. If you plan on remaining in the U.S. after retirement and applying for a permanent resident visa later on, you want to be sure that you are remaining in the U.S. legally. You may wish to consult with an immigration attorney or specialist for advice. If you are nonresident but have chosen to file U.S. income tax returns as a resident filing jointly with your spouse, you can elect to file as a nonresident in

5 the year of retirement by filing an appropriate statement with your tax return for that year. Disclaimer: This Fact Sheet is intended to provide only a summary of the principal provisions of the Plan relating to Commutation Options. It neither establishes nor confers any rights. The Staff Retirement Plan itself is the only document which governs entitlement to and the amount of SRP benefits or other rights under the Plan. The SRP document is available upon request from the Pension Administration Division. For further information, please call the Pension Information Line (202) , or send an to 1pension@worldbank.org. May 2008 Pension Administration