DBRP lump sum opportunity

Transcription

1 DBRP lump sum opportunity Frequently asked questions (FAQs) and information about the Ernst & Young US LLP Defined Benefit Retirement Plan (DBRP) voluntary lump sum opportunity June 1 July 29, 2016

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3 Voluntary limited time lump sum payment opportunity under the Ernst & Young US LLP Defined Benefit Retirement Plan ( DBRP ) You have a unique, limited time opportunity (June 1 through July 29, 2016) to choose to receive your vested DBRP accrued benefit in September 2016 in a single lump sum payment (subject to spousal consent). This offer is for a group of former employees, including you, who have earned a vested benefit in the DBRP, terminated employment with Ernst & Young US LLP ( EY or the Firm ) or one of its affiliates prior to January 1, 2016 and are not receiving monthly payments from the DBRP as of June 1, This offer is not available if your benefit under the DBRP is subject to a Qualified Domestic Relations Order (QDRO), or you have a QDRO in process. 1 This document provides answers to questions that you may have as you review the election kit and make your decision. It is divided into three sections: General questions Election questions DBRP-specific questions As with all important financial decisions, we encourage you to talk with your financial, legal and tax advisors and consider your financial needs now, and in the future. This is an important personal decision and your advisors can assist you in making the choice that is right for you. Please discuss this opportunity with your spouse (if you are married) as your spouse must give notarized consent to elect the lump sum payment or a monthly annuity other than the normal form of payment for married participants. This document summarizes highlights of this limited time opportunity and does not detail every aspect of the lump sum offer. A complete description can be found in the applicable legal plan document. 1 However, if you terminated prior to January 1, 2016, returned to Ernst & Young US LLP or one of its affiliates after that date and then terminated again on or prior to June 1, 2016, you will be eligible to take your vested DBRP accrued benefit in a lump sum, subject to other eligibility conditions. H

4 General questions 1. Why is EY offering the opportunity to take a lump sum benefit? This special election period and the opportunity to take a lump sum benefit presents benefits for both you and the Firm. When you choose a lump sum benefit payment, you receive financial control of your vested DBRP accrued benefit, allowing you to structure the investments in a manner that you deem appropriate. Most employer qualified retirement plan programs allow for a lump sum option and EY has determined that offering a lump sum benefit will make the EY plans more competitive in the marketplace and provide more flexibility for its participants. 2. What am I required to do right now? To receive a lump sum payment in September 2016, your online election must be completed by July 29, 2016 through Benefits Express at You can also call the EY Special Programs Team at to make your election. You will be instructed and required to complete and submit additional documentation, which must be postmarked no later than August 15, Please review the materials you receive about this opportunity carefully to help you make the decision that is the right one for you. 3. Will this offer be available after July 29, 2016? If the value of your vested DBRP accrued benefit after the special lump sum election period ends on July 29, 2016 is more than $25,000, you may not have another opportunity to receive a lump sum until you reach the DBRP s earliest retirement age. Your earliest retirement age as defined by the plan is: The date a vested participant reaches age 65. The date a vested participant who has earned at least 10 years of vesting service upon separation of service reaches age 55. The date a vested participant who has earned at least 5 years of vesting service upon separation of service and the participant s age plus vesting service is at least 75, reaches age 50. Please note: You may elect to take a lump sum payment at any time when the value of your lump sum benefit is less than or equal to $25, Do I also have the option to receive my retirement benefit as an annuity? Yes. As always and at any time, you can choose to take a monthly annuity payment. 2 Please note that if you commence annuity payments and have not yet reached age 65 with five years of service or age 60 with 30 years of service, your annuity payments will be reduced to reflect early commencement of the benefit. We encourage you to refer to the DBRP s Summary Plan Description (SPD) on Benefits Express at for a more detailed description of the annuity options. 2 The DBRP plan rules (section 4.5 (2) (c) under Step 3 (3)) excludes the availability of an annuity at any time for a person who left the Firm before October 1, 1989 or for participants with less than 15 years of vesting service who have not yet reached the age of 55. H

5 5. In general, what are the differences between a lump sum and an annuity option payout? A lump sum benefit payout provides you with the flexibility of choosing where and how to invest or save your retirement money. It allows you to receive 100% of the value of your vested accrued benefit in one lump sum payment. The lump sum option is being offered at a time of historic low interest rates, which means lump sum benefits are larger than they would be in a higher interest rate environment. Your lump sum is calculated by converting your monthly pension annuity into a current lump sum benefit by taking into account your age (which impacts life expectancy using mortality rates set by federal law) and interest rate growth. This option allows you to lock in 100% of the total value of your vested DBRP accrued benefit for your family or for your estate. An annuity option provides you with a fixed payment amount every month over your life. A fixed annuity payment option may or may not provide you with 100% of the value of your vested DBRP accrued benefit as the annuitant would need to live to full life expectancy to claim 100% of the actuarial equivalent of the lump sum benefit. If you choose to receive an annuity, now or in the future, the monthly payments will be fixed and you need to be aware of inflation risk. While the US economy is currently in a very low inflation environment, inflation has been an important factor throughout history. You generally have the ability to hedge against inflation risk when taking a lump sum benefit by making certain investment choices; you will not be able to do so when taking a lifetime fixed annuity. Election questions 6. What are the requirements for me to be eligible to take my benefit now? 3 You must have terminated your employment with Ernst & Young US LLP or one of its affiliates prior to January 1, (If you returned to EY or one of its affiliates after such date and then terminated again on or prior to June 1, 2016, you may be eligible to take your benefit payment, subject to other eligibility conditions.) You cannot be receiving monthly payments from the DBRP as of June 1, Your benefit under the DBRP cannot be subject to a Qualified Domestic Relations Order (QDRO) including a QDRO that is in process. If you are married and elect to take your benefit as a lump sum, you must also obtain spousal consent If I choose a lump sum payment during the special election period, can I change my mind? Yes. If you have made your election and submitted your signed and notarized Pension Election Authorization Form as part of your required documentation, you will need to call the EY Special Programs Team at by August 15, 2016 to cancel your election. 8. Can I elect to begin an annuity during the election period? Yes. During the special election period, you have the choice of taking a one-time lump sum payment or electing to begin your annuity payments. Either choice will provide a payment to you in September You may be able to choose from a range of options for your annuity payments, including payments to you for the rest of your life and options that 3 Your election will be automatically revoked and of no effect if you die before the lump sum benefit is paid or if you perform an hour of service on or after June 1, 2016 and on or before September 1, Your spouse must give notarized consent to elect the lump sum payment or a monthly annuity other than the normal form of payment for a married participant. H

6 provide continuing payments to your designated beneficiary after your death (e.g., single life, joint and survivor). We encourage you to refer to the SPD on Benefits Express at to review the annuity options. If you elect to receive your DBRP benefit as an annuity, you will receive fixed monthly payments for as long as you, and potentially your designated beneficiary, live. In contrast to the lump sum payment option, you will not have any control over the investments. Note that monthly benefit payments are also taxable and are not eligible for a rollover to an eligible retirement plan such as an individual retirement account (IRA) or tax-qualified retirement plan. If you haven t reached age 65 with five years of service or age 60 with 30 years of service, your annuity benefit will be reduced to reflect early commencement of the benefit. If you die before the commencement of your benefit without any spouse/registered domestic partner, no benefit will be paid. 9. If I elect to take the lump sum benefit, how will I receive the money? If you take a lump sum payment, you can choose to: Request a rollover of the amount to an eligible retirement plan. Rolling over your lump sum payment will allow you to avoid a potential Internal Revenue Service (IRS) penalty and allow you to continue to defer taxes. (See question 14 for more detail on eligible retirement plans.) Request a check made payable to you. With this form of payment, 20% of your lump sum amount will be withheld for federal tax purposes. You may also owe state and local taxes (some of which may be withheld). The final tax impact will be determined when you file your 2016 tax return in 2017, and it is possible you may owe more than what was withheld. If you do not roll over your lump sum payment to an eligible retirement plan, your lump sum payment may put you in a higher tax bracket (even with the mandatory federal tax-withholding of 20%) and you may be subject to additional penalties for early commencement and to additional state and local taxes. 5 If you are under age 59½ on September 15, 2016, you may also owe a 10% early withdrawal penalty (unless an exception applies). Current taxation can be avoided if the entire lump sum payment is rolled over to an eligible retirement plan as discussed above. You should discuss the tax ramifications of any election with your tax, legal or financial advisor. Or, call the EY Special Programs Team at and ask to speak with an EY Financial Planner who can provide general financial advice based on a person s situation. You should also refer to the Special Tax Notice that is included in your election kit. 10. If I elect to begin annuity payments, how will I receive the money? Annuity payments can be paid to you through direct deposit into your checking or savings account at most US financial institutions. You may choose from any of the payment options available under the DBRP, including payments to you for the rest of your life and options that provide continuing payments to your designated beneficiary after your death (e.g., single life, joint or survivor). We encourage you to refer to the SPD on Benefits Express at to review the annuity options. You should discuss the tax ramifications of any election with your tax, legal or financial advisor. Or, call the EY Special Programs Team at and ask to speak with an EY Financial Planner who can provide general financial advice based on a person s situation. You should also refer to the Special Tax Notice that is included in your election kit. 5 You may avoid taxes and the penalty through a timely (within 60 days of payment) rollover of the distributed lump sum benefit plus an additional amount equal to the taxes that were withheld from your lump sum payment. H

7 11. If I choose the lump sum benefit or annuity benefit during the special election period, how soon will it be paid? Lump sum payments/rollovers elected during the special election period will be paid in September 2016; annuity payments are anticipated to commence in September How are lump sum payments and monthly annuity amounts calculated? The lump sum value of your vested retirement benefit is based on tiered interest rates and a mortality table mandated by the IRS. You can find information about the interest rates and mortality table on the IRS website at Your lump sum is calculated by converting the monthly pension annuity that you would receive at the DBRP s normal retirement age into a current lump sum benefit, taking into account your age (which impacts life expectancy using mortality rates set by federal law) and interest rate growth. This option allows you to lock in 100% of the total value of your accrued benefit for your family and your estate. By choosing monthly annuity payments, the amount you receive will be based on the specific annuity option you choose (e.g., single life, joint and survivor). If you haven t reached age 65 with five years of service or age 60 with 30 years of service, your annuity benefit will be reduced for early commencement of the benefit. Annuity payments are subject to federal taxation and possibly state and local taxes. Note this applies only to certain plan participants. As you consider your plan options, please review your election kit brochure. If the back center panel of the trifold brochure contains a section titled Plan change effective January 1, 2017, you may be impacted by a change to the EY DBRP effective January 1, New rules issued by the Department of the Treasury will force the Plan to reduce the interest crediting rate being used to grow the notional account balances under one of the Plan s benefit formulas. In 1994, the Plan was amended to add a minimum formula for certain participants. That minimum formula utilized a socalled cash balance formula to credit contributions to individual notional accounts. Such amounts were then credited with interest at a rate of 7.5% each year until the participant s age 65. These notional accounts were converted to monthly lifetime annuities, and the pension amount was compared to the amounts produced by the Plan s Normal Benefit Formula. The Plan then provides the greater of the two amounts. Therefore, effective January 1, 2017, as a result of the new legal requirements, the interest credited on the notional accounts must be reduced to a rate of 6%, and all future growth in notional accounts will credit at a rate of 6% and not 7.5%. All earnings credited through December 31, 2016 will be at 7.5% and there will be no change to the interest amounts already applied. 13. What impact do interest rates have on my lump sum benefit? Interest rates affect the calculation of your lump sum. Lower interest rates result in higher lump sum values. Conversely, higher interest rates result in lower lump sum values. Currently, economic conditions are dictating historically low interest rates which could make this a good time to elect a lump sum benefit. 14. Can I roll over my lump sum benefit to an Individual Retirement Account (IRA) or a taxqualified retirement plan? Yes. You can roll over a lump sum payment into any eligible retirement plan that accepts rollovers, including an Individual Retirement Account (IRA) or a pension, profit sharing or 401(k) Plan, including the Ernst & Young Retirement Savings Plan. Rollovers may help you to avoid a potential Internal Revenue Service (IRS) penalty and defer taxes. 6 6 Note that contributions to a Roth IRA will trigger taxation. H

8 15. Does this special lump sum election period impact the benefit that I ve earned in the DBRP? No. The addition of this special, limited time offer to take your vested DBRP accrued benefit as a lump sum payment now does not change the value of your current earned benefit. If you choose not to take the lump sum benefit now, you will still keep the vested accrued benefit you ve earned in the DBRP. However, the value of the lump sum benefit, should you choose that option on or after your earliest retirement age (or at any time if the value of your lump sum benefit is less than or equal to $25,000), will likely be different due to changing interest rates and mortality factors. 16. Should I elect to take my lump sum benefit now? Your choice is highly personal and depends on a number of factors, such as your current cash needs, your health and family longevity, whether you have other retirement income sources, your anticipated future financial needs and obligations, your concerns regarding future inflation risk and your interest in self-managing those funds. This is a voluntary program you decide whether to take your lump sum benefit now. If you choose not to take your lump sum benefit during this window and you die between now and your normal retirement date, per the plan rules, your spouse or registered domestic partner will only receive a survivor pension that is a monthly annuity equal to 50% of the pension you earned through your date of death. 7 If you are single at the time of death, your estate will receive no benefit. We encourage you to consider your circumstances before making this important decision and to consider consulting with your financial, legal, and/or tax advisors. You can also use the EY Financial Planner Line to help you in your decision making. Guidance and education from EY Financial Planners are unbiased, objective and completely confidential. They are available at no cost to you during this special election period to review your personal financial situation and help you think through your options. To access the EY Financial Planner Line, call the EY Special Programs Team at and ask to speak with an EY Financial Planner. 17. How do I decide which option to choose during the election period? There are many factors to consider and every situation is different. For example, you should consider the following when making your decision. You may call the EY Special Programs Team at and ask to speak with the EY Financial Planner Line to discuss any of these factors. New mortality table. You should be aware that a new mortality table for calculating lump sum payments is expected to be published by the IRS in future years and may reflect longer lifetimes. If you choose to take your vested DBRP accrued benefit in the form of a lump sum before any new mortality table goes into effect, you may receive a smaller retirement benefit than if you commence benefits after a new mortality table goes into effect. Interest rates. The lump sum option is being offered at a time of historic low interest rates, which means lump sum benefits are larger than they would be in a higher interest rate environment. A rise in the interest rates that determine your lump sum benefit can have a greater negative effect on value than the positive effect of potentially waiting for the new mortality table. Inflation risk. If you choose to receive an annuity, now or in the future, the monthly payments will be fixed and you need to be aware of inflation risk. While the US economy is currently in a very low inflation environment, inflation has been an important factor throughout history. At a 3% average inflation rate, a $100/month pension payment will only be worth $55/month 20 years from now. 7 You must follow the standard process to register your domestic partner in order for that person to receive the survivor pension. Please note that doing so will affect your beneficiary designation for both the DBRP and the Ernst & Young Retirement Savings Plan. You can contact the EY Special Programs Team for more information. H

9 Again, you may want to speak with an EY Financial Planner (or your personal financial advisor) about the possible risk that your annuity might not keep pace with inflation and to understand how a lump sum distribution may act as a hedge against inflation risk. 18. What other personal considerations should I take into account when making my decision? Before you make a decision about this voluntary, limited time opportunity, it s important to consider your personal situation. This is a personal choice based on your own circumstances. Weigh your options carefully and consult with family members and your financial, legal and tax advisors. Start by asking yourself: What are my sources of retirement income? Remember that your DBRP benefit is only one piece of your overall retirement income. Be sure to think through all of your other potential income sources, such as: Benefits from other 401(k), pension and profit sharing plans, other employer-sponsored plans or individual retirement accounts (IRAs) Personal savings and investments Home equity Social Security Your spouse s or registered domestic partner s income from similar sources How does my life expectancy factor into my decision? Your age right now and how many years you want your pension benefit to last are both factors that you may wish to consider. The longer you live, the longer you will need to make your retirement income last. While it s difficult to predict exactly what will happen in the future, you can start with considering your age, health, heredity and lifestyle. However, you also need to consider your own mortality risk as a significant amount of the DBRP could be lost if you die before taking your benefit. What expenses will I need to cover in retirement? Evaluate your present expenses and potential future costs in retirement. This includes fixed expenses (such as your rent or mortgage payments) and variable expenses (such as health care needs of you and your dependents). You should also consider the lifestyle you wish to lead in retirement. Remember, certain expenses may go away (for example, if you pay off a mortgage). But at the same time, other costs may come about or increase (such as greater health care bills as your medical needs increase with age). Beware of the temptation to use a lump sum to pay down credit card debt or handle other current expenses. To access those funds for a reason other than retirement may put the quality of your retirement at risk. How comfortable am I with managing money and making investment decisions? If you decide to take the lump sum payment, it will be up to you, or the investment advisor that you hire, to manage your investments. Think about your investment knowledge, your cash flow needs and your ability to handle financial risk. You may also wish to take the lump sum payment and seek the advice of financial advisors to assist you in investing those funds. Keep in mind that you may rollover your lump sum into any IRA or any eligible retirement plan that accepts rollover contributions, including the Ernst & Young Retirement Savings Plan. Do I want to leave money for my heirs? Consider how your pension payment decision may fit with your estate planning and any goals you have for providing financial security for your heirs. H

10 19. What happens if I don t take any action during the election period? If you take no action and your election is not completed by July 29, 2016, or if the documentation you are required to submit is not postmarked by August 15, 2016, or is unsigned, incomplete or otherwise defective, you will not receive a lump sum payment or begin receiving monthly annuity payments as part of this special election period. This one-time special election period does not affect the value of your monthly retirement benefit. If you choose to do nothing, you will keep the vested benefit (and available annuity optional forms of payment available) you have earned in the DBRP. However, if you do not make an election now and die before starting your pension, you will lose the benefit value for your surviving beneficiaries. 20. If I elect to take a lump sum during the election period (or an annuity), how soon will it be paid? The Firm anticipates making lump sum rollovers/payments during September 2016, and immediate annuity payments elected during the special election period will begin at that time as well. 21. Where can I find more information about this special election period and about what I need to do? A personalized election kit for the special enrollment period is being provided with these FAQs. The kit provides information about your choices and the action to take if you want to elect a lump sum payment during the special election period. If you have questions about it, call the EY Special Programs Team at to speak with a representative about your options and to make an election. Representatives are available Monday through Friday from 9:00 a.m. to 6:00 p.m. Eastern time, except certain US holidays. If you have general questions about your options and retirement planning, call the EY Special Programs Team and ask to speak to an EY Financial Planner. EY Financial Planners are available at no cost to you to review your personal financial situation and discuss your options. The guidance and education provided are unbiased, objective and completely confidential. You should also refer to the Special Tax Notice included with your election kit. DBRP-specific questions 22. If I take an annuity before my normal retirement age, how much will it be reduced? The normal vested DBRP accrued benefit will be reduced based on the age at which you begin to receive benefits. The total value of your benefit will need to be paid out over a longer period of time if you choose to begin your annuity now, thereby reducing the amount that can be paid to you on a monthly basis. Please also remember that an annuity can be reduced over time in present value terms due to inflation. As an example, a 3% average inflation rate can reduce a current $100/month pension payment in real value terms to $55/month in 20 years. Refer to the SPD on Benefits Express at for more information on early commencement. H

11 23. Will my DBRP benefits be paid in addition to Social Security benefits? Yes. Your DBRP benefits are separate from any Social Security benefits that you may receive in the future. 24. How secure are the assets in the DBRP? The DBRP is a tax-qualified retirement plan and as such, is not subject to outside creditor claims. EY is committed to funding the DBRP according to IRS requirements. In addition, DBRP payments are guaranteed up to certain limits by the Pension Benefit Guaranty Corporation (PBGC), an independent agency of the United States government. You can find out more by going online to What happens to my pension if I die before I start receiving my payment(s)? If you are single, your benefit will be forfeited. If you are married or have a registered domestic partner, your spouse or registered domestic partner will be eligible to receive a survivor pension that is a monthly annuity equal to 50% of the pension you earned through your date of death. A benefit of taking your vested DBRP accrued benefit as a lump sum payment now is that you receive 100% of your benefit with no risk of forfeiture due to an untimely death, and can invest it according to your directions for the benefit of your beneficiaries. 26. If I choose the lump sum option during this election period, what happens if I die after taking my benefit? No further benefit is payable from the DBRP (or EY) to your family or estate once you receive a lump sum payment since it s providing you with 100% of your benefit. 27. What are the tax and/or penalty implications of receiving a check made payable to me? Any payment, including a lump sum payment, made directly to you from the DBRP will be subject to applicable state and federal taxes. There is a mandatory 20% federal income tax withholding, which is automatically applied to lump sum distributions made payable to you. You may also owe state and local taxes (some of which may be withheld). Depending on where you live, there may be additional state withholding requirements that will apply. Additionally, if you are younger than age 59½ at the time of a lump sum distribution, you may be subject to a 10% early withdrawal penalty when you file your taxes (unless an exception applies) 8. Please note that if you rollover to an IRA and subsequently take distributions from the IRA, those IRA distributions will be subject to income taxation as well as an additional early distribution penalty if you are younger than age 59½ at the time of distribution. Choosing a lump sum rollover to an IRA or other eligible retirement plan will allow you to avoid a potential IRS penalty and defer taxes on the payment. Please review the benefit payment information provided in your personalized election kit with these FAQs, as well as the Special Tax Notice. We encourage you to consult with a tax, financial or legal advisor or other professional, such as the EY Financial Planner Line, if you have additional questions. 8 Subject to certain exceptions (which, in the case of a qualified plan, include distributions made after a separation from service after attainment of age 55). H

12 Important information Although EY retains in its sole discretion the right to provide for other limited time immediate lump sum distribution opportunities and to amend the plan at any time, there is no guarantee that any such offer will be offered, and, if offered, the terms of the offer may differ from the opportunity described in these FAQs and the election kit. These FAQs summarize the highlights of this limited time opportunity; a complete description can be found in the applicable legal plan document. The information contained herein is general in nature, is not individual tax advice and may not be used to avoid any tax or tax penalty. Tax laws are complex and subject to change, and their application may vary based on the circumstances. EY, its benefit plans and their service providers do not provide tax, financial investment or legal advice. It is your responsibility to consult your own tax, financial and legal advisors. Any inconsistency between the terms of any electronic, written or verbal communication and the official plan document will be governed by the Plan document. Although EY expects to continue its benefit plans indefinitely, EY reserves the right to amend, modify or discontinue its plans at any time. H