Alcatel-Lucent 2015 Enhanced Special Voluntary Termination Program (Enhanced SVTP) How does this affect me?

Alcatel-Lucent 2015 Enhanced Special Voluntary Termination Program (Enhanced SVTP) How does this affect me?

Today s Objectives Understanding Your 2015 Enhanced SVTP Benefits 1. Know your Alcatel-Lucent retirement benefits. 2. Know your options. 3. Know how these options can be used. 4. Personal planning considerations. Slide # 2

Who s Entitled to this Enhanced SVTP? All active core Installers who were on roll as of May 25, 2014, and are covered by the 2014 Installation Effects Agreement (excluding CSI s) and meet the pension plan rule of being age 21 with 1 year of service. Those on Approved Leaves of Absence Slide # 3

Election Period Election Period Begins October 5, 2015 Election Period ends for voluntary, November 4, 2015, 5pm Eastern Time Decision is irrevocable after that time Last Day On Payroll is December 5, 2015 Pay in-lieu of any vacation, floating Holidays, excused workday (Paid Time Off PTO) to which eligible for Slide # 4

Special Pension Benefit (SPB) Equal to the applicable eligible termination allowance (eligible pay is your Adjusted Rate, plus night work bonus, if applicable) Available in the form of a lump sum or monthly annuity. The SPB is paid from the Pension Trust and is subject to the terms and conditions of the Pension Plan. NCS 1 5 10 15 20 25+ SPB% 134.3 131.4 127.8 124.2 120.6 117 Not eligible for termination allowances or recall. Slide # 5

Special One-Time Transition Payment Enhanced Pension Benefit (EPB) Receive $20,000 paid from the Pension Trust and is subject to the terms and conditions of the Pension Plan. Slide # 6

5 + 5 Transition Leave of Absence (Enhanced TLA) On active payroll Within 5 years of age and/or years of service of being service pension eligible Additional age and service will count toward eligibility for a service pension Additional age and service credit will count towards reducing or eliminating any early retirement discount between ages 50 and 55 Additional age and service credit will not be counted towards employee s monthly pension benefit Slide # 7

Service Pension You re eligible to receive a service pension when you meet both the following age and service requirements: Your age is Your Net Credited at least AND Service is at least Any Age 30 Years 50 25 Years 55 20 Years 65 10 Years Slide # 8

Service Pension Eligible with a Reduction: Early Retirement Prior to age 55 with less than 30 years of service. Monthly benefit permanently reduced by ½% (.005) for each full or partial month (6% for each year) that payments start before age 55. Slide # 9

Expanded and Enhanced Social Security Supplement (SSS) Service Pension eligible with a reduction (early retirement) including TLA Receive amount that offsets the reduction The supplement will continue until the earlier of : Age 62 Death Slide # 10

Getting the most of TLA and SSS 3 Scenarios: Scenario 1: TLA o Age 50 & 20 NCS (Vested deferred) o Take TLA (adding 5 years to age) o So age 55 & 20 NCS: SPE without reduction Scenario 2: TLA & SSS o Age 48 & 22 NCS (Vested deferred) o Take TLA (adding 5 years to age & 3 to NCS) o So age 53 & 25 NCS: SPE with reduction o SSS makes up for the SPE reduction Slide # 11

Getting the most of TLA and SSS Final Scenario: Scenario 3: TLA o Age 48 & 25 NCS (Vested deferred) o o Take TLA (adding up to 5 years to service) you only get what you need to hit 30 years of service So age 48 & 30 NCS: SPE without reduction Slide # 12

Pension Forms of Payment Single Life Annuity You receive 100% of your pension for your life. If married, must have spousal consent to select. No payments available to your spouse when you die. Joint and 50% Survivor Annuity Reduced pension payable for your life with 50% paid to your surviving spouse for his/her lifetime. With this option, your monthly pension payment will be reduced by 8% for your life. Increases to Single Life Annuity if your spouse predeceases you. Service Pension eligible only. Automatic unless spouse has agreed to an alternate payment method. Slide # 13

Pension Forms of Payment Joint and 75% Survivor Annuity Reduced pension payable for your life with 75% paid to your surviving spouse for his/her lifetime. With this option, your monthly pension payment will be reduced by 12% for your life. Increases to Single Life Annuity if your spouse predeceases you. Joint and 100% Survivor Annuity Reduced pension payable for your life with 100% paid to your surviving spouse for his or her lifetime. With this option, your monthly pension payment will be reduced by 15% for your life. Increases to Single Life Annuity if beneficiary predeceases you. Service Pension eligible only. Slide # 14

Pension Forms of Payment Ten-Year Certain Annuity 5 % reduced pension payable for your life with payments to your beneficiaries if you die prior to 10 years of monthly payments having been made to you. Slide # 15

Service Pension Entitlements Insurance Medical and Dental Provided based on collective bargaining agreement. Life Insurance 1 times your salary (no cost) Supplemental Life Insurance You pay. *Group Legal and Vision end at retirement Slide # 16

Vested Deferred Pension Eligibility All Core Installers who were on the active payroll on May 25, 2014 and were vested in a pension benefit. No Retiree Health/Dental/Vision/Legal and Life Insurance Coverage Distribution Options Age 65 Take immediately with reduction Lump Sum Slide # 17

LTSSP 100% vested in 401(k) for all employees Within a few months of leaving payroll you will receive a Distribution Options and Tax Considerations booklet from the Savings Plan Program. Slide # 18

Important Contact Information Andy Wambach: 800-296-3993 Andy s e-mail: a.wambach@alcatel-lucent.com Slide # 19

Personal Planning Considerations Slide # 20

Retirement Income & Expenses Sources of Income Social Security Spouse s Income Part-Time/Full-Time Jobs Investment Income/Rentals Pension(s) / IRAs Inheritance Expenses to Prepare For Medical (premiums and co-pay and co-insurance)* Prior to age 65 13 ½ % single / 27% family After age 65 9% single / 18% family Dental (out of pocket expenses) * Medical premiums are based upon retiree s pension dollar amount. The MAPPO 2016 premiums are reflected. These premiums may change in subsequent years. Life Insurance Home & Auto Repair Travel Expenses Entertainment Slide # 21

Options for your SPB, EPB & 401(k) 1. You can choose to receive your SPB and/or EPB as a monthly annuity from the pension trust and continue to maintain your 401-k in the company plan. For some individuals this may be the safest way to go. - Or- 2. Individual Retirement Accounts Tax deferred investment and savings account that acts as a personal retirement fund for people with employment income. o Types of IRAs Traditional IRA Roth IRA Rollover IRA Slide # 22

Options for your SPB, EPB & 401(k) Why choose an IRA? Rollover IRA Benefits Assets continue to grow tax deferred (tax shelter) Assets under your control Range of Investments Choices Mutual Funds Stocks or bonds Annuities Cash or CD s Flexible withdrawals from Rollover IRA If under 59 1/2, avoid 10% premature penalty by invoking 72(t) Slide # 23

IRA Options for your SPB, EPB & 401(k) Defined Benefit Plan* *if lump sum distribution from SPB and/or EPB 401(k) Plan PAYSOP Plan IRA Can be invested in a variety of investments Monthly Retirement Income 72(t) Rules Slide # 24

Retiring and need income? If you re retiring before age 59 1/2 and need a stream of income Take advantage of 72(t) rules - 1986 Tax Act o Withdrawals must be substantially equal periodic payments based on IRS tables o 3 different Calculation methods* Life expectancy Amortization Annuitization o 5 years or until your 59 1/2, whichever is greater o If you are being terminated and you are between age 55 and 59 1/2, there may be some other alternatives. Slide # 25

INVESTMENT EDUCATION AND RETIREMENT PLANNING OVERVIEW: What s the Risk? There are a number of risks you need to look at before making a decision about your Pension Benefits. The next few slides should help you understand the potential consequences of your actions or inactions. Please note: The information provided in the following segment is a very brief overview of investment education and retirement planning. To find out more about educational programs available to you on these topics and other financially related topics, contact the Alliance at 800 323 3436 or www.employeegrowth.com Slide # 26

Risk Financial Risk Some investors fear loss of principal Others fear loss of purchasing power General Description Likelihood that an investment will not meet your expectations. How much your investment fluctuates in value to provide your expected return. Slide # 27

Risk The greater the return, the greater the risk. And The lower the risk, the lower the return. Slide # 28

Longevity Risk Taking Your Chances... Age 65: Probability of Living to Age 90 26% 40% 52% Male Female One Member of a Couple If I d known I was going to live this long, I d have taken better care of myself. Eubie Blake, 1883 1983 Jazz Pianist, Composer Source: Society of Actuaries, 2006. Figures rounded to nearest whole. Slide # 29

Spend More. Get Less. Inflation Risk Comparing Costs Today with Those of 25 Years Ago $217,600 $67,800 $17,648 $28,559 1982 2009 1982 2009 Median Price of an Existing Single-Family Home Average Price of a New Car Source: National Association of Realtors, 2008; National Association of Automobile Dealers, 2007. Slide # 30

Inflation Risk Purchasing Power of $1,000 $1,000 $800 Average Rate of Inflation $600 2% $400 3% $200 4% 5% $0 10 15 20 25 30 Length of Retirement in Years $552 $412 $308 $231 Note: This is a hypothetical illustration and does not represent the performance of any specific investment vehicle. Average inflation rates used do not reflect actual rates. Slide # 31

Inflation Risk Its Impact on Health Care Expenses Health Care Costs Outpace Inflation 1999 2007 80.7% 97.3% 104.8% 111.2% 62.5% 42.7% 5.3% 3.6% 13.9% 7.6% 26.4% 11.9% 14.9% 18.2% 20.8% 25.0% 19.4% 19.9% 1999 2000 2001 2002 2003 2004 2005 2006 2007 Health Insurance Premiums Overall Inflation (CPI) Note: Data on premium increases reflect total health insurance premiums for a family of four. Historical estimates of workers earnings have been updated to reflect new industry classifications (NAICS). Sources: Kaiser/HRET Survey of Employer- Sponsored Health Benefits:1999 2007; KPMG Survey of Employer-Sponsored Health Benefits: 1993, 1996; The Health Insurance Association of America (HIAA): 1988, 1989, 1990; Bureau of Labor Statistics, Consumer Price Index, U.S. City Average of Annual Inflation (April to April), 1988 2007; Bureau of Labor Statistics, Seasonally Adjusted Data from the Current Employment Statistics Survey (April to April): 1988 2007. Slide # 32

Interest Rate Risk Investment Risk Fixed-income investment value moves opposite interest rates Interest rates up = Fixed-Income Values down Interest rates down = Fixed-Income Values up Slide # 33

Reinvestment Risk Investment Risk Reinvesting principal at a lower interest rate than the original rate Currently invested in CD Earning 4% CD matures and interest rates have come down To keep a CD investment, have to reinvest at 3% Slide # 34

Investment Risk Market Risk Market is volatile it goes up and down Be prepared to ride the roller coaster Sell when market up = profit Sell when market down = loss Remember: if you buy high and sell low, you re guaranteed to lose!! Slide # 35

Speculative Risk Investment Risk General risk of a particular business or industry Companies with large amounts of debt Debt can expand corporate profits when business is good Debt can lead to bankruptcy when times are bad May be just rolling dice Slide # 36

Default Risk Investment Risk Credit worthiness of fixed-income Issuers Moody s Standard & Poor s Highest Quality Aaa AAA High Quality Aa AA Upper Medium A-1, A A Medium* Baa-1, Baa BBB Speculative Ba BB Highly Speculative B, Caa B, CCC, CC Default Ca, C D * Lowest rating to be considered Investment Grade. Slide # 37

Investment Risk Leverage Risk Investing with Borrowed Money Borrow Money Invest Investment Losses Pay Back Borrowed Money Not a recommended strategy!! Slide # 38

Managing Retirement Risks Retirement Risk Longevity Inflation Retirement Risk-Management Strategy Ensure that retirement income can sustain lifestyle needs despite increases in the cost of living, and that it will last a lifetime Shift asset allocation to benefit from the growth potential of equities while providing downside protection Investment Protect retirement income against various market and investment risks Note: All guarantees are backed by the claims-paying ability of the issuing insurance company. Slide # 39

Asset Allocation Asset allocation is key in determining overall investment returns Slide # 40

Investments Asset Allocation Terminology: Asset allocation is: Spreading your investment assets Among 3 basic investment types Among major sub-types Slide # 41

Investments Asset Allocation Terminology: Diversification is: Not Putting All Your Eggs in One Basket Spreading funds across many different individual investments within each basic or sub-type Slide # 42

Investments Asset Allocation Risk/Return Risk Tolerance Investment Objective Early Career Mid Career Late Career Retirement High High Moderate Low Growth Growth Growth Income/ Growth Slide # 43

Investments Asset Allocation Conservative Portfolio Current income, liquidity, safety No capital growth Growth Portfolio Long time horizon Capital growth High potential returns and volatility Money Market Money Market Fixed Income Equity Fixed Income Slide # 44

Investments Asset Allocation In Summary: Choosing Your Asset Allocation Depends on circumstances Age Time Horizon Assets Risk tolerance Personal goals Slide # 45

Investments Asset Allocation In Summary: Rebalancing Your Portfolio Sell types now over allocation Buy types now under allocation Forces you to sell high and buy low Restores original risk tolerance Slide # 46

Investments Asset Allocation In Summary: Reallocating Your Portfolio Reduce risk as time horizon shortens At least 7 to 5 Years before you plan to use funds Slide # 47

How Much Will You Need? Costs LESS in retirement Costs THE SAME in retirement Costs MORE in retirement Income taxes Dry cleaning Work clothes Lunches Utilities Food Car insurance Property insurance Long-term care insurance Health insurance Leisure-related expenses Travel Slide # 48

Retirement age: 62 63 66 67 68 69 70 How Much Income Will I Need? 80% of Assets Needed to Retire Married Couple Earning $100,000 per Year Before Taxes (2004 dollars) Preretirement After-tax Income $58,682 58,682 58,682 58,682 58,682 58,682 58,682 Expected Annual Social Security (SS) Payment $23,908 25,959 32,984 35,512 38,235 41,168 42,576 Additional Retirement Income Needed $34,774 32,723 25,698 23,169 20,446 17,514 16,106 Assuming 100% of SS $556,522 506,685 355,378 306,848 258,462 210,526 183,298 Note: Assumes a 3% real rate of return. The forecasts or other information in this slide regarding the likelihood that various investment outcomes might occur are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. In reviewing this information, please note that the analysis does not take into account actual market conditions which may severely affect the outcome of your goals over the long term. Past performance is not a guarantee of future returns. Source: Congressional Budget Office (2002), National Bureau of Economic Research (2002), Social Security Administration (2002) and UBS Investment Research provided through UBS Securities LLC (2004) rec'd Assets Needed at Retirement Assuming 50% of SS rec'd Assets Needed at Retirement $747,829 707,656 583,440 542,007 500,131 457,948 425,574 Assuming 0% of SS rec'd Assets Needed at Retirement $939,135 908,628 64 58,682 28,186 30,496 455,870 666,537 877,205 65 58,682 30,586 28,096 404,499 624,669 844,839 Slide # 49 811,503 777,166 741,799 705,371 667,851

Which Will Last Longer my Money Or Me? Probability of outliving asset base of a conservative portfolio (80% bonds, 20% stocks) at Varying Retirement Lengths and Varying Annual Withdrawal Rates. 100% 80% 78% 72% 89% 60% 57% 57% 45% 40% 31% 29% 20% 10% 0% 20 years 25 years 30 years Length of Retirement 5% Real Withdrawal rate 6% Real Withdrawal rate 7% Real Withdrawal rate This hypothetical example is provided for illustrated purposes only and is not intended to represent a specific investment or portfolio. Slide # 50

Which Will Last Longer my Money Or Me? Determining an asset allocation strategy that optimizes the probability of accumulated assets funding expected retirement is critical. Keeping withdrawal rates at or under 4% provides a good chance that you will not outlive your retirement assets. This hypothetical example is provided for illustrated purposes only and is not intended to represent a specific investment or portfolio. Slide # 51

Real Withdrawal Rate Which Will Last Longer my Money Or Me? Probability of Outliving Your Retirement Assets in a 25-Year Retirement Stock / Bond Allocation (%) 100 / 0 80 / 20 60 / 40 40 / 60 20 / 80 0 / 100 2% 0.8% 0.3% 0.1% 0.0% 0.0% 0.1% 3% 3.7 2.2 1.1 0.6 0.8 3.2 4% 9.5 6.8 5.8 5.2 8.1 19.9 5% 17.5 15.2 15.2 18.3 28.9 50.1 6% 27.8 28.1 30.9 37.5 56.8 76.0 7% 39.8 40.9 48.2 60.7 78.4 90.5 8% 51.6 55.8 65.3 79.6 91.9 96.6 9% 61.6 69.3 78.0 90.2 97.3 99.1 10% 71.1 77.5 87.9 96.2 99.2 99.7 This hypothetical example is provided for illustrated purposes only and is not intended to represent a specific investment or portfolio. Slide # 52

Thanks for your time! Slide # 53