I began working for Continental Airlines in 1986, at the age of 18. I worked as a RES Agent and Airport Agent during my time with CO. In 1999, I accepted an early out and 'retired' from CO. I have since changed careers.

On October 11, I received a package from UA regarding a "Limited-Time Lump Sum Payout Program." I haven't seen this posted and thought I would share with you all. Especially since UA is offering a F/A buyout program. I'm not sure if these two are related, but the timing suggest they may be.

UA is offering a lump sum pension payout in December 2014 and I go away. Or, I can start a monthly benefit in January 2015. Third, wait until a later time to begin receiving pension benefits as a monthly payment.

The second option is a very small monthly amount and it would take 30 years to equal the lump sum payout.

I would become eligible to receive the third option the month after turning 55. There is no change to this option. Of course, each year I delay payment the monthly payment increases. Similar to Social Security Benefits.

I'm not asking for assistance in what option to choose, but simply sharing this information. This is a way for UA to reduce their pension liability. So, this should bring out some spirited discussion here.  

Wow, this is a great bonus! With the loss of a lot of airline pensions, were you even expecting anything at all when you hit retirement age?

I know you weren't asking for advice, but knowing what happens(ed) to American carriers in the past, I think I would be inclined to just take the money now! Invest it, or buy a Carrera 4!

Quoting WTXJET (Thread starter): UA is offering a lump sum pension payout in December 2014 and I go away. Or, I can start a monthly benefit in January 2015. Third, wait until a later time to begin receiving pension benefits as a monthly payment. The second option is a very small monthly amount and it would take 30 years to equal the lump sum payout.

Three questions from someone young enough to not know much about pensions (besides the fact that our generation by and large doesn't get them).

A) Does that change the tax liabilities, if so, how?

B) Did you include TVM (Time value of money) in your calculation?

C) How long do you plan to live? (not a question to answer herein, but something to seriously consider for your retirement planning)

With the way things are going, I'd almost be willing to take what you can get from a pension these days (as long as it works in your favor considering the above). Many UA employees ended up with fractions of their pensions after the BK...

This is only for s/CO. s/UA employees are not part of CARP

Yes it is for s/CO only. If you take the lump sum now it is subject to a 30% Federal Tax...if you take it before the age of 59.5

[Edited 2014-10-16 14:03:31]

It seems United have combined a number of options which seems a bit odd. On one hand, you have the option of leaving the pension scheme altogether, but on the other, you can draw your pension early or wait until maturity. Only the first option reduces United's pension liability in it's entirety.

The main issue is whether you wish to retire now or at say 65 (which is the normal retirement age on this side of the Atlantic). Personally I can see no benefit in option two. It really depends if want to have a lump sum and place it into either a savings product or another pension vehicle, e.g. buy an annuity. Or alternatively, you may wish to spend it on having a good time. Given that pensioners are living longer, in my view, having a deferred pension which you can take at 55, or an annuity, is the best option. Obviously a lot depends if you are fit and healthy, or been gorging yourself daily at Wendys or Taco Bell.

TVM is a little fancy for the forum; someone has been sitting and listening in class. Nevertheless, in simple terms, it means that inflation will eat into any lump sum payment over a period of time. So in my view, the third option, as it will be uplifted for inflation, and the fact the taxman doesn't take a chunk, looks like a good option.

If any of this doesn't make any sense, please get some professional advice.

The main issue is whether you wish to retire now or at say 65 (which is the normal retirement age on this side of the Atlantic).
According to the paperwork that I got, this is only for people who are already retired and took an early retirement.

Quoting WTXJET (Thread starter): The second option is a very small monthly amount and it would take 30 years to equal the lump sum payout.

Whatever you do , DO NOT take this option. You are not getting paid enough for streching it out. You can do better taking the lump sum and investing it yourself in an IRA. You want a "trustee to trustee" tansfer so that you don't get clobbered for state and federal taxes which could be 40% and over. AN S & P 500 fund and " balanced fund" would be better.

Quoting jfk777 (Reply 7): You want a "trustee to trustee" tansfer so that you don't get clobbered for state and federal taxes which could be 40% and over. AN S & P 500 fund and " balanced fund" would be better.

I think if you can do a trustee to trustee you will do better, you really need to talk to someone who does IRA's as a profession to determine your tax liabilities and your course of action there are several types of IRA's with different tax liabilities.

Okie

Quoting okie (Reply 8): I think if you can do a trustee to trustee you will do better, you really need to talk to someone who does IRA's as a profession to determine your tax liabilities and your course of action there are several types of IRA's with different tax liabilities.

A " trustee to trustee" transfer is when someone transfers the money from the pension fund or 401K custodian to a "rollover IRA" at a financial firm, you never touch the money. If your pension fund makes the check payable to you they will withold 20%. Unless you have another 20% to replace the withheld 20% you will have a tax liablilty for that amount. Your pension will then be only 80%.

Quoting jfk777 (Reply 9): A " trustee to trustee" transfer is when someone transfers the money from the pension fund or 401K custodian to a "rollover IRA" at a financial firm, you never touch the money. If your pension fund makes the check payable to you they will withold 20%. Unless you have another 20% to replace the withheld 20% you will have a tax liablilty for that amount. Your pension will then be only 80%.

That is why you need a professional. The OP can discuss personal matters such as present liabilities, income and other issues which really does not need to be on a public forum.
You may do better paying that tax up front and putting the money into a Roth which there is no tax when you withdraw after 59 1/2 years of age especially if grows exponentially.
You may do better just shifting to a better 401k as in trustee to trustee with better control of the investments in the portfolio.
Then better numbers will be on the table to actually make a proper decision.

Okie

Quoting dutchflyboi (Reply 4): Yes it is for s/CO only. If you take the lump sum now it is subject to a 30% Federal Tax...if you take it before the age of 59.5

If you take the money and play with it, it's whatever your tax bracket is +10% but depending on your age there are some qualifiers. I imagine you'll be able to roll this over without any tax consequences.

Quoting G-CIVP (Reply 5): So in my view, the third option, as it will be uplifted for inflation, and the fact the taxman doesn't take a chunk, looks like a good option.

The third option isn't "uplifted" for inflation, it's increased because actuarially you're going to die after fewer payments.

Quoting G-CIVP (Reply 5): Only the first option reduces United's pension liability in it's entirety.

No they all reduce their pension liability -- they're just taking a bucket of money and putting it aside and paying you from that bucket in one of three different ways. They have to put no more money into this and the second and third choice payouts are so small that when invested even very conservatively doesn't cost UA anything even if you live to 100 -- in fact they'll probably make money off two and three.

The OP did not ask for advice and specifically said he did not need it.

The point was how it would effect UA and their motives for offering these things,

Quoting FlyingSicilian (Reply 12): The OP did not ask for advice and specifically said he did not need it. The point was how it would effect UA and their motives for offering these things,

Thank you FlyingSicilian for reminding everyone of this. I thought the talk would be more about the reasons UA is making this offer. I'm surprised no one has mentioned Smisek.  

I do have a Financial Advisor and this person will assist me in making the selection that is best for me. However, option 1 is available for 100% rollover to a qualified plan with no current tax implication. Of course, if I select a rollover option, dependent upon the type of rollover, there is a tax liability for me either now or in the future.

Would you be giving up your flight benefits if you take this?

Quoting N104UA (Reply 14): Would you be giving up your flight benefits if you take this?

I had flight benefits for 10 years after my early out. But, I was with CO long enough to qualify for their pension plan.

Quoting G-CIVP (Reply 5): The main issue is whether you wish to retire now or at say 65 (which is the normal retirement age on this side of the Atlantic). Personally I can see no benefit in option two. It really depends if want to have a lump sum and place it into either a savings product or another pension vehicle, e.g. buy an annuity. Or alternatively, you may wish to spend it on having a good time. Given that pensioners are living longer, in my view, having a deferred pension which you can take at 55, or an annuity, is the best option. Obviously a lot depends if you are fit and healthy, or been gorging yourself daily at Wendys or Taco Bell.

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The reason it's only offered to the S-co guys is the SUA guys are already under the PBGC which does NOT recognize seniority, only age, and 65 is it. for full reduced pension.
I was looking at a former pension calculation of $4200/Mo at 60. Under PBGC I'm looking at $2600 Mo at 65 with 10% loss every year Prior to age 65.
They know they can entice the S-CO guys as they're still obligated to some extent to continue contributing to their pensions.
While they send $500M-$1.5B per year to PBGC depending on profits declared..
We're stuck in a fixed scheme that only cares about the age of 65. It would take $300K to ME(after taxes) before I could retire comfortably.
As it stands now I'll have to keep working until my 401K get's to my target amount which is going to take another 3 yrs or $375K in earnings at 19%/yr. saved to my 401k before I leave.
(We're limited as the top 1/3rd cannot put in any more than the bottom 2/3rd of the company)
Any overage is taxed at 45% off the top !! Made that mistake already and it cost me $7500.00 in tax and penalty . (even AFTER it was reduced!!)
Management would like to reduce the High Number of VERY senior employees on the S-UA side but as long as we're having to save for what we lost in CH-11??
And the Employee Stock ownership Plan that we lost leading up to CH-11 ?? (mine was $105K. in the ESOP)
Most of us will just be scraping by in retirement. By the time we cashed out of the ESOP?? My $105K in stock?
was a Whopping $1050.00 and I could NOT declare the loss on my taxes.
People wonder why we view EVERYTHING management does with suspicion.
We have damn GOOD reason to. If you can GO with the buyout ? Then God Bless you.!!
I'd split but I'm 63 and I have to ride it out to finish paying for my house..
Too old to start over. Even with the FAA.

Quoting FlyingSicilian (Reply 12): If you take the money and play with it, it's whatever your tax bracket is +10% but depending on your age there are some qualifiers. I imagine you'll be able to roll this over without any tax consequences.

Actually that is not correct. The paperwork from United clearly states that 30% Federal Tax will be taken if you take the lump sum plus any State taxes. (if you take the lump sum before age 59.5). Yes you can roll it over without any tax consequenses.

Quoting WTXJET (Reply 15): Would you be giving up your flight benefits if you take this?

Flight benefits have nothing to do with this. If you took an early retirement and had lifetime passes, you still have it. This has only to do with the sub-CO CARP members.

Quoting dutchflyboi (Reply 17): Actually that is not correct. The paperwork from United clearly states that 30% Federal Tax will be taken if you take the lump sum plus any State taxes. (if you take the lump sum before age 59.5). Yes you can roll it over without any tax consequenses.

Actually what I said in Reply 11 (not FlyingSicilian) is correct. UA is taking 30% out but you will not necessarily owe that much. It may be a greater percentage if you're in a higher bracket or less if you're in a lower bracket when you finally file your taxes. There is no 30% tax bracket.

I dont think this is anything new. Correct me if i am wrong, but CARP has always had a lump sum pay out option.

Quoting maxamuus (Reply 19): I dont think this is anything new. Correct me if i am wrong, but CARP has always had a lump sum pay out option.

What is new is the offer to those of us under age 55 for a lump sum pay out option.

Quoting WTXJET (Reply 20): What is new is the offer to those of us under age 55 for a lump sum pay out option.

Not a bad option... Hopefully they keep CARP around, so I can actually take a full pension at retirement   (I would take the lump sum incase they decide to sell it off to PBGC)

edited for spelling

[Edited 2014-10-17 13:06:07]

Quoting 7BOEING7 (Reply 11): Quoting G-CIVP (Reply 5): So in my view, the third option, as it will be uplifted for inflation, and the fact the taxman doesn't take a chunk, looks like a good option. The third option isn't "uplifted" for inflation, it's increased because actuarially you're going to die after fewer payments. Quoting G-CIVP (Reply 5): Only the first option reduces United's pension liability in it's entirety. No they all reduce their pension liability -- they're just taking a bucket of money and putting it aside and paying you from that bucket in one of three different ways. They have to put no more money into this and the second and third choice payouts are so small that when invested even very conservatively doesn't cost UA anything even if you live to 100 -- in fact they'll probably make money off two and three.

In the UK, employer based pensions are usually uplifted (on an annual basis) for inflation, although the practice may be different State side. The way I read option 1, is United payout, end of story. If it's different, please forgive my misinterpretation.

Quoting WTXJET (Thread starter): I'm not asking for assistance in what option to choose, but simply sharing this information. This is a way for UA to reduce their pension liability. So, this should bring out some spirited discussion here.

This must be for those already retired. Lump sum and it is taken off the books with no future liability.

Quoting FlyingSicilian (Reply 12): The OP did not ask for advice and specifically said he did not need it. The point was how it would effect UA and their motives for offering these things,

Cleans up some future liabilities for United going forward.

Quoting WTXJET (Reply 13): Thank you FlyingSicilian for reminding everyone of this. I thought the talk would be more about the reasons UA is making this offer. I'm surprised no one has mentioned Smisek.

Probably trying to get rid of some liabilities if they can.

Quoting maxamuus (Reply 19): I dont think this is anything new. Correct me if i am wrong, but CARP has always had a lump sum pay out option.

For now. For the Technicians at sCO, the union is trying to get control of the TechOps CARP. The lump sum would almost certainly go away. Then the payment would be from the interest earned on the CARP funds, minus the union's take. Hopefully, as many Techs say, they do not want the union to get control over their CARP. The union is trying to wrest control during these negotiations. Hopefully they will be unsuccessful.

For the sUAL Techs, they want their pensions back, get them out of the PBGC. Will be interesting to see how contract negotiations go with all this, along with insurance costs.

Quoting WTXJET (Reply 20): What is new is the offer to those of us under age 55 for a lump sum pay out option.

Pretty sure under CARP you could take a early retirement lump sum at 50 with 20 years of service or at 55 with 10 years of service.

Quoting tyler81190 (Reply 21): Not a bad option... Hopefully they keep CARP around, so I can actually take a full pension at retirement (I would take the lump sum incase they decide to sell it off to PBGC)

Just a couple of months to hit 30 years, then have to wait forever to hit the other magic number of age 65, to get the full benefit.

Quoting G-CIVP (Reply 22): In the UK, employer based pensions are usually uplifted (on an annual basis) for inflation, although the practice may be different State side.

The (old) Boeing non-union was not adjusted for inflation which I believe is the case with most pensions except union & federal government pensions.

Quoting 7BOEING7 (Reply 18): Actually what I said in Reply 11 (not FlyingSicilian) is correct. UA is taking 30% out but you will not necessarily owe that much. It may be a greater percentage if you're in a higher bracket or less if you're in a lower bracket when you finally file your taxes. There is no 30% tax bracket.

You are correct, there is no 30 % tax bracket, but the tax on the lump sum is 20% Federal Tax and IF you are under 59.5 there is an additional 10% Penalty accessed by the IRS, making it 30%. (and any other state taxes). I did verity it with the IRS... and unless you are rolling it over, you will have to pay it. But as always, consult your CPA or tax person  

Quoting dutchflyboi (Reply 25): You are correct, there is no 30 % tax bracket, but the tax on the lump sum is 20% Federal Tax and IF you are under 59.5 there is an additional 10% Penalty accessed by the IRS, making it 30%. (and any other state taxes). I did verity it with the IRS...

You misunderstand. The standard rate of withholding for Federal taxes is 20%. One pays the marginal rate(s) particular to his income for the year; that could be more or less than 20%. Yes, there is a 10% penalty for early distribution (underage) if not rolled into a qualified retirement account (or other technique not described here). That is not part of the withholding.

Lots of firms across industries in the U.S. are offering lump-sum payouts to people who have 'completed' their pension service; most simply, aren't accruing additional pension benefits with the company. The behavior certainly isn't unique to (ex-CO) United.

Quoting MIflyer12 (Reply 26): You misunderstand. The standard rate of withholding for Federal taxes is 20%. One pays the marginal rate(s) particular to his income for the year; that could be more or less than 20%. Yes, there is a 10% penalty for early distribution (underage) if not rolled into a qualified retirement account (or other technique not described here). That is not part of the withholding.

Lets agree to disagree. My understanding of this is very clear. In addition to this, the paperwork states and being confirmed by the IRS, that the withholding will be at 20% and if under 59.5 an additional 10% will be taken as well. So the check that people are getting in December will be a taxed at 30%, not 20% (if they are uder 59.5), that's all what my point was.

Quoting dutchflyboi (Reply 27): Lets agree to disagree. My understanding of this is very clear. In addition to this, the paperwork states and being confirmed by the IRS, that the withholding will be at 20% and if under 59.5 an additional 10% will be taken as well. So the check that people are getting in December will be a taxed at 30%, not 20% (if they are uder 59.5), that's all what my point was.

And all my point was when all is said and done they will either owe more tax or get a refund depending on their situation. They are not being taxed at 30%, they are being withheld at 30%, it's picky but there is a difference.

I know they vary, but how much $$$ are some of these lump sum payouts?

Quoting dutchflyboi (Reply 27): withholding will be at 20%

You are actually agreeing with him. The WITHOLDING is 20%+10, but the actual rate levied by the IRS will be determined in your tax return. People in lower marginal tax rates would generally expect a partial refund come tax time.

Quoting CALTECH (Reply 23): Just a couple of months to hit 30 years, then have to wait forever to hit the other magic number of age 65, to get the full benefit.

Yeah, the wait until the magic 65 is going to be awful.... haha