Lump Sum Information for Benefits Payable under CPRP
March 2015
Eligibility:
In order to be eligible for the lump sum under the Continental Pilots Retirement Plan
(CPRP), a pilot must meet one of three age and service requirements for Early
Retirement/Normal Retirement as defined in the Plan. The service requirement is based
on vesting service as defined in the Plan. The age and service requirement must be met
on the last day the pilot is employed by the plan sponsor.
•
Completion of 20 years of vesting service and attainment of age 50, or
•
Completion of 10 years of vesting service and attainment of age 55, or
•
Normal retirement age (age 60)
Benefit Commencement Date:
The earliest date that the lump sum can be paid is the first day of the month after the
last day of employment as a pilot with the plan sponsor, whether the pilot is retiring
from active service or leave of absence.
Example: If your Last Day of Employment is June 1, 2015 and you have reached your
early or normal retirement date, the earliest date you could receive the lump sum is July
1, 2015.
Lump Sum Theory:
Defined benefit pension plans, like CPRP, are designed to provide a lifetime single life
annuity. All other benefit options, like the lump sum, are derived from the single life
annuity payable at normal retirement date and are designed to be “actuarially
equivalent” to the single life annuity benefit. That means if all of the assumptions used
in the actuarial conversion hold true, the plan and the participant will be in no better
position or worse position regardless of what option is selected.
The lump sum is the actuarial present value, as of the lump sum payment date, of the
stream of annuity payments that you would have been expected to receive beginning at
age 60 (or beginning at your age on the lump sum payment date if you are over age 60
on that date) if you elected the single life annuity form of payment.
There are two assumptions that are used when calculating the actuarially equivalent
lump sum. One is mortality, which is used to discount future annuity payments based
on the probability you will be alive to receive each payment. The other is interest,
which is used to discount the annuity payment from the assumed payment date to the
lump sum payment date to reflect the time-value of money.
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ALPA Retirement & Insurance Department
Lump Sum Information for Benefits Payable under CPRP
March 2015
Basis for Calculating Lump Sums Under CPRP:
The mortality table used to calculate lump sums changes each January 1 and that
mortality table is used for all lump sums paid during the calendar year. Each year’s
new mortality table generally reflects a slightly lower mortality (longer life expectancy)
than the prior year’s table. As a result, the effect of a new mortality table alone would
be slightly higher lump sums, since the probability of death at each age is slightly
lower.
The interest rates used to calculate lump sums is based on a corporate bond yield curve.
The corporate bond yield curve interest rates consist of three “segment” rates, and are
published by the Internal Revenue Service (IRS). The first segment rate is used to
discount annuity payments that would be made in the next 5 years. The second
segment rate is used to discount annuity payments that would be made in the following
15 years (years 6 through 20). And the third segment rate is used to discount annuity
payments that would be made thereafter (years 21 and beyond). Since these segment
rates are used to discount future annuity payments to a present value lump sum, there
is an inverse relationship between the segment rates and the lump sum itself. Higher
segment rates produce lower lump sums, and lower segment rates produce higher
lump sums.
While the mortality table used to calculate lump sums remains the same throughout a
calendar year, the interest rates do not. Lump sums that are paid from January through
June of a particular calendar year are calculated using the segment rates from August of
the prior calendar year (which are published by the IRS in September of that prior
calendar year). Lump sums that are paid from July through December of a particular
calendar year are calculated using the segment rates from February of that calendar
year (which are published by the IRS in March of that calendar year).
2014 and 2015 Lump Sums:
Pilots with a Last Day of Employment from December 1, 2013 through May 31, 2014
who completed their retirement paperwork in a timely manner and elected a Benefit
Commencement Date of January 1, 2014 through June 1, 2014 had their lump sum
benefit based on the corporate bond yield curve segment rates for the month of August
2013. The August 2013 first, second and third segment rates were 1.36%, 4.60% and
5.58% respectively. These lump sums were calculated using the 2014 Lump Sum
Mortality Table.
Pilots with a Last Day of Employment from June 1, 2014 through November 30, 2014
who complete their retirement paperwork in a timely manner and elect a Benefit
Commencement Date of July 1, 2014 through December 1, 2014 will have their lump
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ALPA Retirement & Insurance Department
Lump Sum Information for Benefits Payable under CPRP
March 2015
sum benefit based on corporate bond yield curve segment rates for the month of
February 2014. The February 2014 first, second and third segment rates were 1.17%,
4.29% and 5.36% respectively. These lump sums will be calculated using the 2014
Lump Sum Mortality Table.
Pilots with a Last Day of Employment from December 1, 2014 through May 31, 2015
who complete their retirement paperwork in a timely manner and elect a Benefit
Commencement Date of January 1, 2013 through June 1, 2013 will have their lump sum
benefit based on the corporate bond yield curve segment rates for the month of August
2014. The August 2014 first, second and third segment rates are 1.24%, 3.86% and
4.96% respectively. These lump sums will be calculated using the 2015 Lump Sum
Mortality Table.
Pilots with a Last Day of Employment from June 1, 2015 through November 30, 2015
who complete their retirement paperwork in a timely manner and elect a Benefit
Commencement Date of July 1, 2015 through December 1, 2015 will have their lump
sum benefit based on corporate bond yield curve segment rates for the month of
February 2015. The February 2015 first, second and third segment rates are 1.35%,
3.52% and 4.47% respectively. These lump sums will be calculated using the 2015
Lump Sum Mortality Table.
The Lump Sum factors are calculated based on the pilot’s age on the Benefit
Commencement Date elected by the pilot. As noted earlier, higher segment rates mean
a lower lump sum benefit and vice versa.
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ALPA Retirement & Insurance Department
Lump Sum Information for Benefits Payable under CPRP
March 2015
Estimated Lump Sum Factors:
The lump sum factors below can be used to produce a close estimate of your lump sum
payable on benefit commencement dates from January 1, 2015 through June 30, 2015 or
July 1, 2015 through December 31, 2015. Multiply your frozen accrued monthly single
life annuity payable at age 60 by the appropriate factor based on your age when the
lump sum will be paid. Since the Benefit Center calculates the lump sum down to the
day as to your age on benefit commencement date, there will be slight variances in your
estimate and the Benefit Center calculation.
Note that the factors shown are at integer ages only. If you want to compute your lump
sum at age 57 ½ you could multiply half of your monthly annuity by the age 57 factor
and half of your monthly annuity by the age 58 factor and add the results.
The lump sum factors below have been ESTIMATED by the ALPA Retirement &
Insurance Department and have not been verified by the Company.
Age
ESTIMATED
Jan–Jun 2015 Lump Sum Factors
Monthly Deferred to Age 60
(Immediate
After Age 60)
Lump Sum
Factors Using
2015 Lump Sum Mortality
1.24%, 3.86% and 4.96%
Segment Rates
ESTIMATED
Jul–Dec 2015 Lump Sum Factors
Monthly Deferred to Age 60
(Immediate
After Age 60)
Lump Sum
Factors Using
2015 Lump Sum Mortality
1.35%, 3.52% and 4.47%
Segment Rates
Percent
Increase
(Decrease)
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
108.084353
113.812761
119.744559
125.893084
132.273491
138.900111
147.005463
155.171744
163.395798
171.685022
180.047598
176.394547
172.657913
168.833199
164.946380
160.970806
156.913845
152.806058
148.611699
144.304826
139.905534
117.284672
122.912596
128.722242
134.725984
140.937944
147.371138
155.056771
162.817142
170.649353
178.561733
186.563419
182.559640
178.477987
174.314430
170.096282
165.796509
161.423238
157.008319
152.515455
147.918639
143.239054
8.51%
8.00%
7.50%
7.02%
6.55%
6.10%
5.48%
4.93%
4.44%
4.01%
3.62%
3.50%
3.37%
3.25%
3.12%
3.00%
2.87%
2.75%
2.63%
2.50%
2.38%
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ALPA Retirement & Insurance Department