Welcome to the LRO Message Board

This is carried over from the splash page under the Q&A as answered by Frank Minter
Answer. This subject is one we are hearing about most often and the LRO Directors are concerned when we hear that retirees are considering accepting the lump sum offer solely because they are concerned about a possible future sale of our plan to an insurance company. The only possibility of losing our pension if a sale occurs is for the insurance company to bankrupt.

Once again we repeat that we are in no way providing financial advice as you consider your decision on the offer so let us give you certain information that you can consider as you wish.

First- we have nothing from A-L that indicates ( after the buyout ends) they plan to sell our pension plan to an insurance company. The reason we have commented on that possibility results from GM and Verizon doing exactly that following completion of their lump sum offer.

Lets look at some numbers. We will use management as the LRO has better numbers for that group/ Today, we have about 128,000 management individuals covered by our pension plan. We know that 45,000 have been offered the lump sum. Historically, 20% to 30% accept these offers, which will leave about 115,000 in the plan. At year end 2014, on a fair market value basis, our plan had $ 20 billion in assets and was funded at 108%. Since the lump sum will reduce pension liabilities at least as much as assets, the arithmetic says the remaining plan funding level has to be over 108%. If A-L decides to terminate the plan it would not be turned over to the PBGC because it is fully funded. The law calls this a "standard termination" in which the plan must purchase an annuity from an insurance company that pays your current pension. The plan must also identify the insurance company for you. If this occurs, the protection of the PBGC guarantee ends. However, each State has an arrangement that will pay you certain amounts up to a maximum if the insurance company subsequently becomes bankrupt. The total amount available should be checked in your state.

The most important factor in a possible sale of a pension plan to an insurance company is the viability of that company. There are not very many companies that could handle 115,000 retirees with monthly annuity (pension) payments and almost $ 20 billion in assets in our plan. Lets look at one such company, Prudential has $ 1.2 trillion in assets under management and has a strong financial position and would not be considered a candidate for bankruptcy.

Should we worry enough about the possible bankruptcy of this type of insurance company to accept a lump sum buyout that we might have turned down based on other factors. As we have said repeatedly, taking the buyout transfers all risk to the retiree. The risks are that you will outlive your money and also earn a sufficient return on your assets. Only you can make the decision that is best for you but the possible sale of our plan to an insurance company certainly should not be the only factor you consider because of the remote possibility that such a company will bankrupt.

The calculation of pension funding is quite difficult and there are different statements from Alcatel-Lucent. The statement in the AFN hat the plan is overfunded is based on year 2000 actuarial data and on long term averages of interest rates, which determine pension obligations. Many commentators have said that these will decrease for all pensions with the introduction of new standards. Alcatel-Lucent itself publishes a report to the SEC (called a 20 F) that has a more pessimistic view of the pension funding status of the plan - Specifically that it is underfunded by 5%. A quote from the Alcatel-Lucent filing to the SEC:

"At December 31, 2014, the Group’s overall Pensions and OPEB exposure indicated a deficit of Euro (1,350) million compared to a surplus of Euro 546 million at December 31, 2013. This change primarily reflects an IFRS update to our assumptions based on new mortality rates issued in the US at the end of 2014. From an ERISA standpoint, which determines funding requirements in the US, the US pension funds remain in a sizeable surplus positive and we do not expect to make any additional contributions to these plan assets for the foreseeable future"

Update: 18 Taking, 24 Not Taking

Taking
1. matt304
2. jldavid
3. sanfran16
4. Beefeater
5. pygmymamth
6. birdlady
7. Guest on 8-24-15
8. Guest on 8-25-15
9. larryi8- from another thread on 8-23-15
10. Mytnview
11. Rayj00
12. telks- Mr.
13. telks- Mrs.
14. Golpher
15. Village1
16. mlts
17. slk230red
18. lucebill


Not Taking
1. Hampstead
2. donconf
3. my9cats
4. ekelsey1
5. judysniegocki
6. powrus
7. info2
8. pamsiegel
9. mendomann
10. jt1314
11. jimbo1911
12. username
13. dch825
14. ejroskos
15. dbleagles2
16. JosephGPhD
17. boreen
18. kml22
19. packrat001
20. Leprechaun
21. Yellowjacket71
22. backlog
23. 1fine99-Mr.
24. 1fine99-Mrs.

REJECT offer

So has anybody had some second thoughts on our decision to take the buyout? I am but cannot find anything about what is going on with alcatel/nokia merger. Why can they not just tell us if they plan to sell it to insurance or not like other companies did. Any thoughts?

I’m with you .. been looking for some results and have found nothing. It’s been almost two weeks .. I guess anything sooner they’d look efficient and forthright. The LRO home page .. right side .. had this .. “Prudential Insurance to take over J.C. Penney pension By Sruthi Ramakrishnan; Reuters ~ Oct 02, 2015” .. let’s face it the hand writing is on wall. If the non-lump sum takers do go to Prudential … a big company with experience with pension funds .. I’m not worried … but just like the rest of you - I want to know where we’re going and move on.

Hampstead wrote:I’m with you .. been looking for some results and have found nothing. It’s been almost two weeks .. I guess anything sooner they’d look efficient and forthright. The LRO home page .. right side .. had this .. “Prudential Insurance to take over J.C. Penney pension By Sruthi Ramakrishnan; Reuters ~ Oct 02, 2015” .. let’s face it the hand writing is on wall. If the non-lump sum takers do go to Prudential … a big company with experience with pension funds .. I’m not worried … but just like the rest of you - I want to know where we’re going and move on.

Until all the take results are known, moving to an insurance transfer is unlikely. And their could be a reuirement for an additional Nokia/ALU investment which be a bariirer. Deloitte recently created an analyis for the Society of Actuaries that concluded
"Retiree lump sum offerings are an alternative risk transfer strategy explored by many plan sponsors. However, many insurers have indicated that providing lump sums to retirees prior to annuitization poses an anti-selection risk for the insurer.] Insurers may assume that the retirees who elect to receive their benefits in the form of a lump sum are likely less healthy than those who choose to continue receiving their benefits in the form of a monthly payment. Insurers may charge a higher premium for the remaining population based on the assumed greater longevity of that group. Whether or not it is cost effective to offer a lump sum in advance of an annuity purchase often depends upon the percentage of the population that elects a lump sum, which is impossible to know beforehand."

username wrote:So has anybody had some second thoughts on our decision to take the buyout? I am but cannot find anything about what is going on with alcatel/nokia merger. Why can they not just tell us if they plan to sell it to insurance or not like other companies did. Any thoughts?

If the lump amount offered was doubled to give me 26 years instead of the 13, I would have taken it. For me 13 takes me to 78. Not good.
No regrets on staying the course. I sleep at night.

Update: 18 Taking, 25 Not Taking

Taking
1. matt304
2. jldavid
3. sanfran16
4. Beefeater
5. pygmymamth
6. birdlady
7. Guest on 8-24-15
8. Guest on 8-25-15
9. larryi8- from another thread on 8-23-15
10. Mytnview
11. Rayj00
12. telks- Mr.
13. telks- Mrs.
14. Golpher
15. Village1
16. mlts
17. slk230red
18. lucebill


Not Taking
1. Hampstead
2. donconf
3. my9cats
4. ekelsey1
5. judysniegocki
6. powrus
7. info2
8. pamsiegel
9. mendomann
10. jt1314
11. jimbo1911
12. username
13. dch825
14. ejroskos
15. dbleagles2
16. JosephGPhD
17. boreen
18. kml22
19. packrat001
20. Leprechaun
21. Yellowjacket71
22. backlog
23. 1fine99-Mr.
24. 1fine99-Mrs.
25. 15190

username wrote:So has anybody had some second thoughts on our decision to take the buyout? I am but cannot find anything about what is going on with alcatel/nokia merger. Why can they not just tell us if they plan to sell it to insurance or not like other companies did. Any thoughts?

Just returned from a golf trip to Jamaica and 11 days in Riviera Maya, Mexico. No regrets on taking the buyout. Ready to move on and book more trips.
Good luck to all.

Has ALU provided any statistics on how many retirees took and turned down the lump-sum buyout offer? If not, has the company indicated if and when such numbers will be released?