The annual funding report for your BP RAP was released recently and I felt it would be a good idea to spend some time to explain how it works. The question of the pension being restricted comes up quite a bit and I believe it is very important that you understand what it means because this is what allows you to take a lump sum, or not. If the funding level drops below certain levels, you lose your option to take a lump sum from your pension.
The good news is the current funding level is at 124.90%, which means there is no restriction on your pension lump sum option until September 1, 2020. While this figure is lower than last year’s level of 125.24%, it remains in a very strong position. Over the past 15 years, this is the second highest level I have seen, and the highest figure was last year.
But let’s examine what happens if the funding drops like it did in 2009 to 87%, or what happens if it goes even lower. If the BP RAP funding level is at or above 90%, the plan guarantees a full lump sum option up until September of the following year. If the funding level is between 89% – 80% then the lump sum is only guaranteed until March 1st of the following year. If funding falls between 79% – 60% the lump sum is restricted to 50% lump sum and 50% annuity. If the plan falls below 60% then all lump sums are restricted, and you are only able to take the annuity options.
Even if the plan drops below a certain threshold, BP still has the option to put cash into the fund to cover the shortfall and bring the funding level back up to a higher level. It’s highly unlikely BP would allow the funding to get to the point that they would restrict the pension lump sum because it would cause a mass exodus of its experienced workforce who generally have longer service history’s and have higher pension balances, they would be the most significantly affected.
If you would like to get more information about your BP RAP and how it works, please contact me at email@example.com or call direct at 877-739-6007.
Tyler E Ryan
Capstone Wealth Advisors
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