Your BP Benefits & 401(k)

BP’s Employee Savings Plan is one of the most competitive retirement savings plans in the industry. If properly funded, your ESP can allow for 300% higher funding options than a traditional 401(k) Plan. Capstone Wealth Advisors offer quarterly asset allocation models to assist with selecting investments inside your BP ESP. If you would like to receive these updates as they are released please sign up for our newsletter.

Your BP ESP is designed as a suite of retirement options aimed at giving you the highest IRS allowed contribution levels. A common misconception is that employees are only able to contribute a maximum of $23,000 in 2024 ($30,500 if you are over 50) but in reality, you can contribute up to $69,000 ($76,500 if you are over 50). The difference between these figures is what is deductible and what is not deductible. Your ESP allows you to make “After-Tax” contributions in excess of the regular 401(k) funding limits which allows you to save even more than most plans for retirement. If you are someone who overfunds your 401(k) plan there are several special options available for you. These options range widely but generally will allow you significant long-term tax benefits above and beyond what is normally provided. Because every individual employee’s situation is unique it is important you consult with a financial professional who specializes in knowing the details of your plan. For assistance, visit our Contact page.

Another common misconception BP Employees have is once you hit the contribution limit, BP will stop matching the 7%. In reality they will continue to match your account as long as you keep your contribution percentage above 7% regardless of whether you have reached the limit or not. Even if you hit the upper limit of $61,000 ($67,500 for over 50), they will still continue to match you through an account known as the “Excess Benefits Plan”. This plan is only available to you once you have reached the upper ESP funding limit and allows for special distribution options that are significantly different from the normal ESP rules. Please consult with one of our professionals if you are enrolled in the Excess Benefits Plan.

Capstone Wealth Advisors currently does not recommend investing in any of the Target Date investment options offered inside the plan due to several issues relating to the lack of public disclosure for these options. Additionally, the Target Date options offered within the plan are investment funds that own other funds. This means you are paying multiple layers of asset management fees for every fund the Target Date option invests in. Because of this, we are not currently recommending you invest in these funds.

Electing how to take your BP RAP, also known as your pension, is a major decision and requires that you know the facts about how each different option could impact you. Our team strategically plans and monitors interest rates, forecasting future rates and helps advise you as to when the most optimal time to elect for your pension would be.

On a monthly basis we provide updated figures as well as our expectation for where interest rates are heading so you can make the most informed decision about your pension at retirement. If you would like to receive our monthly email commentary along with updated pension figures, please add your name to our email list.

For many clients, there is a concern and debate as to whether you should elect for the Lump Sum vs Annuity Options within your pension plan. We strongly encourage you call us to learn more about these options and discuss the benefits before you get locked in. Whether you are retiring or recently separated from BP, making sure you take the proper steps to electing for your RAP is imperative.

It is ALL about timing when it comes to the discuss of your pension.

Offered under both heritage and non-heritage employees, a lump sum distribution is a one-time payment from your pension available at retirement or separation from the company. By taking a lump sum payment, you gain access to a large sum of money, which you can spend or invest as you see fit.

Here is a simplified explanation of how the lump sum is factored:

A monthly stream of annuity payments has an identifiable present value based on the recipient’s life expectancy and current interest rates at the time of retirement. Think of it like this, if the company is obligated to pay you $1,000 per month for the rest of your life and you are expected to live for 25 more years then the company will be paying you $1,000 x 12 months x 25 years, equaling a total of $300,000 over that time period. The company looks at it from the perspective of if it is obligated to pay you $1,000 per month for 25 years, they will likely invest an amount of money today into high-grade bonds which will provide you with that monthly cashflow. If bond interest rates are low the company will need to invest a larger amount of money today to make the payments versus if rates are higher. In simple terms, the lump sum payment is essentially equal to the amount of money the company needs to invest to make that payment. This is why traditional defined benefit plans produce a larger lump sum payment when interest rates are low and a lower lump sum when interest rates are high. The lump sum option allows you the greatest amount of flexibility and control versus the annuity options. Lump sums are eligible to be rolled over to an IRA, deferring taxes and giving you control of when and how much you wish to withdraw from the IRA. They also allow you the flexibility to choose from a broad selection of investment options, allowing you to make the decisions you feel are necessary to fit your individual situation, goals, risk tolerance, time horizon’s, etc. Lump sum rollovers are by far the most widely elected option for retirees.

Under the Heritage plans, the annuity options available to you in your RAP are calculated based on five main factors including your service history, age (this includes your spouse’s age if married), interest rates at retirement, final average earnings and a social security based calculated factor. Together these components comprise the value of your monthly annuity payment. The annuity option also comes with some specific rules that once enacted cannot be undone. Most notably is the absence of a Cost Of Living Adjustment (COLA). A COLA is essentially the equivalent to getting a raise when you were working. Imagine working at a job that never gave you a raise; that doesn’t sound very attractive does it?

A COLA annual increase generally coincides with inflation in an attempt to keep your annuity payment increasing as prices of goods and services you regularly use also increase over time. Because there is no provision any longer for a COLA within the RAP, your annuity payment will never be more than what it is when you begin collecting it. This is one of the most significant deterrents to selecting the annuity option because as your bills go up over time your income does not.

Another major issue with taking the annuity option is once you elect to take it you give up your ability to convert it into a lump sum at a later date and you cannot pass it along after you die except under very limited circumstances. Meaning if you were to become sick and needed special medical care, you could not use the annuity’s value to pay the medical bills and once you pass away there is no money passed to your estate.

If you worked for one of the companies BP acquired in the past you are likely considered to be a “Heritage employee”. Heritage employees are given special treatment when it comes to their pension accounts and receive the benefit of either taking the better of their old company’s pension benefits or the pension benefits offered under the BP Retirement Accumulation Plan (RAP) calculation. Most Heritage pension plans were structured as a traditional Defined Benefit Plan where the BP RAP is a Cash Balance Plan. The difference between these two plans is essentially the way they are calculated.

Employee benefits are calculated according to length of service, age, salary earned at the time of retirement, and corporate interest rates. The primary benefit you accrue is a lifetime annuity, but you are also offered several other options including a single lump sum payment. The overwhelming majority of people elect to take their pension as a lump sum payment for a variety of factors.

Like a traditional defined benefit plan, a cash balance plan provides employees with the option of a lifetime annuity. However, unlike defined benefit plans, cash balance plans create an individual account for each employee which includes a specified lump sum. When the employee retires, they are given the option to take either the lump sum amount or they can convert that lump sum into an annuity payment. Under cash balance plans, higher interest rates generally mean larger annuity payments and larger lump sum payments.

Our team can help you understand all areas of your BP Plan and benefits. We have been dedicated to serving employees of BP for over 16 years and have worked with executives and associates on all levels.

If you have any of the following plans and need assistance or want to ensure you are taking the most advantageous route using these benefits, call us today!

• BP Share Value Plan (SVP)
• ACB Deferral Plan
• BP Medical Program

To join our growing business, call us today to schedule a complimentary consultation. Our team can help assist you in all areas of retirement and have been working with oil & gas employees for over 17 years. We keep our clients’ best interest at the forefront of our decision-making and focus on you. Contact us today!