Dear Mr. COP Pension,

Thank you for the question. The majority of ConocoPhillips employees that are planning to take the pension lump-sum option have a chance to benefit from the lower interest rates in Q2 2022 before the increased rates start to apply for Q3 2022. While interest rates dropped significantly in 2020, they soared throughout 2021; as a result, rising interest rates are now reducing the lump-sum payments of ConocoPhillips employees. This is because if an individual wants to acquire their pension as the lump-sum option, ConocoPhillips will take into account the interest rates as well as their age to enumerate the payment amount. A 1% increase in interest rates, on average, causes an approximate 8% to 12% decrease in one’s lump-sum pension amount.

According to a user on a discussion board on The Layoff about ConocoPhillips, they said, “The lump-sums shrink by at least 10% for ever 1% increase in interest rates. At some point. you’re working for free.” What the user meant by “working for free” is that if people who continue working and retire at a time when interest rates are significantly higher, they would lose out on a substantial amount of their lump sum. For example, if someone currently had a $1,000,000 lump-sum, but interest rates increased by 1%, then they could lose up to $100,000. Some people are in a situation where they cold retire now and receive a $1 million lump-sum, or they could work for a year, earn $100,000 over the course of that year, but lose $100,000 because if interest rates (i effect, working for free).

Whether interest rates increase or decrease, a person’s lump-sum payment will shift in an inverse direction, with Cash Balance Pension Lump-Sum payouts being an exception.

At ConocoPhillips, there are eight different pension plans; however, a majority of the employees are either in the Phillips Retirement Income Plan (Title I), the Retirement Plan of Conoco (Title IV), The Burlington Resources Inc. Pension Plan (Title VI), or the ConocoPhillips Cash Balance Plan (Title II). Titles I, IV, and VI are all easily influenced by interest rates. So for these pension plans, ConocoPhillips uses the 30-year Treasury rate and the Corporate Bond Segment Rate to calculate the lump sum value.

In both the Phillips Retirement Income Plan (Title I) and the Burlington Resources Inc. Pension Plan (Title VI), it’s crucial for the individual in either of these two pension plans to be aware of the interest rates as they near retirement since the rates are modified quarterly and have an inverse effect on the lump-sum amount.