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Articles

Recent Articles Of Interest To All

Following articles recently appeared in our Newsletter or derived from other articles of interest to retirees.  Click on the title of the article to link to it.

bulletRAYSIP DISTRIBUTION AT AGE 70 ½ (Added 2/22/08)
bulletLetter To Our Legislators (Aded 2/22/08)
bulletTax Topics (Added 2/22/08)
bullet MIT On-Line
bulletMedical Plan Comparisons For Retirees 65+ (Added 11/8/07)
bulletPrivate Plans For Medicare Eligible Retirees (Added 11/8/07)
bulletEmployee Check-out Checklist (Added 10/24/07)
bullet Authorizing Medical Representative by Bruce Nogueira, ARR Newsletter, March 2007  
bulletCoordination Of Benefits by Bruce Nogueira,ARR Newsletter, March 2007
bulletTax Opportunity by Joe DeAmbrose,  ARR  Newsletter, March 2007

 

RAYSIP DISTRIBUTION AT AGE 70 ½

By Joe DeAmbrose

This note is in the nature of a “heads-up” for any retirees who are nearing age 70 ½ with a RAYSIP account balance which includes Raytheon stock. There is a tax savings opportunity available to such retirees which deserve more focus than provided in plan literature.

Here are the basics: The age 70 ½ date is important because at that date taxable distributions must be made by employer plans like RAYSIP and also by Individual Retirement Accounts (IRA’s). RAYSIP will also close out accounts around that date which could either be in the form of a distribution of the account balance or, more often than not, accomplished by way of a direct transfer of the account balance to an IRA of the retiree. The retiree can elect the method of close-out but however effected, a part of the account balance is taxable and cannot be rolled over to an IRA or made part of a direct transfer to an IRA. The taxable amount is called a Required Minimum Distribution or RMD and is calculated by dividing the account balance at December 31 of the year before the distribution year by life expectancy factors from published IRS Tables. The factor for the age 70 ½ year from the most commonly used Table (the Uniform Lifetime Table) is 27.4. The factor for the age 71 ½ year is 26.5 and on and on. The distribution for the age 70 ½ year must be distributed on or before April 1 of the age 71 ½ year. Thereafter, RMD distributions must be made before the end of each succeeding year.

To illustrate with an example: Retiree A will reach age 70 ½ in 2008, having a RAYSIP account balance of $250,000 on December 31, 2007, The RMD amount for 2008 is $9,124 ($250,000/27.4) which must be distributed by RAYSIP on or before April 1, 2009. A wants to have the balance of the account directly transferred to an IRA.

The practices followed by RAYSIP as to the timing of the distribution of RMD amounts and the close out of the account are not published but based on discussions with a Fidelity retirement specialist (Fidelity administers the distributions and account close-out) there appears to be some flexibility in arranging the timing of distributions and transfers, ranging from having the age 70 ½ RMD distribution and the IRA transfer made in 2008, or having RMD distributions and IRA transfer made in 2009, or having an RMD distribution in 2008, and the IRA transfer made in 2009. Note that unless the account is closed out in 2008, RAYSIP must make an RMD distribution for the age 71 ½ year in 2009.

The key to the tax savings is the Raytheon stock account in RAYSIP. The tax law provides favorable tax treatment if employer stock is distributed in kind from a plan like RAYSIP. Distributions from IRA accounts are not eligible so the tax savings opportunity is not available once RAYSIP accounts are closed-out. To expand on the illustration, assume A has Raytheon stock in RAYSIP with a value of $30,000 and a cost of $14,000. The built-in gain of $16,000 is technically called “net unrealized appreciation” or NUA. Having a Raytheon stock account is common as RAYSIP includes the former RAYSOP plan that held only Raytheon stock and for many years, the RAYSIP “match” was made in Raytheon stock. The cost amount is the value of the stock when it was acquired. The cost amount is not contained in RAYSIP statements but is available on the Fidelity NetBenefits website or can be obtained from a Fidelity retirement specialist. The NUA amount is not subject to tax when the stock is distributed and will only be subject to tax when the stock is sold or otherwise disposed of, and then, the NUA amount will be taxed at capital gain rates. So, a portion of a RAYSIP stock distribution is taxed at capital gain rates rather than ordinary income rates. The capital gain rate will always be lower than the ordinary income rate. Assuming A’s normal tax rate is 28%, A’s capital gain rate would be 15%. If A elects to take a distribution of all or a portion of the Raytheon stock in kind, the cost component of the distribution will be subject to tax at a 28% rate and the NUA amount will be subject to tax at a 15% rate. A tax of $8,400 would be imposed on a distribution of $30,000 at ordinary income rates ($30,000 X 28%). The tax would be only $6,320 ($14,000 X 28%) and ($16,000 X 15%) if stock with that value were distributed in kind and then sold, and payment of $2,400 of that tax could be delayed to another year if the stock were not sold.

But wait---most employer plan distributions can be transferred or rolled over to an IRA without incurring any tax. True, a tax on distributions from pre-tax accounts will have to be paid at some time at ordinary income rates because of the RMD requirements described above but that tax bill will be paid over dozens of years in the future. “Why pay it now”, A might think. Here’s why. A cannot postpone tax on RMD distributions. A is facing a taxable cash RMD distribution for 2008 of $9,124 on which an ordinary income tax of $2,555 will be imposed. If instead, he elects to take a distribution of Raytheon stock worth $9,124, the pro-rata NUA amount (53%) of $4,866 will be subject to tax at the 15% capital gain rate reducing the aggregate tax to $1,922. The stock distribution of $9,124 satisfies the RMD requirement for the year without regard to the favorable tax treatment. The tax savings are greater if A holds on to the stock as an investment because $730 of the $1,922 tax can be deferred until he sells the stock but that involves a separate investment decision.

The tax savings can be even greater. If A acts to delay payment of the 2008 RMD distribution to 2009, but before April 1 of 2009, and delay the close out of the account to 2009, RAYSIP will have to make another RMD distribution for 2009 (which would have to be made by A’s IRA if the RAYSIP close out took place in 2008). On A’s numbers, the 2009 distribution ( December 31, 2008 account balance/26.5) should be over $9,000. In total, A can elect a stock distribution of about $18,124 in 2009 which will cover the RMD requirements for 2008 and 2009. If the stock is sold in 2009, the tax will be $3,818 compared to $5,075 if there were a cash distribution. If the stock is held, the tax for 2009 would be reduced to $2,368. Substituting a stock distribution for two RMD distributions enhances the tax savings.

There is one important condition for success. The stock distribution must be part of a distribution of the entire RAYSIP account balance which takes place within one taxable year on account of certain events. This “lump-sum” distribution requirement is a little tricky but manageable. One way to satisfy this condition while maximizing tax savings is to arrange for a close out of the RAYSIP account in the age 71 ½ year (2009 in A’s example) with both RMD distributions in that year. This is something to be worked out with a Fidelity retirement specialist.

Taking an available employer stock distribution instead of a taxable cash distribution, such as an RMD distribution, should always be the right choice but individual circumstances have to be taken into account and may alter the size of the savings. This is not a simple subject. It involves overlapping tax principles and not-so-simple calculations; qualified tax advice should be obtained.

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TAX TOPICS

Obtain Your Share of the Economic Stimulus Tax Credit 

I am sure you have heard of the stimulus package recently approved by our government.  It will provide up to $600 per individual and $1200 per couple depending upon your income. 

Many seniors do not file income taxes as their income does not warrant it.  Even if you do not owe any taxes, you must file a federal Income Tax return in order to receive your share of the rebate.  Of course if your income is low enough you can file a very simple 1040A form.  If you need help completing the form you can ask at your local senior center.  The center may offer the service or know where you can obtain free or low cost help.  AARP provides such a volunteer service.  If you have a problem locating an AARP volunteer let our office know and we will try to locate a volunteer for you.

Raytheon ERISA Litigation

A retiree informed us that he recently received a Form W-2 relative to Raytheon ERISA Litigation and had several questions. If you received a similar Form W-2 and also have questions, you should call The Garden City Group at 866-881-7492.

Taxation of Pension Plan Distribution?

Question:

I just received my 1099-R for the Raytheon pension plan and am trying to determine how to handle the (after tax?) contributions that some of us made years ago before the plan became non-contributory. On retirement, I elected to leave the $7300 plus accrued interest in the pension plan. I assume the interest is taxable and the $7300 will be paid out linearly over the next 30-40 years and that the pro-rata contribution is tax free.

The 1099-R is silent on the subject.

Any idea on how to handle this?

Answer:

You can recover your contribution amount tax free on a pro-rata basis as you receives pension payments. The data goes into line 16a and 16b on Form 1040. Line 16a is the total pension amount received and line 16b is the taxable amount. The taxable amount is the total less the amount of pro-rata basis recovery for the year.

There are a couple of acceptable methods for determining the non-taxable piece. One is called the simplified method and a worksheet can be found in the IRS instructions to Form 1040 for line 16.

For example, if the pension started in 2007 at age 65, the simplified method assumes that there will be 260 monthly payments and you divide your contributions by that number to get the monthly exclusion which would be $28.07 for $7,300 of contributions. If the payout is in the form of a Joint & Survivor a different number would be applied.

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The Association recently became aware that if you were employed as a public safety officer and you have a pension, you can designate part of your pension to pay for certain types of health insurance. As a result we have contacted Representative Neal as well as Senators Kennedy and Kerry to explain our position. This is a copy of the body one of those letters.

 

I write to you as the President of the Association of Raytheon Retirees, Inc., (ARR) a Massachusetts non-profit corporation. The ARR is an organization of thousands of retirees of Raytheon Company and was formed and operates to monitor, preserve, and improve retirement benefit undertakings of the former employer of the membership. The primary benefits in this regard are pensions and retiree medical.

The Association is acutely aware of the economic difficulties faced by our membership and by other retirees similarly situated across our nation. Medical costs continue to rise while the purchasing power of fixed pension income erodes. Employers are eliminating defined benefit pensions and are deaf to pleas for modest cost-of-living increases in pension payouts. The lot of many retirees is increasingly precarious, especially those who retired many years ago.

The Congress is currently working on a stimulus package based largely on providing relief to taxpayers. The ARR has a proposal in this regard; one which would advance the goal of economic stimulation and would relieve some of the financial burden on retirees from escalating medical costs. There are many ways to deliver a tax benefit to needy retirees, including adjustments to the social security taxation thresholds and the medical deduction limits but the Association’s proposal is much simpler—extend a benefit that was accorded to retired public safety officers in the Pension Protection Act to a broader class of retirees.

The benefit provided to retired public safety officers is contained in section 402(l) of the Internal Revenue Code. Pursuant to that section, a limited amount ($3,000) of an otherwise taxable pension distribution from a governmental plan can be applied to the payment of health insurance premiums of a retired officer without tax consequence. A few simple amendments would make this tax benefit available to retirees in general or, if budgetary constraints are an impediment, to a defined subset of these retirees. For example, the subset could take into account age and/or income levels.

The broadening of the class eligible for this benefit also would level the playing field. A draft of the specific changes in statutory language to implement the proposal is attached for your assistance.

The Association encourages you to consider this proposal as you draft legislation to provide a needed stimulus to the economy. This proposal will target the benefits of the stimulus at one of the most needy and deserving citizen groups.

Sincerely,

Robert Hamilton

President

Association of Raytheon Retirees, Inc.

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MIT Completes a 6 Year Project To Put All Of Its Courses On-Line

MIT recently completed putting every one of their courses on- line.  That is over 1800 undergraduate and graduate courses.  The courses include video lectures, lecture notes, assignments and exams.  The courses include Algebra, Physics, Differential Equations, Technology and Culture in Japan, Literature and History.   Visit their website at http://ocw.mit.edu to take a look for yourself.  They are all available free of charge and over 1 million people a month are logging on.

Medical Plan Comparisons For Retirees 65+                                    By Bruce Nogueira 

Each year, around November 1, retirees over 65 are asked, by Raytheon, to enroll in a medical plan for the coming calendar year. Many retirees throughout the US have only the choice between Raytheon’s Medicare Plus Plan (PLUS plan) and “no coverage.” However, in some areas Medicare Advantage plans are also an alternative.  

This article is intended to provide a comparison of the highlights of the PLUS plan with a couple of Medicare HMO plans. As previously, we’ll use the current year (2007) benefits design and premiums for comparison-since we know the details. Please read carefully your 2008 enrollment package for any changes to the plans & premiums. 

We will use the Eastern Mass. Enrollment options which are available to this writer. Also, please note that the retiree individual premiums listed are for Raytheon retirees who retired after 1994. It is hoped that retirees living outside of E. Mass. can use this analysis in reviewing any Medicare Advantage plans offered in their area. 

At the outset, you should understand that the PLUS plan & Medicare HMO’s offered by Raytheon are all employer sponsored group plans. Please do not confuse the Medicare HMO Blue or Tufts Medicare Preferred plans with similar names that Blue Cross & Tufts offer to the general public as private plans. The benefits differ somewhat & the Rx coverage, if any, is less comprehensive in the private, non-group plans. 

Raytheon Medicare Plus  

This plan offers supplemental coverage after Medicare A & B or Medicare D (Rx plans) pay their benefits. Raytheon has designed this plan as a catastrophic coverage medical plan. You have to pay $1750 out-of pocket before the PLUS plan pays the 20% coinsurance not paid by Medicare. Similarly, the PLUS plan pays 80% for drug expenses only after your total drug costs reach $2400 with your Medicare D provider. 

Medicare Advantage Plans  

Medicare HMO Blue & Tufts Medicare Preferred are paid by Medicare to provide all your medical & drug benefits in place of Medicare. The benefits pay for most medical care in full after a co-pay. These are managed care plans that have a limited network of MD’s and hospitals available for your care. You must have a primary care physician (PCP) & if you use services outside the network, or without PCP referral, you could end up paying 100% of the expenses. 

Highlights of Plan Choices for 2007 

Raytheon Medicare Plus 

Advantages

·         Access to virtually all hospitals, MD’s, & Labs.

·         Lower monthly premium.

·         Pays inpatient Medicare deductible in full.

·         No annual or lifetime benefit limit.·          

Disadvantages

·         Most outpatient expenses not covered until you spend $1750 out-of-pocket.

·         You have to enroll in a Medicare D to get Rx benefits after $2400 total drug costs.

·         Reimbursement at 80% after the $2400 is an arduous process. 

Medicare HMO Plans 

Advantages

·         Most medical & Rx expenses are covered in full after a small copay, when care is received in-network.

·         All medical & Rx benefits are delivered by one provider-for example, Blue Cross or Tufts.

·         Prescription drugs are simple & straight forward to purchase-no need to keep records & file for reimbursement after $2400 is reached.

·         No annual or lifetime benefit limit. 

Disadvantages

·         Premiums are higher.

·         The networks have a limited group of MD’s & hospitals, & change annually.

·         No coverage is provided for services received outside the network or if not referred by your PCP. 

There is no one right answer. Each retiree’s medical needs are unique, so you should tailor your plan selection accordingly. It goes without saying that you should make sure that your primary care physician (PCP), specialists & hospitals used are in the HMO network before you enroll. 

Recently, I talked with an E. Mass. retiree who was about to turn 65. He explained that Raytheon sent to him a lot of information on the PLUS plan, but nothing on the plan details for Medicare HMO Blue or Tufts Medicare Pref. He contacted the HMO’s & received a one page summary of benefits. After much follow-up, he got more details about the HMO plans. He initially thought that since he was in the HMO Blue under 65 plan & was accustomed to the network and referral restrictions, he would enroll in the Medicare HMO Blue plan. To his surprise, his PCP & some Boston hospitals were not in the Medicare HMO Blue network. Author’s note: my wife and I experienced that same problem a few years ago. The retiree did find his PCP in the Tufts plan and will try that HMO for a year. 

For the past 3 years, I have been concluding the Raytheon PLUS plan was not a good value for retirees. But here is a case where the plan worked. A retiree in Florida sent an e-mail to me extolling the coverage under the PLUS plan when it is really needed. His wife had surgery for cancer & subsequently received chemo & radiation treatments on an outpatient basis. In addition, a $5000 injection was required after each chemo treatment to offset the ill effects from those treatments. Since the $1750 out-of-pocket was reached quite quickly, virtually all of these expensive outpatient treatments were covered in  full between Medicare & the PLUS plan. This is an example of the PLUS plan’s catastrophic feature working to provide coverage for unexpected major medical events.  

Finally, you should know that if you enroll in a Medicare HMO plan in 2008, and subsequently decide that you made a mistake, you can disenroll from the HMO & enroll in the Raytheon Medicare PLUS plan immediately. The Raytheon Benefits Center can help you on this procedure. 

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Private Plans for Medicare Eligible Retirees

By Bruce Nogueira 

Some retirees-mostly ones who retired after 1994-have turned to private medical plans offered in their State instead of enrolling in Raytheon’s offerings of Medicare PLUS or a Medicare HMO plan. These plans are becoming much more competitive with Raytheon’s group choices than in prior years. But tread carefully, there may be limitations in these private plans that are not in the Raytheon sponsored group plans.  

If you decide on a private medical plan instead of Raytheon’s plans, you would have to select “no coverage” on the Raytheon enrollment, & won’t be able to join a Raytheon plan again until January 1, 2009. However, you can get the real net cost of these private plan premiums by deducting the $ 77/month for the PLUS plan. Most of the private plans require a one year enrollment commitment when you sign up. 

We are not suggesting that retirees necessarily purchase these plans, but rather know of their availability in case the plan designs & premiums may fit better with your medical coverage needs. 

Medigap Plans 

These plans are the traditional Medicare supplemental type plans that we have had around for the past 30+ years, & are offered by Blue Cross, AARP, etc. In essence, these plans pay the portion of your medical bill that Medicare doesn’t pay. These private plans fare well compared to the PLUS plans $1750 out-of-pocket before supplementing Medicare payments. But these private plans don’t have drug coverage. Therefore, you would have to buy a Medicare D plan for drug coverage. 

One such Medigap plan is Medex Bronze in Mass. This plan covers the 20% co-insurance in full for outpatient medical expenses, as well as the Medicare B deductible & in-patient deductible. This plan’s 2007 premium is $150/month. If you bought the least costly Medicare D plan from Humana, for example, it costs $17/month. The total cost would be $167 (less the $77 premium for Raytheon PLUS) nets at $90/month. But, unlike the PLUS plan, Humana drug plan does not pay anything in the gap-when total drug costs exceed $2400. 

This plan combination would probably be better for someone who has many outpatient medical expenses & substantially less than $2400/year Rx expenses. 

Medicare HMO private plans 

The private versions of the Raytheon group  Medicare HMO’s are essentially the same for the medical expenses but differ for Rx coverage- slightly in the co-pays but significantly in coverage in the gap where typically only generics covered; whereas the Raytheon version has no limitations after $2400 is reached. 

Here are some monthly premium comparisons for 2007:

 

Private plan     

Raytheon group

Medicare HMO Blue           

$118

            $150

Tufts Medicare Pref.           

$114

            $110

             Medicare Private Fee For Service (PFFS) Plans 

Like the Medicare HMO’s, Medicare pays the insurers to provide coverage in place of Medicare for these PFFS plans. The PFFS’s cover both medical & drug expenses as part of their design. But unlike HMO’s, PFFS plans do not have restrictive networks, PCP’s or referral requirements. These plans are quite new to the market, & we don’t have a lot of experience with their effectiveness. 

A typical plan of this type is the Tufts Medicare Preferred-PFFS. This plan allows you to use any MD or hospital & you pay co-pays like an HMO—typically $15 for an office visits. The prescription drug benefit co-pays are: 

 

Generic

Pref. Brand

Non-pref. Brand

30 day 

 $10

$25     

$50

90 day (mail order)

$20

$50     

$100

             These co-pays apply only during phase 1 (under $2400 total drugs); but only generics are covered in the gap (Phase 2) after $2400 is reached.  

Here are some monthly premiums for a couple of PFFS plans: 

·         Tufts Medicare Preferred PFFS:  $124 (2008) 

·         Harvard Pilgrim First Seniority Freedom PFFS:$78 (2007) 

If you consider this plan a replacement for Raytheon PLUS, you could reduce the above premiums by $77/month. 

Be Careful !  Even if your Rx annual costs are well below $2400, these PFFS plans are so new that the low premiums may be to attract retirees into these plans & increase the premiums in future years. Similarly,  because of their newness, not all MD’s or hospitals will accept these PFFS plans for payment.  

I think it would wise to wait a year before signing with a PFFS plan—to let the bugs work out. However, these plans have a design that, I believe, will be attractive for a lot of retirees. 

Private Medicare Advantage PPO Plans 

A PPO plan has a much bigger network of MD’s & hospitals than its cousin the HMO plan. Also, the PPO does not require a PCP or referrals, & out of network usage is subject to  higher co-pays (for example, $30 vs. $15 in-network) compared to no coverage out of network for the HMO’s. Again, Medicare pays the PPO to provide medical & dental benefits instead of Medicare. 

The medical coverage is with co-pays & is very comprehensive, & the prescription drug benefit is similar to the above PFFS benefits.  

Here is the Private Tufts Medicare Preferred PPO drug benefit:           

 

Generic

Pref. Brand      

Non-pref. Brand

30 day 

$10     

$25     

$50

90 day (mail order)

$20     

$50     

$100

 These co-pays apply only during phase 1 (under $2400 total drugs); but only generics are covered in the gap (Phase 2) after $2400 is reached.

 

The Tufts Private PPO plan has a monthly premium of  $114. If you reduce this by the    $ 77 you would have paid for the Raytheon PLUS plan, you would be paying $37 extra for the PPO to get full outpatient benefits after a co-pay & co-pays for Rx’s on the first

$2400 of drug costs. The key, of course, is whether your MD’s & Hospitals are in the network or not—but you have a greater chance that they are in than does the Medicare HMO. 

Electing “no coverage” for Raytheon & Medicare D

 This is a little risky, but I have only Medicare A & B for medical coverage. I have about 6 MD visits a year, some outpatient tests & X-rays & pay the 20% myself as I would have under the PLUS plan. My Rx’s are 2 generic & 1 pref. brand which I pay in full since I have no Medicare D drug plan. If I joined the least expensive Medicare D plan, it would cost an extra  $500 to buy the same prescriptions through the Medicare D plan. There is a penalty if I join a Medicare D plan  in the future. My calculation is that the penalty would be $3.35/ month for each year that I’m not enrolled—that is if they enforce a penalty at all. My savings in premiums is $94/month ($77 for PLUS & $17 for Humana Rx plan) for an annual savings of $1128. So, in effect if my out-of-pocket payments are less than $1128, I have made the right choice. The risk, of course, is that I’ll have a major medical event requiring hospitalization & expensive follow on outpatient treatment. This approach is not for everyone, & should be used with great caution.

Editor's Note:  There was a recent article in the Boston Globe describing these fee for service (PFFS) plans offered in New England.  The great caution was MDs that accept regular Medicare payments are not required to accept the coverage of these PFFS plans and you have no regular Medicare coverage to fall back upon. 

(There is a link to the complete Globe article on our website.) 

The rates for 2008 are surfacing! 

An interesting observation: The Humana Rx standard plan will cost $24/month & the Humana Rx enhanced plan will cost $25/month in 2008. For the extra dollar, it might be worth it for retirees to enroll in the enhanced plan next year. The enhanced has no deductible ($275 for Standard) & co-pays that are generally favorable vs. standard's 25%-- except if you have tier 3(non-preferred brand). I took my wife's payments for 2007 & compared the 2 plans for 2008. It came out to a wash--only because my wife had a tier 3 drug. Retirees should calculate their '08 costs under the enhanced vs. the standard to see which provides the better outcome.

Bruce Nogueira

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RETIREMENT PLANNING

SOME HELPFUL HINTS IN PLANNING YOUR RETIREMENT

WARNING NOTE: The Raytheon Human Resources and the Raytheon Retirement Benefit Center are the official sites for retirement related questions. All items mentioned here should be verified with Raytheon by the potential retiree before taking any action.

The Association of Raytheon Retirees does not guarantee that this information is current or correct. The Planning Guide is presented here as lessons learned to identify areas of possible follow-up. These lessons learned have been assembled over the years by many non-union Raytheon employees to help future retirees.

This particular guide is applicable to a large, but limited group of employees; those from Massachusetts or other legacy Raytheon organizations. If you are aware of changes, corrections or similar guides in use elsewhere, the ARR would appreciate a copy to help other fellow potential retirees.

OPTIMUM RETIREMENT TIME

Under the new PTO policy it looks like December 31, may be the time to retire to optimize your PTO Time. You are able to carryover 40 hours of PTO plus any old Legacy Raytheon Vacation you were able to bank. It appears that you could accumulate 240 hours (plus Legacy Bank) of PTO by your retirement year-end. The trick is not to take any PTO the year before you plan to retire and make sure you have carried at least 40 hours from the prior year. If you can sell back 240 hours of PTO plus your Legacy Vacation, it will translate to a significant improvement to your monthly pension, it’s about a 1% increase per month for each 100 hours of sell back. Just remember that selling back time means more money in your pocket per month for life, you just have to live to collect it.

RETIREING BEFORE (60) IS NOT A GOOD OPTION

WARNING If you retire at (55) you loose 35% of your retirement and can never purchase Raytheon medical at the group rate again.

WARNING If you voluntarily terminate employment before (55) you will not be eligible for your full Raytheon retirement (100%) until you are (65), anything less and you will take a big reduction, i.e., at 55 you get 50%.

SUBMITTING YOUR RETIREMENT PAPERS

No sooner than (90) days before your retirement date.

All retirement dates begin on the 1st of the month following the month that you retire. (Don’t retire on the 15th of the month unless you don’t care about being paid for (2) weeks.

You can change your mind after you have requested your retirement papers and even if you have submitted your papers. Once you receive your first retirement check, it is too late, you can never change your election again.

Photo copy of your birth certificate and something else that verifies your age. (License or Passport) will work. No expired documents, two documents verifying age required.

You have to also provide your spouse’s birth certificate if they are going to get any portion of your retirement.

If you are married and choose an option other then a joint and survivor, your spouse must sign-off on any option that does not include them and it has to Notarized.

The retirement center is currently taking (4) weeks from the time you call for your papers, until they show up at your house. Mine took 24 work days. I mailed it back in 7 days and it took 10 days for them to receive and log it in and start processing it.

According to the retirement counselor, you do not get your final retirement number when you receive your papers. That will come later, after your last paycheck. Your last paycheck will include vacation sell back and PTO sell back. Typically you will get your last paycheck on time. A couple of weeks later you will get a check for any legacy PTO or accrued PTO. You will not get your first retirement check until near the end of the first month you are retired. After that you will get checks at the beginning of each month.

RETIREMENT PACKAGE

When you call for your retirement package you will receive (2) packages. Your Benefits Calculation Package & forms and the Raytheon Retirement Guide & forms.

BENEFITS CALCULATION PACKAGE

I recommend that you call the Benefits Center and ask for your Benefits Calculation Package (1) year before your planned retirement date (actually I have requested and received a package every year since my 55th Birthday). The numbers won’t change that much in a year and it will give you a chance to review the package. If you do that ahead of time, it will save you a lot of aggravation when you finally submit your papers.

The final benefits calculation package contains the following forms:

Tax Election for Recipients of Raytheon Pension form.

Direct Deposit Request for your Raytheon Pension form.

Application for Retirement and Pension form.

Waiver of Right to Receive Notice as to Form of Benefit form. By Federal Law, a company must give you at least (30 days) to review your retirement papers. The benefits center will not start the process until (30) days after they receive your papers, unless you sign this waver. If you are sure of your decision then sign it and send it in with the other forms.

New for 2007 are the policy for hiring back retirees and a form acknowledging that you have read and understood the policy. It is mandatory that you sign the form even if you have no intention of coming back to Raytheon. They will not process your retirement without this form.

 

RAYTHEON RETIREMENT GUIDE

The Raytheon Retirement Guide is a booklet that contains the following information:

Information on how to withdraw your contributions to the contributory plan if you want to. Most old timers regret taking out their own money early on as you get penalized at retirement time.

During the period prior to 1981, the Raytheon pension plan was contributory. Prior to 1976, you had to be 30 to participate in the Raytheon pension plan. From 1976 to 1981, the age was lowered to 25. At that time, you could either chose to participate in the Raytheon pension plan or have an IRA. You could not do both. If you elected to participate in an IRA, those years will not count as part of your service when Raytheon converted to a noncontributory retirement plan. As a result, your pension calculation times may have starts and stops so check it well.

Social Security Benefits Verification. This is an interesting one, but be careful with it. Raytheon uses a Social Security amount based on estimates of your earnings history. Once you retire, you will have the opportunity to submit your detailed Social Security earnings history. This information will be used to recalculate your Raytheon pension. If using the new numbers would give you a higher pension, your Raytheon pension will be increased retroactively from your first pension check. In most cases the Raytheon SS65 estimated number is lower then the Social Security number. This works to your advantage. i.e. Do your homework before you exercise this option or you could get burned by ending up with something less then you already have.

Income Tax information regarding your pension. It’s taxable.

Insurance Information.

Medical Information. All the plans and rates.

RAYSIP & RAYSOP information.

Proof of age form for you & your spouse.

Do a complete assessment of options taking into account your age and how long you expect to live. One option being recommended is to take the single life annuity and buying a life insurance policy with the savings over one of the survivor plans. If you are considering this option, you have to plan early to ensure that you are insurable for the amount of the life insurance policy.

If you are under 62, look closely at the Social Security Option. Typically if you take the social security option, the break even time is typically 12 years (age 74).

SOCIAL SECURITY

You should be getting a SS Estimate annually 3 months before your birthday. Once you reach (60), you can call SS at (800) 772-1213 and they will give you an estimate (based on your last full year wages) of what your SS number will be. This is a good check to make sure that Raytheon is using the correct figures.

Most of us will not be able to collect full SS benefits until we are 67 or older. Check your SS Estimate or contact SS for your full benefit age.

RETIREMENT CALCULATIONS

Total Last (60) Paychecks ¸ (60) – SS@ max retirement age x (Ray Time*) = Single Annuity Amount (SAA).

Ray Time* = 1st (20) years x 1.8% = 36%. Remaining years multiply by 1.2%. Note if you were at Raytheon prior to 1981, this time is modified depending your age and whether you joined the contributory plan or not.

Remember, your first year of service does not count in the time calculation.

If you select the Joint & Survivor annuity, there is another factor that kicks in, depending on whether or not your spouse is older or younger than you are. If they are older, it is to your advantage. If they are younger you get penalized. Here is how it works:

50% Joint & Survivor Annuity = SAA x (90% Add .5% to 90% for every year spouse is older and subtract .5% from 90% for every year spouse is younger). SAA x (90% ± 0.5% year) = Your Amount x .50% = Spouse Amt.

66 2/3 J & S Annuity = SAA x (87% ± 0.66%/year) = Your Amount. x 66% = Spouses Amount.

75% J & S Annuity =SAA x (85% ± 0.75%/year) = Your Amount x .75% = Spouse Amt.

100% J & S Annuity = SAA x (80% ± 1.0%/year) = Your Amount & Spouses Amount

MEDICAL

You will be covered under the same plan, unless you move to an area where the plan is not available, and then you will have to choose something else.

If you retire at or after (60) medical will cost you approximately $630.00 and $37.50 extra for dental per month/per person. Today’s Rates, these rates are going to change (increase) over time. There are 5 policy options that can be found at the Raytheon pension web site. Look them over closely as the premiums vary significantly.

Evaluate COBRA closely as an option for the first 18 months after you retire.

Individual policies are issued to you and your spouse. In the event that one of you dies, the other policy will continue uninterrupted.

Raytheon group medical is available until you reach (65), the Medicare kicks in. At that time you can purchase additional medical policy from Raytheon to subsidize your Medicare ($182/Mo).

In the event you are laid off, you can qualify for subsidized medical (60).

The Personalized Medical Retirement Worksheet is in the retirement package. The worksheet is the form that you fill out to select your medical coverage and is sent with the Raytheon Retirement Guide.

If you retire before making your medical selections.

Your medical will continue and will be billed retroactive from the day you retire.

You will not loose the medical option because as long as you have made no decision the option will remain available to you until you do.

INSURANCE

Upon retiring, you will get a 2K paid-up whole life policy from Raytheon. If you have been buying additional insurance for at least 10 years before you retire, you will get an additional 5K of paid-up insurance for each 50K of additional insurance that you have purchased for the 10 years.

The Raytheon Benefit Center is at 800-358-1231, Monday through Friday, 8 to 8.

You will also get insurance conversion information for converting over your current Raytheon Insurance.

Check on the premiums they may be outrageous however, they might be worth looking into. If they waiver any pre-existing medical condition.

401K CONVERSIONS

First the Raytheon 401K does not allow for you to withdraw from your 401K. You have to either leave the money in the Fidelity account or move it to an IRA.

There are several types of IRA’s that Fidelity offers, you need to check that out.

Fidelity is HOT to have you switch over to any IRA. Suspect is that they can make more money administering the IRA than the 401K. All the more reason not to do anything with your investments, until you have done your homework. The IRA also allows you the same tax deferred status on your earnings as does the 401K.

As long as you invest in Fidelity funds and you have over (200K), you won’t pay any fee. However, if you decide to venture into the outside world, it may cost you. You need to check that out also.

Fidelity says that they charge discount brokerage rates on some funds. You need to check out what that means.

Fidelity also has a no charge service where they will provide you with an investment plan based on your requirements. You have to tell them what your financial goals are and what risk level you are willing to assume.

Fidelity will try and push to manage your IRA. Fidelity charges you 1% of the fund value/year (That can be a chunk of change for continuing to do what you have already done over the years), and they assume no risk. If you loose they collect their fee and if you win they collect their fee. However, they make it very attractive to do the managing. (10%) return at today’s market for a moderate risk. You sign no contract, and you can fire them at any time and do it yourself.

The day after you retire, you can convert all your Raytheon stock to another fund.

If you move your money to a nonFidelity IRA, be sure that you have the other IRA set up and that Fidelity cuts the checks to that IRA so they do not take out the taxes. Fidelity will send you two checks. The larger check is for your pretax contribution, the Raytheon company match and any gains you made on your investments. This money is all pretax and will be taxed as you take it out. The second check is for any post tax money that you put into your 401K. Since this money has been taxed, you do not have to put into your IRA. Make sure you discuss this with your tax advisor.

Don’t close out your 401K plan the day you retire. The checks you get for your last pay check and any vacation time you have will have 401K contributions taken out. This will shield that money from taxes unless you have already maxed out on your 401K contribution.

PAYROLL DEDUCTIONS

WARNING if you have a United Way monthly/weekly deduction taking out of your pay, and you leave in the middle of the year. The company will deduct the full amount of your pledge from your final check. It would behoove you to discontinue your deduction awhile before you plan to retire. Neither the Raytheon payroll company nor EZPay, the company that manages the contributions nor HR could confirm this as of July 2007. The safest bet is to call EZ pay at 888-374-6282 or email them at Raytheon@EZMatch.com to cancel your donations. This should be done at least two pay periods before you retire.

Bond deductions work a little differently. What ever is remaining after your last paycheck, is

You can make out with your HCRA account if you can collect more than you paid in when you retire.

ROCKING CHAIR

It’s true, you do get a rocking chair after (35) years. You have (2) choices, either a Boston Rocker or a Liberty Armchair. They come with a "Brass Plate" with your name and a Raytheon Logo attached.

PERFORMANCE SHARING PLAN

To be eligible for performance sharing, you must be an active employee for the 1st (6) months of the year that you plan to retire. If you are interested in Performance Sharing, then you should stay beyond July 1st of the year you intend to retire.

Remember, you are not guaranteed that you will get any money from performance sharing. You may stay until July 1st only to find out later that you are getting nothing.

RBI is similar to Performance Sharing. If you are here after the end of June, you are eligible for 50%. In order to be eligible you have to have completed and approved your Performance Screen and then complete the right side of the performance screen before you turn in your computer.

SHORT TERM DISABILITY

 

This is the new policy:

In the event that you are sick enough to qualify for Short Term Disability you are no longer employed by Raytheon. You are temporarily off the Raytheon payroll and paid by Metropolitan.

Because you are paid Metropolitan, you are no longer eligible for any company 401 contribution, nor can you contribute you share to your 401K.

Any deductions that currently have taking from your paycheck, (Mortgage, Car Insurance, Life Insurance) are not deducted from Short Term Disability pay and it becomes your responsibility to make the payments.

While Metropolitan is paying you, you are no longer getting a salary credit toward your retirement. You get a time credit, but no salary credit. So, if you happen to go out on STD within the (60) month period that they use to calculate your retirement numbers you loose on your retirement numbers. One week on STD, cancels out one week of additional improvement that you would have got on your retirement numbers by selling back one week of vacation. If you stay on STD too long, or repeat your stays on STD it will lower your pension numbers.

TELEPHONE NUMBER

If you have a company telephone and you want to keep the same number for personal use, this is possible. You have to contact Linda Williams in Andover the month before you leave and you can transfer the number over to a personal account from the Raytheon business account.

You have to make the transfer of accounts within the same service provider, e.g. Cingular. You will have to negotiate with Cingular for the plan that you want.

You can not keep the telephone hardware.

CHECKING OUT

You no longer receive a "Verification of Retirement Form" in your Raytheon Retirement Guideline booklet. You now have to notify your supervisor (however you feel best- in person, e-mail, letter, etc) one month prior to your retirement date. He then notifies HR, who in turn will (may as it is very dependent on the individual that you are working with in HR) start the ball rolling for payroll. Your supervisor is supposed to provide you with the latest Checkout form, but it seems no one really knows which is the latest form. When I was checking out half the people I had to get to sign my form stated that this was a new form that they had never seen before and where were they to sign- as if I should know!! Go to http://docushare1.app.ray.com/dscgi/ds.py/View/Collection-38297 to get the latest form. There is a long list, but I found the correct one at or near the top of the list shown.

Check with both the library and document control a month or so before you retire to find out if there are any old books or documents that they may believe that you have.

Checkout was much easier than I thought. It only took me about 1 hour to check out. You will need your cell phone, pager, credit card, etc to turn it during check out. You will also need the ID Tag numbers (L7xxxxxx) from each item so that IS can log you out. They will impound your computer, so do not check out too soon before you actually want to leave. I uploaded all of my hard drive to a server for others to retrieve if necessary. Otherwise it will all be lost!!

This whole retirement process is pretty much open loop. You get zero feedback unless you call and ask questions.

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Authorizing A Medical Representative

With the new medical privacy laws, even your spouse cannot discuss claims matters with Medicare, Fiserv, or your Medicare D Prescription Drug Provider (PDP).

One way to ease this problem is to authorize a medical representative. This year, I completed forms for Medicare, Fiserv, and Humana to name my wife and daughter as my authorized representatives to whom my personal health information may be disclosed. Similarly, my wife completed those forms naming me and our daughter as authorized representatives on her behalf.

You can obtain the privacy forms by calling Medicare, Fiserv, and your Medicare D PDP. The forms are mostly straight-forward, but the Medicare form will require care when answering the questions.

On question 2, check the box: “Other personal health information”, and write the explanation: “All my personal health information. “

On question number 3, check the box that has a start and stop date for disclosing my health information. I put start 01/01/2007 and a stop date of 12/31/2012.

This is 6 years and I hope I remember to renew the document at the end of 2012. In retrospect, I probably should have put the stop date way out—such as 12/31/2027.

Health Care Proxies are used primarily in situations where you are unable to make medical decisions on your own. This Medical Representative approach is a useful tool for claims issues before you need a Health Care Proxy.

I have already used this authorization to help my wife on her Rx claims with Humana this year.

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Coordination Of Benefits

For those retirees whose total Rx costs are likely to exceed $2400 the coordination of benefits with the Raytheon Medicare Plus Rx plan could result in the same problems our retirees experienced in 2006. Raytheon has contacted most of the major Medicare D PDP carriers to get cooperation in processing Rx claims when your PDP stops paying toward your prescriptions, because your total Rx costs exceeded $2,400.00

Unfortunately some pharmacies and mail order vendors might not follow the Coordination of Benefits process as set up by the PDP’s.

To help your chances of getting the Raytheon 80% benefit when $2,400.00 is exceeded, here are a couple of suggestions: contact your    PDP and ask for the coordination of benefits office (for example, the Humana # is 800-999-1118), and request a coordination of benefits form. Complete this form with the requested ID information from your Raytheon Medicare Plus card, and mail the form to your PDP. after your drug costs total about $500.00, call Innoviant(1-877-559-2955) to see if they are receiving your Rx claims information from your PDP. If not, request Innoviant to follow-up with your PDP to set up a proper electronic exchange of your claims data in the future.

Raytheon believes that the coordination of benefits with the PDP’s should be better in 2007 than the problems many experienced last year trying to get payment from the Raytheon plan. But you can help yourself by using the above approaches early in the year to get your Rx claims data onto the Innoviant system before your drug costs exceed $2,400.00.

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Tax Opportunity

There have been recent changes in the tax laws aimed at encouraging charitable contributions. It allows individuals over age 70 ½ receiving payments from an individual retirement account (IRA) in 2007 to have all or part of the payment made directly to a charity. The result is that the payment is not subject to tax as it would normally be. On the other hand, no deduction is allowed for the directed payment. Some individuals could gain a tax benefit by making a directed payment from an IRA rather than receiving a payment from the IRA and making a separate charitable contribution. The potential beneficiaries are a narrow group to start with, i.e., age 70 ½ with an IRA. Tax savings only arise for a relatively small subset of that group such as non-itemisers and those with tax features affected by the amount of their income. Some possible beneficiaries are:

  1.  Individuals that  make contributions but do not itemize.

  2.  Itemisers claiming a medical or a miscellaneous deduction.

  3.  Moderate income individuals receiving social security.

  4. Individuals losing a portion of their personal exemptions and itemized deductions because of high income.

 

Many retirees receive mandatory distributions from IRA’s. They also may be making recurring contributions to their church or other charities. The new law allows such individuals to minimize income taxes when there is such a combination. If you think you may qualify, ask your tax preparer if changing how you contribute in 2008 can save some tax dollars.

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Last modified: 12/27/07