It’s no secret that the oil and gas markets have experienced considerable volatility over the past several years. When the markets take a dive, jobs in the industry often follow suit. Many oil and gas executives may subsequently experience the turmoil and uncertainty of losing their jobs, and ultimately their pensions.
Losing a long-held position in a company can be very stressful. The stress can be compounded when employees have not reached the milestones required to be eligible for a company pension at the time of their severance.
Some Shell executives who are released or severanced may fall short of the pension eligibility threshold. However, depending on their tenure and relationship with the company, they may still have the opportunity to receive pension payments. Shell offers them the opportunity to reach these eligibility thresholds and benefit from the company’s pension plan using a process called bridging.
What is Bridging Your Pension?
If you are being involuntarily separated from Shell through a layoff or severance, you should inquire with your management team regarding the possibility of bridging to reach pension eligibility.
If you qualify for Special Severance and your date of separation falls within a certain period of time (typically within 12 months) of your pension eligibility, Shell may give you the option of going on a special leave of absence (SLOA). This SLOA may even provide you an opportunity to be paid during the bridging time period, with payments deducted from your typical severance package or other benefits.
The goal of the SLOA is to allow you to reach your pension eligibility and receive the payments you earned during your years of service to Shell. This SLOA will bridge the gap between your date of separation and the last day of the month when you become eligible for your pension; it will not cover additional time needed to reach other milestones, such as a specific age or an employment milestone.
How Does Bridging Your Pension Work?
Bridging through an SLOA offers a way to reach required pension milestones and receive optimal benefits.
With most companies, employees who go on SLOAs receive a reduced salary, typically 50 percent of their base salary, during this period. These funds may be taken from other previously negotiated severance payments or from an acceleration of deferred non-qualified payouts.
Because they are still officially employees of the company, those who are bridging will remain eligible for medical and dental insurance coverage, and will still be allowed to contribute to the Shell Provident Fund. However, even though employees are being paid for their time, they will not earn vacation time or bonus credits during the SLOA.
Which Shell Executives Qualify for Bridging?
Typically, bridging is handled on a case-by-case basis and is offered to employees at an executive job grade (or higher) with extensive tenure at Shell.
Additionally, employees must be close to reaching a pension eligibility milestone for their benefits to qualify for bridging. Specifically, employees must have sufficient tenure to be within 12 months of reaching immediate pension eligibility to qualify for a SLOA; they must also be eligible for the Special Severance Plan as part of an involuntary or voluntary severance.
Terms such as 80-point and 70-point can indicate thresholds of pension eligibility by combining age and years of service to reach the required number of points.
What Impact or Benefit Does Bridging My Pension Have On Me?
If you choose to accept an SLOA to bridge to a pension, you may receive an advanced payout of deferred non-qualified benefits. Any adjustments of your benefit payments can have an impact on your tax liability during retirement.
Before accepting an SLOA offer or agreeing to specific payment options, you should consult with your financial advisor to ensure a change to expected cash flows will not cause an adverse impact.
Bridging can be a very valuable tool to ensure you receive the payments you deserve for your years of loyalty and service to a company. If you are close to reaching a pension eligibility milestone and become involuntarily separated from Shell, consult with your employer and HR representative to see if you qualify.
And, if you are interested in learning more about how severance, pensions, and bridging can affect your overall financial and retirement plans, Willis Johnson & Associates has helped many Shell executives successfully manage their financial options and optimize their retirement success. Learn more about how we can help by reviewing our philosophies and investment process.