Your Shell Severance Checklist
Oftentimes, the words "severance," "lay-offs," and "restructuring" invoke anxiety and paranoia in employees at major oil companies. Between trying to plan for the future, securing your family's finances, and overcoming the shock of the end coming to a long career at Shell, there's a lot to juggle. The last thing you may be thinking about are your employee benefits, evaluating package options, and determining how these can have a significant impact on what your next step should be, which is why we're here to help.
When Shell employees are offered severance packages, it's an emotionally overwhelming decision that causes them to weigh their financial goals and retirement options earlier than they might have anticipated. However, severance doesn’t have to be a negative. By asking the right questions and getting a firm understanding of your available options, you can take full advantage of your benefits to get a structured plan in place. Our guide and checklist can help you assess your financial situation to bring clarity into this period of uncertainty.
Step 1: Determine if you can retire
One of the biggest questions we get from our clients when they're offered a severance is: can I retire? What they're really asking is — do I have enough money to make retirement work in case I'm unable to get another job?
How to Calculate Your Severance Payment
Before making a decision on whether or not you have enough to retire, it's important to understand what you'll receive upon receiving a Shell Special Severance payout. A severance payment includes three weeks’ pay for every year of accredited service — up to a maximum of 78 weeks of pay. The severance is paid in two equal payments; the first is paid within four weeks of separation and the second is paid in February of the following year.
Receiving a severance can provide a substantial amount of cash to put towards retirement savings. The right amount of retirement savings differs by person, but working with a financial advisor who can show you cash flow projections for various scenarios can ease much of the anxiety surrounding the question, "is it enough?"
Yes. I feel comfortable that I'm financially independent or I continued to work because I enjoyed it.
Congratulations! After taking your severance package, you can focus on transitioning into a tax-efficient retirement lifestyle — one where you begin to live off of your hard-earned assets rather than continuing to accumulate more.
- Now that you need your investment income for living expenses, consider how your investment allocation should change accordingly.
- The most commonly asked questions we get from retirees is "where do I pull from first?" It's important to develop a tax-efficient strategy for pulling money from the various savings vessels you've accumulated while employed. Understanding where the money will come from and what the tax implications are both now and in the future for withdrawals is pivotal to enjoying your early retirement.
No. I’m not sure that I am able to retire, even if I receive a severance package.
Unfortunately, the timing of severances doesn't always align with an employee's retirement plan. Many executives facing the decision to retire don't feel ready unless they've reached a specific age or amount in their bank account; however, when working with these professionals, we work to determine how much income they need, how many more years they need to work, or if they can retire simply by reducing your expenses. If retiring after separation isn't an immediate possibility, it's important to realize that returning to full-time employment isn't the only option available to you — depending on your long-term goals and existing cash flow, you may be able to consider part-time, freelance, or consulting work as options to supplement your income until you're able to retire.
Many executives leave major corporations, whether by choice or as part of a layoff, only to return as independent consultants. Doing so allows them to continue working and deferring withdrawals from retirement accounts or taking Social Security distributions. While consulting is often a great option for employees who can't afford to retire just yet, there are hidden costs and considerations that need to be evaluated beforehand.
If consulting doesn't seem like the best next move for you, consider working with a professional to build out a cash flow plan to determine when retirement is possible. By having an extensive understanding of your Shell benefits, our team of advisors can help you determine how to leverage your benefits to reach your financial goals.
Step 2: Take advantage of your benefits while you have them
When an unexpected layoff hits, many employees start shifting their focus to looking for a new job or setting up their retirement, but that can be a significant setback. Before your termination date, make sure you've taken full advantage of the various benefits Shell offers. The last thing you want to do is leave money on the table.
You Can Receive Unemployment Benefits Alongside Your Shell Severance Package
What many employees receive from Shell is considered a "conditional severance." In addition to payout, pension considerations, and more, the design of this severance package also yields a significant benefit that many Shell professionals often miss. To receive your severance, Shell requires that you sign off and waive them from any hardship liability. By doing so, you then become eligible to apply for unemployment benefits. In wake of the recent Coronavirus pandemic, these benefits are substantially higher than in previous years and include higher weekly compensation, pay starting as early as the first week after employment, and an extension of unemployment benefits by 13 weeks.
Max out your Provident Fund — Pre-Tax, Roth, and After-Tax Contributions
Before your last day, make sure you've adjusted your contribution amounts to max out the various savings options within the Provident Fund. By frontloading these contributions, you're able to better utilize the tax-efficient savings before they're no longer available to you.
- If you’re under 50, you can contribute up to $19,500 (2020) between pre-tax and Roth contributions.
- If you’re over 50, you’re allowed to contribute an additional catch-up amount of $6,500, for a total contribution option of $26,000 annually (2020).
- In addition to the $26,000 in Provident Fund contributions, you can also contribute an additional $9,000 in non-Roth after-tax savings.
- Consider a potential backdoor Roth strategy if you’re a high-income earner and cannot contribute to a Roth directly.
Get the most from your GESPP (Global Employee Share Purchase Plan)
Oftentimes, people spread their contributions to this plan throughout the whole year. Over time, being able to consistently purchase stock year after year at a 15% discount can add up substantially. Before your last day, make sure you take advantage of maxing out this benefit as the stocks you purchase can play an instrumental part in your investment strategy we'll discuss later in this article.
Request a calculation of benefits from HR
If you’re considering starting your Shell 80 point or APF pension right after your termination, request a calculation of benefits and the pension paperwork at least 60 days prior to termination. Review the document with a professional before you make any elections to ensure that your receiving the maximum amount of your benefits while minimizing your tax bill.
Take advantage of the Shell Learning Account ($2,000) — if you haven’t done so already.
The Shell Learning Account allows you to use up to $2,000 over the course of your Shell tenure for courses designed to supplement your job skills, balance your work and personal life, or seek personal financial or estate planning guidance. A few options available to you include:
- Job-related personal development such as writing, computer skills, public speaking, leadership, delegation, problem solving, and foreign languages;
- Job-related relationship skills such as listening, teamwork, coaching, conflict management, and assertiveness;
- Courses taken in preparation for entrance exams, licensing exams, or professional certifications;
- Work and personal life balance such as education on childbirth or the adoption of a child(ren), child development, parenting, elder care, and time management;
- Consultation for personal financial planning and estate planning, including will preparation;
- Volunteerism such as education on fundraising, grant writing, membership recruitment, project management and coordination, counseling (e.g., hospice, crisis centers), and volunteer training; and more.
Additionally, if you're at least age 50 and have five or more years of experience at Shell, you can also use this credit for education surrounding retirement planning. If you have credit remaining in your account, we encourage you to consider using this benefit before your termination date so you don't leave any money on the table.
Step 3: Get your plan in place — benefit elections and insurance
Make elections on BRP payouts, especially if you have Old Money contributions.
The Benefit Restoration Plans, or BRPs, are non-qualified plans offered to executives at Shell to ensure that they receive their full benefits despite IRS income limitations on a 401(K) or pension. If you're a high-income earner at Shell, you may have a:
- Shell Provident Fund Benefit Restoration Plan: Depending on an employee's tenure, Shell contributes up to 10% of an employee's salary to their 401(k). When the income limitations prevent additional contributions from being made directly into the 401(k), Shell contributes their portion of an employee's 401(k) benefits to this plan using pre-tax funds.
- Shell Pension Benefit Restoration Plan: One of Shell's highly sought after benefits is the pension; however, the IRS income limits also affect how much Shell can put aside for pension payouts. In a similar fashion to the Provident Fund BRP, If you are a highly compensated employee of Shell Oil and are on the 80 Point Shell Pension Plan, it is likely that Shell is making contributions to the Shell 80 Point Pension BRP on your behalf.
At Shell, most BRPs pays out 90 days after separation, including those with "New Money" contributions. Note: There is an exception if you are designated a key executive at Shell. If that is the case, the BRPs are distributed six months after termination.
For contributions made to benefit restoration plans (BRPs) prior to 2005, Shell employees can make elections for how they would like these plans to be paid out prior to their separation date. These "Old Money" contributions are eligible to be disbursed in a manner similar to a traditional pension. This process, similar to annuitization, allows the "Old Money" to be spread across a number of years and therefore potentially assessed in lower tax brackets.
Determine what additional benefits you'll need after leaving Shell
If you've been with Shell for the majority of your career, you'll soon discover that you may need life insurance, disability, or other benefits after you leave. Some of these benefits are portable and it may make more sense to keep what you have and take it with you.
Understand your options for healthcare in retirement.
Ensuring your health and well-being should be a primary concern as you plan your next steps after being laid off from Shell. Otherwise, you may spend more than you intended on medical coverage or may neglect your health altogether, both of which can end up costing you in the long run. When you’re preparing to retire from Shell, you have a variety of healthcare options available to you. Determining which options make sense for you depends on your age, years of service with the company and health coverage needs. The three major questions to consider are:
- Are you eligible for Shell retiree medical?
- Are you 65, and thus eligible for Medicare?
- Should you go out and buy your own health insurance plan or stay on Shell’s Cobra plan?
Step 4: Prepare for the next steps
Don’t sit on the cash
Determine how much cash you should hold and how to invest the proceeds of the severance, any Provident Fund BRP payouts, bonuses, or Pension BRPs that paid out.
Think about taxes
Often times the year you retire is your highest tax year. Consider a few of the options below to lower your taxable income:
- Contribute to charity by:
- Frontloading multiple years’ worth of annual gifts up front through donor advised funds
- Consider gifting appreciated stock so you never need to pay capital gains tax
- Determine your expected tax rate for the next few years and look ahead to when you are forced to take required minimum distributions. Understanding your tax brackets and managing them in retirement is a huge advantage to ensuring that you're not squandering your wealth by overpaying in taxes. In your first few years after retirement, use up lower tax brackets.
- Consider stepping up your basis on your stocks while paying 0% in capital gains.
- Consider Roth conversions to move your pre-tax money to Roth money while in low ordinary income tax brackets.
- If age 63 (or older) think about Medicare premium taxes.
- Ensure that you have a plan for your investments that takes taxes into account. We see many people unknowingly subjecting themselves to double taxation or incorrect tax rates by not taking advantage of planning opportunities available to them.
- Contribute to charity by:
Set a plan up to diversify your Shell Performance Shares as they vest
Many Shell executives who receive performance shares have a significant overweight of US energy equities in their portfolio. Diversification of your investments allows you to reduce your exposure to specific types of risk, including risks inherent to your specific company. While all companies face exposure to different types of risk, if your portfolio includes a disproportionate amount of your company’s stock, your exposure to these risk factors is amplified. Taking a diversified approach can help you ensure you’re benefiting from the stock options your company provides, while at the same time mitigating risk.
If you're no longer a Shell employee, take advantage of the Shell Learning Account for Retirees ($1,000)
Shell offers this benefit to those in their first year of separation from Shell, so be sure to use it while you can. This learning credit can be used to cover the cost of courses related to personal financial planning, sports and hobbies, but typically won't cover books, equipment, supplies or tools needed for the course. It's important to discuss this benefit with your HR department to ensure that you meet the eligibility and usage requirements before enrolling in courses or requesting reimbursement.
The choices you’ll encounter upon the announcement of a severance are complex and nuanced. If you're not keeping track of the benefits available to you and utilizing them before your last day at Shell, you're probably leaving money on the table. Our advisors can walk you through the process to better understand your specific offerings and help you make the most of what's available to you. If you need help navigating your severance package or have questions about your next steps, fill out the following form and we'll get in touch.
Willis Johnson & Associates is not endorsed by or affiliated with Shell.