Intel recently announced major changes to its benefits package for US-based employees. These changes will have a significant impact on how employees are able to save and invest for retirement, and continues the company’s process of limiting its liability for employee retirement outcomes.
Employee Stock Purchase Plan
What It Is
Intel offers eligible employees the opportunity to purchase Intel company stock at a discount of 15% or more, after a six-month period. The amount of the discount is determined by the stock price over the six-month period, but is never less than 15%. Your discounted purchase price is the lower of the stock price on (a) the offer date, and (b) the purchase date.
What’s Changing?
Intel is increasing the contribution limit for purchasing stock from 5% of your eligible pay to 10%.
When Will the Change Happen?
The limit will increase in January 2019.
401(k) Plan Match
What It Is
An employer matching contribution simply means that your employer contributes a certain amount to your retirement account based on the amount of your own contribution.
What’s Changing
The Intel 401(k) plan currently does not feature a matching contribution. Instead, Intel currently makes a discretionary contribution to your profit sharing plan account (called the Intel Retirement Contribution account).
Intel is introducing a match for each dollar you contribute to your traditional pre-tax or Roth after-tax 401(k) account, up to 5% of your pay. Employees will be eligible immediately, and matching contributions will be 100% vested.
The match will replace the company’s discretionary retirement contribution.
When Will the Change Happen?
Intel will make two final discretionary retirement contributions, in 2018 and 2019.
The match will replace the discretionary retirement contribution in 2020. In 2020, it will be a special 2:1 match; i.e. if you contribute 1% of your pay, Intel will contribute 2%; if you contribute 2%, Intel will contribute 4%; if you contribute 3% or more of your pay, Intel will contribute the maximum 5% match.
Beginning in 2021, the match will change to 1:1, up to 5% of pay; i.e. if you contribute 4%, Intel will contribute 4%, if you contribute 6%, Intel will contribute the maximum 5% match.
After-Tax Contribution with In-Plan Roth Conversion
What it Is
Employee contributions to qualified retirement plans like Intel’s 401(k) are limited by IRS regulations. For 2019, the employee contribution is limited to $19,000, plus an additional $6,000 “catch up” contribution for those age 50 or older.
Additional contributions to an employee’s retirement account – such as employer matching or profit sharing contributions – are possible, up to the IRS’s “annual additions” limit. For 2019, the annual additions limit is $56,000, or $62,000 for those age 50 or older ($56,000 plus the $6,000 catch up contribution).
The After-Tax Contribution with In-Plan Roth Conversion offers employees the opportunity to make additional after-tax contributions to their account, so that they can take advantage of the annual additions limit.
Example:
You are age 53, and decide to contribute the maximum to your 401(k). Let’s assume that the contribution and annual additions limits will be the same in 2020 as they are for 2019 (note: they may not be). So, you contribute a total of $25,000. Because your annual pay is $150,000, this equates to 16.6% of your pay. Intel will match 5% of your contribution, providing an additional $7,500. So, your account additions are now $32,500 (your $25,000 plus Intel’s 5% match of $7,500).
The annual additions limit is $62,000, so there is “room” for an additional $29,500 to be contributed to your account. So, you make an after-tax contribution of $29,500 to your account. This $29,500 can then immediately be converted to a Roth IRA.
What’s Changing?
Intel’s 401(k) plan currently doesn’t permit after-tax contributions. The plan will be modified to permit these.
When Will the Change Happen?
The in-plan Roth conversion will be available beginning in 2020.
Intel Minimum Pension Plan is Being Phased-Out
What It Is
In order to guarantee certain employees a minimum level of income in retirement, Intel offers the Minimum Pension Plan.
Intel will calculate a pension benefit for you, based on your length of employment, age, earnings history, and estimated Social Security benefits. It will use your Retirement Contribution account balance as the resource base to fund this benefit.
If your Retirement Contribution account balance is insufficient to fund the pension benefit (typically due to poor investment returns), you will receive an additional pension benefit from Intel. If the Retirement Contribution account balance is sufficient, then you’ll receive only the balance in the account (part or all of which can be converted into a monthly pension benefit).
Assuming you received the additional pension benefit from Intel, at retirement you would have the option to take that pension benefit either as a monthly payment, or as a lump sum distribution.
What’s Changing?
Only non-exempt and exempt Grade 6 and below employees hired before 2011 are still eligible for the Minimum Pension Plan guarantee. This guarantee is being phased out.
When Will the Change Happen?
There will be no additional credits for future pay increases or years of service after 2019.
Sheltered Employee Retirement Medical Account (SERMA) is Being Phased-Out
What It Is
The SERMA is a Health Reimbursement Arrangement subject to IRS rules. SERMA is provided to help retirees and eligible spouse and dependents purchase health insurance if you have retired from Intel and meet the eligibility requirements.
Eligible retirees may use SERMA toward medical insurance premium payments. If you were hired before January 1, 2014, a SERMA is established upon your retirement from Intel, if you are a US employee at the time you retire and meet any of Intel’s retirement eligibility rules.
You can use the money in your account to pay for eligible health care premium expenses until the balance is exhausted.
What’s Changing?
Years of service will be capped after 2020, so you will no longer accrue $1,500 per year in SERMA benefits after 2020 even if you are still employed.
When Will the Change Happen?
There will be no additional credits for future pay increases or years of service after 2019.
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If you have any questions about these significant changes to the Intel benefits package, we would be pleased to speak with you at your convenience.
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