Eli Lilly Voluntary Early Retirement Program (VERP)
On Thursday, September 7th, Eli Lilly announced plans for a Voluntary Early Retirement Program (VERP) for up to 2,800 current employees. General guidelines for the program and an anticipated timeline were sent to eligible employees. Additional information is being mailed to their homes outlining more details and personal estimates for the employees enhanced benefits under this program.
For some, this may be an exciting offer and the opportunity they were hoping for to step away from their careers and begin the next phase of their lives in retirement with some enhanced benefits through the VERP option. For others, this offer may present more questions and require significant thought before taking any action. If you or someone you know falls into the latter category, there are several items we think should be considered before applying for VERP.
- Retirement Cash Flow – According to the guidelines that were sent out Thursday, Lilly will be offering additional years of service credit, as well as additional years of age credit to those who take the VERP offer. This will benefit participants in two ways: Not only will these additional credits increase the monthly pension payment received but they will also increase the retiree medical benefits. The higher monthly pension benefits will increase participants cashflow through out retirement, helping them live potentially more comfortable lives knowing they have this benefit. The increase in the retiree medical benefits will likely lead to lower out of pocket costs for health insurance premiums which will be necessary if participants retire prior to Medicare eligibility at age 65.
- Tax Impact – Receiving a larger pension benefit and the one-time lump sum payout could have a significant impact to participants’ current and future income tax rates. We recommend meeting with your Certified Public Accountant (CPA) to discuss your personal situation. A few items to consider would include your marginal tax rates, both in the year you receive the lump sum and while receiving pension benefits, higher capital gains tax rate due to the increase in income, and potential phase out of tax deductions and/or credits. Also, be prepared for the tax bill that will be due in the year the lump sum is received. Receiving a significant amount of additional income in one year may require quarterly tax payments or paying a large tax bill in the Spring.
- Benefits of Continued Employment – While most people would likely say they would prefer early retirement, there can be a lot of benefits to continued employment. Employees who currently receive Equity Awards from Lilly may want to continue employment to be eligible for additional awards or to fully vest in awards currently outstanding. Please note: Lilly has not outlined how currently outstanding equity awards would be treated if you decide to take the VERP option. If one of your goals is to leave a financial legacy for your family then continued employment would likely help to make that possible. Beyond the financial impact, many people enjoy their current employment and would like to continue working for personal fulfillment. We have witnessed many examples of early retirees who become bored after a few months away from employment and desire the stimulation and opportunities their career offered.
These are just a few items to consider when evaluating if the VERP option is right for you and your family. At Market Street, we believe the best strategy to determine if you are financially able to take the VERP offer is through our financial planning process, which uses a statistical probability based approach to help you feel more comfortable in the decisions you need to make. We are making a priority over the coming weeks to help any current clients or new clients evaluate their VERP offer and determine, through the financial planning process, if they should apply for the program and retire with confidence.
Subscribe to Our Blog
Sign-up for our blog notifications below to stay up-to-date on the latest from Market Street Wealth Management Advisors.Sign Up
Want help evaluating if an early retirement would be advantageous in light of your overall financial goals? We can analyze the data so you can make an informed decision. Email me to schedule a time to talk. We would love to help you retire with confidence.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Market Street Wealth Management Advisors, LLC [“MSWMA”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MSWMA. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MSWMA is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the MSWMA’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.mswma.com. Please Note: MSWMA does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MSWMA’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a MSWMA client, please contact MSWMA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.