As many of us in the Indianapolis community know by now, Eli Lilly plans to cut about 3,500 jobs worldwide by the end of the year. The move is an effort to reduce fixed costs as the company looks to launch ten new drugs over the next five years. Much of the job cutting will come via a voluntary early retirement program (VERP).
Several of our Lilly and Elanco clients have been included in the VERP offering, and so we are working together with them to make decisions around this over the next few weeks. What we have found is that while terms of the offering may be the same, each person’s circumstances are quite different. For folks already on the cusp of retirement (or already looking around for other opportunities), the VERP is quite timely and might be a no-brainer. For others, the decision may not be so clear, and they may feel lost or overwhelmed as a result. “Before the VERP, I had not considered retiring this early. Can I afford to do it?” We have heard this phrase several times over the last couple of weeks.
A few key takeaways for employees to keep in mind:
- The VERP offers enhanced retirement benefits (by crediting additional years of service to your pension) and a lump sum payment equal to two weeks of base salary multiplied by years of service. The pension credits are the most significant component of the offering – for many employees, the credit of three additional years, for example, has been enough to get them to their 55 and 10, 80, or even 90-point dates.
- In addition, the VERP offerings we have seen indicate employees will receive their restricted stock units (RSUs) (after the restriction period has lapsed) and retiree health benefits, as well as a pro-rated portion of their bonus, performance awards (PAs), and shareholder value awards (SVAs).
- The VERP application window is October 2 – 18, and whatever election you make is irrevocable after the 18th.
- You should go ahead and make 2018 benefit elections even if you apply for the VERP, as acceptance into the program is not guaranteed (Lilly is accepting a maximum of 2,800 applications), and so there is a chance you may still need benefits next year.
Whether you decide to take advantage of the VERP or not, an important thing to keep in mind that you do not necessarily have to begin collecting your pension benefit payments immediately after leaving Lilly. You can defer the benefit payments until as late as age 65 (age 55 for Part B benefit). Moreover, because deferral results in benefit increase of approximately 6% per year, this can make a lot of sense for some folks, particularly if you plan to continue working elsewhere after leaving Lilly (remaining in a higher tax bracket). This, along with the decision around the timing of Social Security benefits, and withdrawals from your 401(k) and other investment accounts should be coordinated as part of your overall retirement plan to ensure tax efficiency and maximization of benefits. It is worthwhile to enlist the help of a financial advisor to help with this.
Since the VERP was announced, we have had the opportunity to field calls from not only our existing Lilly clients, but several new folks as well. Our approach to this (and all other financial matters) is to help clients focus on not just the numbers, but at the end of the day, how the numbers enable them to focus on the things in life they truly care about. If this perspective is something you might find helpful, we would be glad to sit down with you for an introductory meeting at no cost.
Our friends at Lilly have indicated numerous financial advisors have contacted them since the VERP announcement was made public. We want to ensure everyone has the resources they need to make the best decision for themselves and their families, even if Deerfield and our services are not the right fit. Attached to this post is a tool from the National Association of Personal Financial Advisors (NAPFA) that is designed to help you find an advisor who is right for you, and equip you with important questions to ask. If you have any questions about this offer, feel free to reach out to your advisor or you can contact us here: Introductory Call