The MCN Energy severance package was designed to equalize the retirement benefits between MCN and DTE Energy employees. Under the old MCN Traditional Pension Plan (TPP), employees are penalized for retiring before age 62, whereas the DTE Traditional Pension allows participants to retire as early as age 58 without a reduction to their pension. To offset this penalty for affected MCN participants and supplement retirement income during the gap, DTE developed the MCN Severance Plan.
How It Works
Participants who qualify for the MCN Severance Plan will receive a severance check from DTE after retirement (with the amount based on years of service and salary level). The severance pay will be taxed as Earned Income. Taxes will be withheld from the severance check, but you will not be able to have any other types of payroll deductions taken. DTE’s YBR (Your Benefit Resources) can provide you with an estimated amount for your severance check if you qualify.
There are a few factors to consider regarding the timing of when you retire from DTE. Considerations include your Social Security benefit, Medicare taxes, and an additional Medicare surplus tax. Clients should also compare the impact to your Social Security tax and marginal tax rates when receiving the severance in one year versus the next. For example, if you receive the check within the same year that you retire, it could mean having little or no Social Security tax assessed on your severance check (at a rate of 6.2%, this can be substantial). DTE does not make any guarantees as to when they will issue a severance payment, but the timing should be considered.
The Big Picture
If you plan to retire between ages 58 and 62, there are a few questions to think about. Will your severance check be enough to offset the reduction in your pension? Will it provide enough income to bridge the gap until you reach age 62? Are you be able to use your severance pay to delay your pension and/or Social Security benefits until a later date, allowing for a larger retirement income? Other factors, such as capital gains, can come into play. If you have a 401(k) plan or any other retirement plans, it is important to look at the full picture and evaluate the significance of each. For example, a Roth conversion might make sense.
The appropriate post-retirement income strategy is different for everyone, depending on your long-term goals, family situation, risk tolerance, and other factors. With proper planning and preparation, long-term tax planning opportunities can be pursued.
If you would like to take a look at your DTE retirement package to get a better understanding of your options, please call (248) 220-4321 or email email@example.com to set up a consultation. You can also schedule a meeting by visiting www.calendly.com/cwmrob/initial.
Robert Moore is senior partner, financial planner, investment advisor, and co-owner of Center for Wealth Management, an independent, fee-based wealth management company based in Troy, MI. With more than 15 years of experience, Rob provides customized advice and solutions that are in the clients’ best interest. He strives to always go above and beyond his clients’ expectations, helping them retire with more security than they had before, and invest their time and energy in what’s most important to them. Rob specializes in working with DTE Energy employees, helping them maximize their benefits so they can reduce taxes, prepare for retirement, and protect their families through a comprehensive planning process. Rob graduated from Michigan State University and holds the CERTIFIED FINANCIAL PLANNER™ Practitioner (CFP®) and Chartered Financial Consultant® (ChFC®) designations.
Rob is known as a diehard family man who enjoys spending time with his beautiful wife, Jill, his daughter, Brookelyn, and his son, Brayden. When he’s not working, you can find him playing basketball once a week, squeezing in a round of golf, and watching college football and basketball with friends and family. He is passionate about enriching the lives of others through his church involvement and service at a community addiction program. Learn more about Rob by connecting with him on LinkedIn.