The following table provides information about the pension plans in which the eligible named executives participate. Each of the named executives participates, or will become eligible to participate, in the Allstate Retirement Plan (ARP) and the Supplemental Retirement Income Plan (SRIP).
These amounts are estimates and do not necessarily reflect the actual amounts that will be paid to the named executives, which will be known only at the time they become eligible for payment. The present value of the accumulated benefit was determined using the same measurement date (December 31, 2017) and material assumptions that we use for year-end financial reporting purposes, except that we made no assumptions for early termination, disability, or pre-retirement mortality. Other assumptions include the following:
Retirement at the normal retirement age as defined in the plans (age 65).
Discount rate of 3.68%.
Other assumptions for the final average pay formula include the following:
80% paid as a lump sum and 20% paid as an annuity; for the cash balance formula, 100% paid as a lump sum.
ARP lump-sum/annuity conversion segmented interest rates of 2.50% for the first five years, 4.75% for the next 15 years, and 5.50% for all years after 20.
SRIP lump-sum conversion segmented interest rates of 2.00% for the first five years, 4.50% for the next 15 years, and 5.50% for all years after 20.
Lump-sum calculations were done using the IRS Section 417(e)(3) mortality table projected with the MP-2017 projection table. Allstate adopted this table for accounting on December 31, 2017, to measure retirement program obligations in the United States.
Annuity calculations were done using the RP-2014 white-collar mortality table for annuitants projected with the MP-2017 projection table.
See note 17 to our audited financial statements for 2017 for additional information.
- The following table shows the lump-sum present value of the non-qualified pension benefits for each named executive earned through December 31, 2017, if the named executive’s employment terminated on that date.
Name Plan Name Lump Sum
Mr. Wilson SRIP 17,060,041 Mr. Shebik SRIP 4,343,669 Mr. Civgin SRIP 439,565 Mr. Dugenske SRIP 0 Mr. Winter SRIP 576,135
The amount shown is based on the lump-sum methodology used by the Allstate pension plans in 2018. Specifically, the interest rate for 2018 is based on 100% of the average corporate bond segmented yield curve from August of the prior year. As required under the Internal Revenue Code, the mortality table used for 2018 is the 2018 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females.
- Mr. Dugenske was not a member of the ARP or the SRIP in 2017 and therefore had not accrued a benefit under the ARP or the SRIP.
Allstate Retirement Plan (ARP)
Contributions to the ARP are made entirely by Allstate and are paid into a trust fund from which benefits are paid. Before January 1, 2014, ARP participants earned benefits under one of two formulas (final average pay or cash balance) based on their date of hire or their choice at the time Allstate introduced the cash balance formula. In order to better align our pension benefits with market practices, provide future pension benefits more equitably to Allstate employees, and reduce costs, final average pay benefits were frozen as of December 31, 2013. As of January 1, 2014, all eligible participants earn benefits under a cash balance formula only.
Final Average Pay Formula — Frozen as of 12/31/13
Benefits under the final average pay formula were earned and are stated in the form of a straight life annuity payable at the normal retirement age of 65. Messrs. Shebik and Wilson have earned final average pay benefits equal to the sum of a Base Benefit and an Additional Benefit. The Base Benefit equals 1.55% of the participant’s average annual compensation, multiplied by credited service after 1988 through 2013. The Additional Benefit equals 0.65% of the amount of the participant’s average annual compensation that exceeds the participant’s covered compensation, multiplied by credited service after 1988 through 2013. Covered compensation is the average of the maximum annual salary taxable for Social Security over the 35-year period ending the year the participant would reach Social Security retirement age. Messrs. Shebik and Wilson are eligible for a reduced early retirement benefit which would reduce their Base Benefit by 4.8% for each year of early payment before age 65 and their Additional Benefit by 8% for each year of early payment from age 62 to age 65 and 4% for each year of early payment from age 55 to age 62, prorated on a monthly basis based on age at the date payments begin.
Cash Balance Formula — For all Participants Beginning 1/1/14
All named executives, except Mr. Dugenske, earned benefits under the cash balance formula in 2017. Mr. Dugenske will earn benefits under the cash balance formula after completing one year of vesting service. Under this formula, participants receive pay credits while employed at Allstate, based on a percentage of eligible annual compensation and years of service, plus interest credits. Pay credits are allocated to a hypothetical account in an amount equal to 3% to 5% of eligible annual compensation, depending on years of vesting service. Interest credits are allocated to the hypothetical account based on the interest crediting rate in effect for that plan year as published by the Internal Revenue Service. The interest crediting rate is set annually and is currently based on the average yield for 30-year U.S. Treasury securities for August of the prior year. Prior to 2014, Messrs. Civgin and Winter earned cash balance credits equal to 2.5% of eligible annual compensation after they completed one year of vesting service based on the prior cash balance formula.
Supplemental Retirement Income Plan (SRIP)
SRIP benefits are generally determined using a two-step process: (1) determine the amount that would be payable under the ARP formula(s) specified above if Internal Revenue Code limits did not apply, then (2) reduce the amount described in (1) by the amount actually payable under the applicable ARP formula(s). The normal retirement date under the SRIP is age 65. If eligible for early retirement under the ARP, the employee also is eligible for early retirement under the SRIP. SRIP benefits are not funded and are paid out of Allstate’s general assets.
No additional service credit beyond service with Allstate or its predecessors is granted under the ARP or the SRIP to any of the named executives. Messrs. Shebik and Wilson have combined service with Allstate and
its former parent company, Sears, Roebuck and Co., of 29.2 and 24.8 years, respectively. As a result, a portion of their retirement benefits will be paid from the Sears pension plan. Consistent with the pension benefits of other employees with Sears service who were employed by Allstate at the time of the spin-off from Sears in 1995, Messrs. Shebik’s and Wilson’s final average pay pension benefits under the ARP and the SRIP are calculated as if each had worked his combined Sears-Allstate career with Allstate through December 31, 2013, and then are reduced by amounts earned under the Sears pension plan.
Under both the ARP and SRIP, eligible compensation consists of salary, annual cash incentive awards, and certain other forms of compensation, but does not include long-term cash incentive awards or income related to equity awards. Compensation used to determine benefits under the ARP is limited in accordance with the Internal Revenue Code. For final average pay benefits, average annual compensation is the average compensation of the five highest consecutive calendar years within the last ten consecutive calendar years through 2013.
Payment options under the ARP include a lump sum, straight life annuity, and various survivor annuity options. The lump sum under the final average pay benefit is calculated in accordance with the applicable interest rate and mortality assumptions as required under the Internal Revenue Code. The lump-sum payment under the cash balance benefit is generally equal to a participant’s account balance. Payments from the SRIP are paid in the form of a lump sum using the same interest rate and mortality assumptions used under the ARP.
Timing of Payments
Eligible employees are vested in the normal ARP and SRIP retirement benefits on the earlier of the completion of three years of service or upon reaching age 65.
Final average pay benefits are payable at age 65. A participant with final average pay benefits may be entitled to a reduced early retirement benefit on or after age 55 if he or she terminates employment after completing 20 or more years of vesting service.
A participant earning cash balance benefits who terminates employment with at least three years of vesting service is entitled to a lump sum benefit equal to his or her cash balance account balance.
The following SRIP payment dates assume a retirement or termination date of December 31, 2017:
Messrs. Shebik’s and Wilson’s SRIP benefits earned prior to 2005 would become payable as early as January 1, 2018. Benefits earned after 2004 would be paid on July 1, 2018, or following death.
Mr. Civgin’s SRIP benefit would be paid on July 1, 2018, or following death.
Mr. Dugenske is not currently a member of the SRIP and therefore has not accrued a benefit under the SRIP.
Mr. Winter’s SRIP benefit would be paid on July 1, 2018, or following death.