August 12, 2021
National Grid Resources
Rockbridge and National Grid are both strongly rooted in the Syracuse community. As a result, Rockbridge has a significant number of clients who are employees of National Grid. Through our experience helping current clients, we have developed a level of expertise with National Grid’s benefits program. Discussed below are a few areas in which we’ve added value to our National Grid clients.
One of the hardest decisions National Grid employees face heading into retirement is how to elect their pension benefits. There are a lot of options, and this decision can only be made once, so it’s important to understand the choices and how each one might impact your financial plan.
This pension plan gives you three main options as to how you can take your pension benefit.
- Lump Sum- Roll the balance of your benefit into a tax-deferred IRA
- Annuity- Take a stream of fixed monthly payments over yours / yours and your spouse’s lifetime
- Mix of options 1 & 2- For example, 50% lump sum and 50% annuity
There are pros and cons to each benefit option and there isn’t one answer that fits every retiree. For our clients, we evaluate what the monthly payments options are as a percentage of the pension balance, their appetite for stock market risk, spending goals, Social Security benefits, estate planning goals, etc. before deciding which benefit is optimal for them.
401(k) Investment Options
The National Grid 401(k) plan is held at Vanguard and has plenty of good investment options. These options are well-diversified, low-cost index funds. In addition to these low-cost funds, there are some expensive funds, with expense ratios in the plan ranging from 0.01%-0.71%. Picking the right mix of funds can be difficult.
The plan also has a full range of target retirement date funds. Most 401(k) plans are designed to use a target date fund as the default investment option for all new participants, which is not a bad place to invest if you want diversification without the need to research all the investment options. However, not all target date funds are created equal (visit link here to read an article on the differences) and there are benefits to creating your own allocation from other fund choices.
We recommend implementing a goal-based allocation (mix of stocks/bonds) rather than an age-based strategy. For example, most 2020 target date funds now have a mix of 40% stocks and 60% bonds, whereas most 2025 funds have a mix of 60% stocks and 40% bonds. We want our clients to take an appropriate amount of risk to meet their financial goals, which shouldn’t change all that much between the end of their working career and retirement.
National Grid ESPP
National Grid also has an employee stock purchase plan (ESPP), which allows you to purchase National Grid stock at a 15% discount via automatic payroll deductions. In almost all situations, it makes sense to take advantage of this benefit to some degree. We help our clients figure out to what extent they should participate in this program. However, something to consider is that over time, National Grid stock will become an increasing portion of your overall portfolio, and with that comes concentration risk. We also help our clients determine what a comfortable level of National Grid stock to own looks like, and then invest the rest in a globally diversified, low-cost portfolio of index funds
Health Care Benefits
Retiring pre-65 is difficult for most people because the cost of health care on the exchange is so expensive. Fortunately, as an employee of National Grid, you and your spouse will remain covered by the plan until each of you reaches Medicare. At that point, your National Grid coverage will become secondary to Medicare. This is a unique benefit that not many employers offer today. We help our clients understand how this benefit might allow them to retire earlier than originally thought. When the time comes, we also help our clients sign up for and transition to Medicare.
These are just a few areas of expertise in which we’ve been able to help our National Grid clients. Whether you’re an employee at National Grid, or just have general questions about any of the items discussed above, please don’t hesitate to give us a call.