Despite its significance, many are not familiar with what a pension is, what it does, or how it works. Recognizing its pivotal role in post-playing careers, we aim to provide a primer outlining some of its essential details.
The Basics
A defined benefit pension plan essentially guarantees a predetermined amount of income for a specific period of time. The income is contingent on decisions made by the pensioner (called elections) which incorporate several factors including the number of eligible games played and the commencement of the benefit. All of which we will touch on below.
NHL Pension Overview
1. Benefit Accrual
- Earn one quarter of service credit for every 20 games played.
- Upon reaching a total of 40 quarters, you become eligible for the Maximum Pension Benefit.
- A maximum of four quarters can be earned in a calendar year, with any additional games carrying over to the following year.
2. Timing of Payments:
- Early Benefit- Age 45, results in a lower monthly payment.
- Disability Retirement Benefit- Must have 5 years of service and be deemed permanently disabled. Benefit can begin at anytime after retirement.
- Normal Retirement- Age 62- Max Annual Dollar Amount
- Latest Withdrawal- Age 70 1/2
3. Payment Structure:
- The choice between a single life or joint life payment plan impacts the monthly payout. If covering both the pensioner and their spouse for life, the monthly payment is typically less. Notably, the NHL plan ensures surviving spouses receive 100% of the benefit. This is a massive benefit!
Financial Considerations
The NHL pension, as all DB pensions in the United States, follows ERISA regulations, and must be approved by the respective regulators. As of 2023, the maximum annual pension amount (per IRS guideline) is $265,000 at age 62. Regardless of a players income level, the payout amount cannot exceed these limits. Opting for early withdrawal at age 45 results in approximately 40-45% of the max benefit (ballpark). These figures are subject to annual inflation adjustments while you are still actively playing. Once retired, the benefit amount remains fixed- so understanding the impact of inflation on the payout is important and needs to be planned for.
From a tax standpoint, pension income is fully taxable at the federal level, and its tax status may vary depending on the pensioner's state of residence.
Critical Insights
From a high-level view, the NHL pension is a good plan and the powers that be did a good thing putting it in place. It is one leg of the retirement stool and is not the total answer. It takes roughly 10 years of service (800 games) to fully vest for a “max pension”, players with shorter careers will greatly benefit, even with lower numerical payouts.
One important point to highlight is that the plan is not foolproof. Although the league is dedicated to the pension, it does not offer the same level of assurance as benefits such as the 401k or Social Security. Presently, the pension (in our opinion) is adequately funded, and the NHL has upheld its commitments. However, there is no guarantee that this stability will remain and could be terminated in future CBA negotiations. In the event of such termination, all accrued benefits should be retained.
In Conclusion
The NHL has done a pretty good job in supplying and funding its players with long-term benefits. The important piece from a planning perspective is to understand your total benefit and incorporate into your long-term financial plan. To understand your status, you (or your financial advisor) can reach out directly to the NHL pension benefit team and they will give you a full breakdown of where you stand as of today and your benefit options at earliest withdrawal (45) and full retirement age. Feel free to reach out if you have any trouble connecting with the league’s office. Next week we will dive a little deeper into the other benefits that the NHL offers (401k, retiree medical, etc..)
As always, feel free to reach out with any thoughts, issues, or conversation points you would like to review.
Frank
Retirement Capital Advisors
800 Battery Ave SE
The Battery, Suite 100
Atlanta, GA 30339
Office- 412-722-3795
frank@retire-me.com
Securities and Advisory Services offered through Commonwealth Financial Network®, member FINRA/ SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network