If you've recently received a voluntary severance program offer from Norfolk Southern, this video is essential viewing
Greetings, everyone, and welcome to another installment of the Highball Advisors Railroad Retirement whiteboard series. I'm John McNamara from Highball Advisors, and today I want to address a topic that's been on the minds of many Norfolk Southern railroaders: the voluntary severance package being offered by the company. This package entails a lump sum payment in exchange for relinquishing your rights to work for the railroad, as Norfolk Southern aims to downsize its operations. With the decision deadline approaching in February, I've compiled some key information to help you navigate this choice.
Firstly, it's important to note that the Voluntary Separation Program (VSP) is targeted at non-agreement employees, so if you fall under the agreement employees or crafts, this does not apply to you. Those who opt for the VSP will end their employment with Norfolk Southern on April 15th, 2024, and 30 days after their departure, they will receive the lump sum payment. This payment is calculated as three weeks of pay multiplied by your years of service. For example, if someone earns $104,000 annually with 25 years of service, their lump sum would amount to $150,000.
However, it's crucial to consider the tax implications. After factoring in federal income tax, state income tax (if applicable), tier one tax (equivalent to Social Security tax), tier two tax, and Medicare tax, the net amount from the lump sum would be approximately $93,116. It's also worth noting that this lump sum cannot be deferred into a 401k, and it is subject to tier one and tier two taxation despite the recipient no longer being employed by the railroad.
Furthermore, the VSP does not qualify for unemployment benefits, as the lump sum is equivalent to a year and a half of pay according to the Railroad Retirement Board. However, if you are considering retirement, you can initiate your retirement benefits immediately if you meet the eligibility criteria. Additionally, if you have at least 25 years of service and your job is eliminated without an alternative position offered, you will be considered "deemed" and can seek new employment without impacting your railroad retirement benefits.
Finally, it's important to note that any overpayment of tier two taxes will be refunded as a Separation Allowance (SALSA) payment when you begin receiving your railroad retirement benefits.
This decision is a significant one, especially for those nearing retirement with 25 or more years of service. I encourage you to carefully evaluate your financial situation and consider seeking employment elsewhere in the industry if you are close to reaching 30 years of service, as this milestone can significantly impact your retirement benefits.
I hope you find this information valuable, and I encourage you to share it with your colleagues who may be facing the same decision. Until next time, stay safe, stay informed, and take care. Goodbye for now!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.