The Louisville, Ky.-based brand’s U.S. chief operating officer, chief financial officer and national field operations director have all notified
Yum Brands Inc.,
KFC’s parent, that they will leave the chicken chain at the end of next month, according to company messages viewed by The Wall Street Journal.
Yum in an internal message to employees and franchisees attributed the departures to rising interest rates’ impact on its company pension plan. “Because of these interest rates, some associates across Yum! and its brands who qualify for pensions have decided to retire in 2022,” KFC wrote in one of the messages.
A Yum spokesman said that a small number of U.S. employees were enrolled in the pension plan, which was closed to new participants in 2001. Most of them have decided to continue with the company rather than pursue retirement this year, and retirements are an expected part of business operations, he said.
The size of lump-sum payouts in corporate pension plans depends on what are known as Internal Revenue Service-set segment rates, which are affected by benchmark interest rates. As interest rates climb, it can be financially beneficial for an employee later in their career to retire and take the lump sum before potentially escalating segment rates reduce the payout.
The Federal Reserve in late September approved its third consecutive interest-rate increase of 0.75 percentage point, and the U.S. central bank is expected to keep lifting rates to try to reduce inflation.
Accountants who work with corporate clients and employees said that the impact of the benchmark interest rate’s march higher this year is leading some company veterans to move up their retirements, cashing out traditional pension benefits sooner than planned rather than risk their dropping in value due to higher rates.
At Yum, those retiring include KFC COO Monica Rothgery, who worked at the company for 30 years across its Taco Bell, Pizza Hut and KFC brands.
who the company said would retire on Nov. 30, has worked at Yum since 1997, and helped the chicken brand with a U.S. turnaround, the company said in one of the messages.
Also set to retire is Jeff Griffin, KFC’s director of national field operations, who the company said has worked for the brand for 34 years. “No one in KFC U.S. knows more about our operations and fried chicken than he does,” one of the messages said.
KFC said it was filling Mr. Griffin’s position with two current leaders, as one executive couldn’t replicate the breadth of his operations knowledge.
The three executives didn’t respond to requests for comment. “Yum has a deep bench of experienced leaders across the system,” the Yum spokesman said. “We’re confident that the KFC leadership team will continue to deliver on the strategic vision to accelerate the growth of the brand in the U.S.”
KFC, the second biggest chicken chain by U.S. sales behind Chick-fil-A Inc., got a boost from customers loading up on its family chicken buckets after the Covid-19 pandemic hit. The brand’s U.S. same-store sales fell 7% in the quarter ended June 30 compared with last year’s period, though, as federal stimulus programs wound down and excitement from a 2021 chicken-sandwich launch leveled off, Yum said in August.
Many traditional pension plans allow beneficiaries to receive monthly payments upon retirement until their death, or a lump sum upon exiting the company. Companies take into account various factors to determine a lump sum, including an individual’s age and rates pertaining to pensions set by the IRS.
The IRS’s calculations, known as segment rates, try to account for the total value of a traditional pension at one point in time by calculating how much it would be worth today given an assumed rate of return. The IRS resets its monthly segment rate for pensions based on corporate bond yields, which are affected by rising benchmark rates.
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In August, the IRS’s first-tier segment rate climbed to 3.79% for the first five years of projected retirement cash flow, up from 0.66% in August 2021. The higher the IRS revises its segment rates on a monthly basis, the smaller a lump-sum pension payout to a retiree.
Wayne Titus, managing director at Michigan-based Savant Wealth Management, said he counseled about half a dozen longtime employees at
Ford Motor Co.
in recent months about whether to retire now as the auto maker disclosed the revised segment rates to beneficiaries. Most of those individuals decided to take the lump sum this year, he said.
A Ford spokeswoman said the company in a notice last month told pension holders about the interest-rate increases, and how they could affect lump-sum cash-outs. Potential retirees have until the end of November to decide if they want to retire by Dec. 1 and cash out their pensions before the IRS segment rates affect their holdings, she said.
In one scenario, Mr. Titus said, a 60-year-old Ford worker was trying to decide whether to retire early and take a lump-sum pension payment, given the rising IRS rates. Her lump-sum pension payment, currently valued at $1 million, would drop to around $700,000 if she waited until after Dec. 1 to retire and had the higher IRS segment rate applied, he said.
“They were enjoying their careers, but this forced them to take a look at retiring sooner,” Mr. Titus said. He said he expects segment rates will continue to increase, and pension holders might not be able to benefit from lower levels for some time.
For many companies, early retirements mean losing experienced employees, as well as the challenge of managing large cash-outs in corporate pension plans, said Lou Mazawey, a Washington-based principal at Groom Law Group who advises companies on benefits. Mr. Mazawey said he is advising companies to try to persuade retirees to not all leave at once.
“I’m seeing clients concerned about a run on the bank,” Mr. Mazawey said. “It’s just bad on all fronts.”
Write to Heather Haddon at [email protected]
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