Guide to Your Mayo Clinic Pension Plan
While most companies have eliminated pensions in favor of 401(k) plans only, Mayo Clinic still provides employees with a defined-benefit pension. This guide will help you understand every aspect of your Mayo Clinic pension so you can make informed decisions for your future.
What Makes Mayo's Pension Special
Mayo Clinic is one of the few U.S. companies that still provides a pension benefit at no cost to employees. Unlike a 401(k), where your retirement income depends on how much you contribute and how your investments perform, a pension provides a predictable income stream based on your years of service and compensation.
The Mayo Clinic pension plan is fully funded by the company. You don't contribute anything to earn this benefit, which makes it essentially free money for your retirement. This benefit, combined with your 403(b) savings, gives you a strong foundation for retirement security.
Eligibility
You can join the Mayo pension plan if you meet these criteria:
You are at least 21 years old
You work in a regular, full-time or part-time job with Mayo Clinic
Your full-time equivalent hours are 0.5 or greater
Who's not eligible: Temporary workers, on-call workers, students (including residents and fellows), and certain other categories of workers are not eligible for the Mayo Clinic pension plan.
Vesting
Vesting means you've earned the right to keep your pension benefits even if you leave Mayo Clinic. You become vested when you reach either:
Age 28 or older with at least three years of Benefit Service, OR
Age 21 or older with five years of Vesting Service and some Benefit Service
Once you're vested, your pension benefit is yours to keep, even if you leave Mayo Clinic. If you're not yet vested when you leave, you forfeit your pension benefit.
Calculating Your Pension Benefits
Mayo Clinic's pension plan uses different formulas depending on when you became eligible for the plan. Many employees will have benefits calculated under multiple formulas.
Final Average Pay Formula (Pre-2015 Service)
For service earned before January 1, 2015, your pension is calculated using the Final Average Pay formula:
Formula: Final Average Pay × Pension Percentage - Covered Compensation Offset
Final Average Pay: The average of your highest 36 consecutive months of compensation during your last 120 months of service before 2015
Pension Percentage: 2% per year of benefit service (up to 30 years maximum)
Covered Compensation Offset: A Social Security integration feature that adjusts for Social Security benefits
Example: An employee with a $4,000 monthly Final Average Pay and 25 years of service would have a pension percentage of 50% (25 years × 2%). Before the covered compensation offset, this would yield $2,000 per month starting at age 65.
Annual Accumulation Formula (2015–2022 Service)
For service from January 1, 2015, through December 31, 2022 (and continuing for some employees), the Annual Accumulation formula applies:
Formula: (Monthly Compensation × 2%) - Covered Compensation Offset
Monthly Compensation: Your recognized compensation for the plan year divided by 12
Accrual Rate: 2% per year of benefit service (uniform rate, not tiered)
Covered Compensation Offset: A detailed calculation based on one-twelfth of Covered Compensation or an alternative formula as specified in the plan documents
Example: An employee earning $5,000 per month would accrue approximately $100 per month in pension benefits for that year ($5,000 × 2%), before applying the Covered Compensation Offset.
This calculation is performed each year, and the annual benefits accumulate over your career.
Stable Lump Sum Formula (2023 and Later)
For employees who became eligible on or after January 1, 2023, or existing employees who elected this option, the Stable Lump Sum formula applies:
Formula: Annual Compensation × Accrual Percentage
Base Accrual: 18% of compensation up to the 401(a) limit
Additional Accrual: Plus 8% of compensation above the Social Security wage base (still subject to the 401(a) limit)
In this case, the benefits accumulate as lump sum amounts each year. At retirement, it can be paid as either a lump sum or converted to monthly payments.
Example: An employee earning $60,000 annually (below the Social Security wage base) would accrue $10,800 per year ($60,000 × 18%) toward their lump sum benefit.
Note: The 2023 Retirement Choice Election
In 2023, Mayo Clinic offered current employees a one-time opportunity to switch from the Annual Accumulation formula to the new Stable Lump Sum formula for future service. Key points about this election:
The election period was from August 14 to September 15, 2023.
It only affected benefit accruals starting January 1, 2024.
Benefits earned before 2024 remained under the previous formulas.
Employees who didn't make an election remained on the Annual Accumulation formula.
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Pension Payment Options
When you retire, you'll need to choose how to receive your pension benefits. Mayo Clinic offers several options.
Life Only Annuity
This option provides the highest monthly payment, but payments stop in the event of your death, with no survivor benefits after that. In this case, your distributions will be taxed as ordinary income.
Joint and Survivor Annuities
This option provides ongoing income for your spouse after your death:
50% Joint and Survivor: Your spouse receives 50% of your monthly payment after you die.
75% Joint and Survivor: Your spouse receives 75% of your monthly payment.
100% Joint and Survivor: Your spouse receives your full monthly payment.
If you're married, the automatic default is the 50% Joint and Survivor annuity unless you elect otherwise (with spousal consent). As with life only annuity, your distributions will be taxed as ordinary income.
Lump Sum Option
You can choose to receive your entire pension benefit as a one-time lump sum payment. This gives you maximum flexibility, but also places all investment and longevity risk on you. If you take the lump sum, 20% will be automatically withheld for federal taxes unless you roll it directly into an IRA or other qualified retirement account.
PRO TIP: Mayo Clinic provides a valuable online tool called "Your Pension Estimator" available through HR Connect or mayoemployees.org. This tool allows you to:
Calculate your current benefit based on your actual service and salary history
Project future benefits based on different scenarios
Test different retirement dates and their impact on your benefit
Compare lump sum versus monthly payment options
Making the Lump Sum vs. Monthly Payment Decision
This is one of the most important decisions you'll make regarding your pension. You will likely want to choose monthly payments if the following apply:
You want guaranteed income for life.
You're concerned about investment risk.
You have a spouse who needs ongoing income protection.
You prefer simplicity and predictability.
On the other hand, a lump sum may make sense if:
You want maximum flexibility and control.
You're comfortable managing investments.
You want to leave a larger inheritance.
You have other sources of significant retirement income.
Planning for Your Future
As you plan for retirement, remember that your Mayo pension is just one component of your retirement income. The combination of your pension, 403(b) savings, Social Security, and personal savings creates what financial planners call a "retirement income portfolio."
Given the complexity of pension decisions and their interaction with other benefits, many Mayo employees benefit from working with a fiduciary financial advisor who understands Mayo's specific benefits.
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Getting Help with Your Pension Decisions
Getting the most from your Mayo Clinic pension takes careful planning to maximize its value. The decisions you make now will impact your financial security for decades to come.
At TrueWealth Financial Partners, we specialize in helping employees near retirement age optimize their finances in the home stretch. As a fee-only fiduciary firm, we provide objective guidance on:
Optimal retirement timing to maximize your pension value
Lump sum versus monthly payments
Coordination of your pension with Social Security and 403(b) benefits
Tax-efficient strategies for pension distributions
Estate planning considerations for pension benefits
We understand that your pension is often your most important retirement asset, and the decisions you make about it carry great weight. Our goal is to help you make informed decisions that align with your complete financial picture and retirement goals.
Ready to maximize your Mayo Clinic pension benefits?
Schedule a free consultation with TrueWealth Financial Partners today. We'll help you understand your options and create a comprehensive strategy that makes the most of Mayo's generous pension plan while securing your retirement future.
Mayo Clinic Pension FAQs
What happens to my Mayo Clinic pension if I'm laid off or terminated before I'm vested?
If you leave Mayo Clinic before meeting the vesting requirements, you forfeit your entire pension benefit. However, if you're rehired by Mayo within five years, your previous service may be restored for vesting purposes.
Can I access my pension benefits before age 65?
You may be eligible for early retirement benefits as early as age 55 with certain years of service, though benefits will be reduced. The specific reduction depends on how early you retire and your years of service. Contact Mayo HR for your early retirement calculation.
Can I change my payment option after I start receiving benefits?
Generally, no. Once you begin receiving pension payments, your election is irrevocable. This is why it's crucial to carefully consider your options before retiring.
Can I work part-time and still accrue pension benefits?
Yes, as long as you maintain at least 0.5 FTE (full-time equivalent) hours, you can continue accruing pension benefits. However, your benefit accrual will be proportional to your work schedule.
Can I roll my pension lump sum into a Roth IRA?
You cannot directly roll a pension lump sum into a Roth IRA. However, you can roll it into a traditional IRA first, then convert portions to a Roth IRA over time (paying taxes on the converted amounts).
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