Sorry for this long post, but first off, don't try to over-analyze the Chevron methodology too much, as it would become confusing quickly. The objective here is to have Chevron calculate a lower Social Security Offset amount. In reducing the Offset, Chevron will be taking away less from their pension formula, in which you will receive a larger payout. Follow the logic and concentrate less on the figuring out the Chevron formula to the tee. It's logical that if you earn higher wages over your lifetime, you will be receiving a larger Social Security benefit than if you earned less over your lifetime. So apply that logic to solving for your decision whether to provide Chevron your SS statement with your actual earnings. Chevron's estimation of your SS earnings going back to your age 22 has only one purpose, and that's to estimate what it thinks the Social Security Administration is going to pay you when you reach age 65 (Age 65 PÍA). Chevron will reduce your pension benefit by HALF of what it estimates your Social Security benefit is going to be at age 65. That is what they call the "Social Security Offset" figure they are estimating. How can you logically determine if Chevron's estimated SS Offset is too high? It's pretty easy. I'll try to explain the process as simply as possible, as follows.
Open a blank Excel spreadsheet and in the first column enter the year you separated from Chevron. Let's say it was this year, 2016. In the next row below, enter the previous year, 2015. Follow suit for the next row with 2014, and continue this until the last row in which you were 22 years old.
In the second column, next to the year 2016 (the year you separated from Chevron), enter $0 as your earnings. In following the calculation of the Chevron pension formula, a zero value is entered for the year of separation. In the next row (for 2015), a value is entered. It is 105% of your annualized Highest Average Earnings (HAE). You will find your monthly HAE disclosed when you run a Retirement Estimator scenario from the Benefit Connection webpage. Multiply your HAE by 12 to get an annualized figure, then bump it up 5% by multiplying it by 1.05. Enter this bumped up figure in the Excel spreadsheet as your 2015 earnings. In the 2014 earnings column and subsequent columns, you will be entering amounts that involve percentage changes in the National Average Wage Index. It's fairly simple, so follow along.
Go to the SSA.gov website to find this information. Here's the URL: https://www.ssa.gov/oact/cola/AWI.html. You may find the published wage index ends with 2014. This information is updated by the end of September or mid October each year. If you need the 2015 wage index for this calculation exercise, you can wait until later in October or enter the same figure shown for 2014 (or a very modest increase). Inflation has remained very low this past year and Social Security has been tossing around the prospect of no COLA increase this year, so it's likely the wage index for 2015 will remain much the same as shown in 2014. Open up a second worksheet in your Excel spreadsheet. Copy or enter the wage index data shown on the SSA webpage for the years you need going back to your age 22. The objective is to figure the wage percentage changes between the years. For example, the national average wage index for 2014 is 46,481.52. The index is 3.55 percent higher than the index for 2013. Figure the percentage changes for each year going back to the year you were 22 years old. Once you're done doing this, go back to the first worksheet and pick up where you left off.
You already entered your 2015 "bumped up" annualized wage, so proceed to calculating your 2014 wage. Subtract from your 2015 annualized wage, the percentage change in the national average wage index between 2015 and 2014. This becomes your 2014 annualized wage. Work this calculation back the same way for each subsequent year, adjusting the previous year's calculated annualized wage by the percentage change in the nation average wage index for that year.
Once you've completed the exercise and you have all the years back to your age 22 populated with annualized wages, sum the entire column of wages. Now sum your actual earnings from your Social Security earnings statement going back to your age 22. Don't worry if you had no earnings gong back that far or if you had years in between where you earned nothing, enter "$0" for those years. Sum up your Actual Earnings and compare it to that of the Chevron methodology grand total.
If the Chevron estimation of your total wages is LARGER than your Actual Social Security earnings, you will come out ahead by providing Chevron will your Social Security statement. Chevron will be obligated to replace their higher wage estimates with your lower actual earnings. This will result in Chevron lowering the "Offset" figure, which will increase your pension benefit (both lump sum and annuity).
One last word: Don't try to figure your Chevron pension benefit to the Dollar of exactness. It is very complicated and the changing 3-month average in the corporate bond segment rates will always throw you off from arriving at an exact Dollar amount. Know only that when you lower your Social Security Offset figure, you gain a higher pension payout. That's the basic logic of the whole exercise, to make the correct decision whether to give or not give Chevron your SS earnings statement. If you intend on giving Chevron your SS statement, run and print a Retirement Estimator scenario with your desired start date, along with the assumptions of 0 salary increase and 0 bonus percentage. Keep the printout for your records. Once you submit your SS statement to Chevron and they update their estimates with your actual earnings (give them about 2 weeks to do this), you can go back to the Retirement Estimator and run the same scenario. You will notice the change in your pension benefit amounts. If you like, you can submit your SS statement along with your pension commencement papers. It's a good idea to write a short cover letter informing Chevron that you are providing your actual earnings statement and keep a copy of everything you mail to them. If you are a retiree and have already started your pension (lump sum or annuity), you still have the option to provide your SS statement to Chevron, as long as you started the pension less than 6 months ago. Chevron will recalculate your benefit and pay you the additional amount, plus interest, from the date you stated the pension.
I would be remiss in leaving out that my post is for informational purposes only. I am not imparting legal or financial advise. Your choice to provide your Social Security statement to Chevron is your own to make.