In many Pension Fund communications
we’ve been discussing the downturn in our economy, the many challenges
presented by the Pension Protection Act of 2006, along with the closing of
U.S. manufacturing facilities and the resulting loss of hundreds of
thousands of American jobs. These events along with other factors have been
described as the "perfect storm" affecting many pension plans across the
country including the IUE-CWA Pension Fund. This "perfect storm" has
required the Board of Trustees to make major changes to the Pension Fund.
As you read about these changes,
please keep in mind:
#1 – The changes described below
only apply to the FUTURE Benefit Accruals. Benefits already
earned cannot be changed. Pension Fund benefits are protected by the
Pension Benefit Guaranty Corporation (PBGC) and federal regulation.
#2 – The existing benefits for
current Retirees and existing accrued benefit amounts for currently active
or deferred vested participants with benefits earned prior to 1/1/2009 are
NOT affected.
#3 – Participating Employers that
first began participation in the Fund after 1/1/2007 are NOT
affected.
#4 – these changes apply only to
the IUE-CWA Pension Fund and do NOT apply to your 401(k) Plan.
How did we get here?
Benefit changes will significantly lower the way your
future benefits are
earned under the Plan. The Fund’s Board of Trustees did not come to this
decision lightly. This decision was made only after considerable discussion
and consultation with the Fund’s professionals and staff. These bold changes
are required to maintain the long term health and funding of the Pension
Fund. Plant closings, loss of active participation, disappointing investment
market results along with regulatory challenges have all contributed to
these necessary changes.
You were recently sent the Summary
Annual Report of the Pension Fund and the Annual Funding Notice. You can see
that the Pension Fund is 91% funded. As we project into the future, in just
a few years, the Fund would be less than 80% funded if NO changes were made.
Prolonged underfunding is neither allowable by federal regulations nor good
for the participants, pensioners, and beneficiaries of the Fund.
The objective of these changes is
to put the Fund back on a track toward 100% funded status. So with the help
of the Fund Actuary, Lawyers, Investment Consultant, and Staff, the Board of
Trustees is implementing this Plan now to protect and preserve the Fund for
the participants, pensioners, and beneficiaries.
Beginning in 2009,
as collective bargaining agreements which
provide for participation in the IUE-CWA Pension Fund expire,
the rate at which participants may earn future
benefits will be reduced in two ways explained below. Additionally,
Participating Employers will be required to increase hourly contributions to
maintain the new reduced accrual schedule for benefits.
How will this work?
Remember, this will only come up as your collective bargaining agreements
expire after January 1, 2009. So, this DOES NOT apply to those who
are already collecting their pension benefits, to those who have terminated
participation in the Fund but have not yet begun to collect their benefits,
or to those Participating Employers who joined the Fund after 1/1/2007.
Prior to 1/1/2009,
an Employer and Union would agree to participate in the IUE-CWA Pension Fund
under a Total Service Participation Agreement. This meant that a participant
(a covered employee working for the Participating Employer) would earn
benefits with the Fund that would cover their Total Service from their date
of Seniority (even if that date was 20 years ago or more), even though their
Employer and Union just joined the Fund. The Employer and Union agreed to a
set contribution amount that would "buy" a benefit amount that was based on
a benefit contribution multiplier that was unique to that group of
Participants.
For example,
let’s say that ABC Industries and Local 1 agreed in 1990 to join the Fund
and today their benefit multiplier is $0.20 and their negotiated
contribution amount is $2.00. So, the current benefit amount for those
currently working participants is $40. This would apply to all the years
that a participant had earned while working at the Employer (back to his/her
Seniority date). So, if Jim’s Seniority date was 1/1/1990, and he had earned
1.0 years of service each year, his benefit payable at age 65 would be $760
(1/1/1990 to 1/1/2009 = 19 years x $40 = $760).
Now, starting in 2009:
Let’s say that you started working at XYZ Industries in 1990. Your CBA is
due to expire May 31, 2009. You have been participating in the Pension Fund
on a Total Service basis since 1990 and your current benefit rate is $40
(Total Service meant that each time you negotiated an increase to your
pension, it increased your pension for all of your years of service). The
way you participate will now change in several ways:
· First: You
will now participate on a Future
Service Only basis. This means that
any increases in hourly contributions negotiated into the Fund
(above the minimum required contributions) will be effective ONLY
for the periods of service earned after the effective date of the
increase. Your pension benefit will now be based on segments of
benefit rates. In this example, 1990 to 2009 will be one rate, and
then a new rate will be established for each future year. You can of
course negotiate an increase to your pension benefit as set forth
below.
· Second:
Your benefit rate will be reduced by
50%. In this example, your benefit
rate was $40. Now, your benefit rate will be $20 going forward … for
future years of service (in this example after May 31, 2009).
· Third: In
order to continue participation in the Fund (at the reduced benefit
rate), your Employer will have specific
required increases to their contributions
to the Fund each year. These
required increases will be required to maintain the current benefit
level. The later your current CBA expires, the greater the increase
to the contribution that will be required.
The amount of the required
increases will depend on when your CBA expires. The rate increases
with each quarter beyond the 1st quarter of 2009. The objective is
to adjust the required contributions from each Participating
Employer starting from a 1/1/2009 basis, regardless of when your CBA
expires. Please see the chart below for the schedule of required
increases:
| |
2009 |
2010 |
2011 |
| 1st
Quarter |
6.10% |
8.00% |
10.50% |
| 2nd
Quarter |
6.40% |
8.60% |
11.30% |
| 3rd
Quarter |
6.80% |
9.30% |
12.10% |
| 4th
Quarter |
7.40% |
9.90% |
12.90% |
These required increase
percentages for years 2010 and beyond are subject to change based on
the experience of the Fund and approval of the Trustees.
Before the scheduled expiration of each CBA,
the Participating Employer and Local Union will receive specific
information regarding their required increased contributions with
their new Participation Agreement.
If the parties choose to
open their collective bargaining early, they should notify the
Pension Fund Office as soon as possible so that your new
Participation Agreement can be drafted and supplied to both the
Employer and the Local Union.
· Fourth:
Should the Union and the Employer agree to increases in
contributions above the required amount mentioned above, benefit
increases will be accommodated using a flat multiplier of $0.40 of
benefits for each additional .01¢ of negotiated contribution, again
above the required amount. As with all benefits these increases are
offered on a Future Service Only basis. So, if your required
contribution rate was $1.50 and the minimum additional contribution
is an additional 15¢ to make the mandatory contribution rate $1.65
per hour, and if you then negotiated an extra 5¢ per hour (above the
required amount) for a new hourly contribution of $1.70, that would
result in an additional $2.00 per month (.40¢ x 5¢) per year of
Future Service in benefits – for the credited service earned after
the effective date of the increase.
As an example the pension benefit
with service at XYZ Industries will be made up of several segments:
1990 – 2009 = 19 years of service at $40
2009 – 2010 = 1 year of service at $20
2010 – 2011 = 1 year of service at $22 (with a negotiated increase)
2011 – 2012 = 1 year of service at $22 (without another negotiated increase)
Total benefit = 19 years of service
x $40 = $ 760
1 year of service x $20 = $ 20
1 year of service x $22 = $ 22
1 year of service x $22 = $ 22
Total = $ 824
(if you had 22 years of service all
at the $40 benefit rate, your benefit would have been $880, instead of
$824).
In addition to these changes, the
Pension Fund Trustees and Staff are also making other changes to the
everyday operations of the Fund. These changes include cutting the operating
budget by 10%, putting the building up for sale (as it requires maintenance
and leasing of extra space which will further reduce the operating budget),
and other cost saving measures.
These are significant changes to
the way benefits are earned and calculated in the IUE-CWA Pension Fund. In
the coming months, we will be continuing to communicate these changes with
individual Participants, their Union, and their Employers. This will include
updates to your Summary Plan Descriptions, required notices (by federal
regulation), and additional information to Local Unions and Employers as
each collective bargaining agreement expires and action is required.
The Fund Office is here to serve
you. If you have questions or concerns about any of these changes in your
Pension Fund, please feel free to contact us. The best way to reach us is
via email. You can reach us at 812-671-0690, at
mike@iuepension.org, at 400 W. 7th
Street, Suite 233, Bloomington, IN 47404, and at
www.iuepension.org.