GREAT LAKES FABRICATORS AND ERECTORS ASSOCIATION Industry Meeting - - PowerPoint PPT Presentation

GREAT LAKES FABRICATORS AND ERECTORS ASSOCIATION

Industry Meeting February 27, 2018

WELCOME

• Opening Greeting – Patrick Baker
• Welcome – James Buzzie, President

GLFEA CRITICAL MANDATE

What makes this meeting so important – Patrick Baker Looking at the issues confronting our industry - James Buzzie Bringing our industry together to solve difficult problems - Tom Broad

Overview of the Benefit Funds

• Iron Workers Local 25 Pension Fund

– Bill Cumming, Richard Sawhill, Patrick Baker, James Buzzie

• Iron Workers Health Fund of Eastern Michigan

– Patrick Baker

• Iron Workers Training Fund of Eastern

Michigan

– Chris Vlk, Patrick Baker

• Iron Workers Local No. 25 Pension Plan
• Projection Addendum
• February 26, 2018
• Tom Cliffel, FSA
• Ken Densmore, ASA

Cary Franklin, FSA

• Atlanta

• Projection Results

Scenario Plan On-going

• r Frozen?

Hours Worked per Year Investment Return PPA Total UVB for Withdrawal Liability at 5/1/2037 ($millions)1 Credit Balance at 4/30/2038 ($millions)2 2017/2018 Plan Year 2018/2019 through 2026/2027 Plan Year Plan Years Beginning After 4/30/2027 Funded Percentage at 5/1/2037 1 On-going 2,618,000 7.5% 7.5% 7.5% 118% $273 $169 2 On-going 2,618,000 15.0% 7.5% 7.5% 141% $198 $324 3 On-going 2,618,000 0.0% 7.5% 7.5% 95% $347 $15 4 On-going 2,618,000 6.5% 6.5% 7.5% 95% $346 $28 5 On-going 2,400,000 7.5% 7.5% 7.5% 91% $354 ($16) 6 Frozen 2,400,000 7.5% 7.5% 7.5% 112% $254 $116 7 Frozen Declining3 7.5% 7.5% 7.5% 0% $613 ($715)

• Notes

1. The May 1, 2017 withdrawal liability valuation is not yet completed, but we included estimated total unfunded vested benefits (UVBs) for withdrawal liability in these projections. We have estimated the May 1, 2017 withdrawal liability based

• n the May 1, 2016 results (adjusted for changes in the funding liability in the preliminary May 1, 2017 valuation and for th e

applicable PBGC interest rates of 2.15% for the first 20 years and 2.60% thereafter). For May 1, 2018 and thereafter, we have assumed that the most recently published PBGC interest rates (2.39% for the first 20 years and 2.60% thereafter) remain the same for all future years. 2. The impact of 5-year amortization extensions effective May 1, 2017 are disregarded in determining the zone status. 3. Declining hours start at the valuation hours of 2,618,000 and are projected based on our valuation assumptions, assuming no new entrants to the Plan. See the projection exhibits for these hours. Iron Workers Local No. 25 Pension Plan February 26, 2018 2

• Scenario 6
• 7.5% asset return during plan year beginning May 1, 2017 and each future year

2.618 million hours per year / on-going plan

Iron Workers Local No. 25 Pension Plan February 26, 2018 3

• Scenario 6
• 7.5% asset return during plan year beginning May 1, 2017 and each future year

2.4 million hours per year / on-going plan

Iron Workers Local No. 25 Pension Plan February 26, 2018 7

• Scenario 6
• 7.5% asset return during plan year beginning May 1, 2017 and each future year

2.4 million hours per year / frozen plan

Iron Workers Local No. 25 Pension Plan February 26, 2018 8

• Iron Workers Local No. 25 Pension Plan
• Preliminary May 1, 2017 Valuation Results
• and Other Actuarial Topics
• February 26, 2018
• Tom Cliffel, FSA
• Ken Densmore, ASA

Cary Franklin, FSA

• Atlanta • Cleveland • Los Angeles • Miami • Washington, D.C.

• Participation
• Ratio of Actives to Inactives 0.60 0.59 0.51 0.45 0.46 0.42 0.44 0.43 0.44 0.41
• Retirees & Beneficiaries 2,663 2,722 2,755 2,739 2,754 2,785 2,573 2,703 2,696 2,736
• Inactive Vested Participants 777 641 772 824 822 833 865 831 846 900
• Active Participants 2,067 1,987 1,805 1,618 1,628 1,531 1,507 1,531 1,561 1,496
• Total Participants 5,507 5,350 5,332 5,181 5,204 5,149 4,945 5,065 5,103 5,132
• 4,000
• 6,000
• 5,000
• 3,000
• 2,000
• 1,000
• 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7
• I

• n

• r

• c

• .

• n

• Participation as of the Valuation Date
• Notes:
• 1) Prior to 2014 alternate payees receiving benefits under a Qualified Domestic Relations Order are included in counts for

Retirees & Beneficiaries

Iron Workers Local No. 25 Pension Plan February 26, 2018 5

• Scenario 6
• 7.5% asset return during plan year beginning May 1, 2017 and each future year
• 2.618 million hours per year / on-going plan

Iron Workers Local No. 25 Pension Plan February 26, 2018 24

• Scenario 6
• 7.5% asset return during plan year beginning May 1, 2017 and each future year
• 2.4 million hours per year / on-going plan

Iron Workers Local No. 25 Pension Plan February 26, 2018 28

• Scenario 6
• 7.5% asset return during plan year beginning May 1, 2017 and each future year
• 2.4 million hours per year / frozen plan

Iron Workers Local No. 25 Pension Plan February 26, 2018 29

• Critical Status: Emergence

 While the Plan is projected to meet the annual benchmark for the

• funding deficiency, it is still projected to have a funding deficiency at the
• end of the rehabilitation period. That is, the Plan would still be in Critical
• Status.

 Therefore, while the Plan may meet its benchmark this year, it is

• projected to not meet the benchmark in some future years.

 The Rehabilitation Plan is projected to need updating in the future if the

• goal is to to emerge from Critical Status on time.

 Estimated corrective action (contribution increase or equivalent benefit

• reduction) effective May 1, 2018 to project on time emergence from
• Critical Status:

Hours Assumption $ per hour 2.618M hours per year $2.20 2.4M hours per year $4.30 2017 PPA Certification hours: 2.7M in 2017, 2.5M in 2018 and 2.4M per year thereafter $3.70

Iron Workers Local No. 25 Pension Plan February 26, 2018 34

• Review of Remaining Adjustable Benefits
• At the September 12, 2017 Board meeting, the Trustees requested a
• menu of possible benefit reductions with estimated cost savings.
• We presented this information (based on the May 1, 2016 transition match results) to
• the Trustees at the November 28, 2017 Board meeting.
• The information in the following slides has been updated to reflect the results of the
• preliminary May 1, 2017 valuation.

Iron Workers Local No. 25 Pension Plan February 26, 2018 36

• Considerations for Potential Benefit Reductions

 Whether cost savings generated by potential benefit reductions can

• free up contributions to allocate towards increased future benefit
• accruals depends on plan structure.

 In a two plan structure (where a new separate defined contribution or Variable Benefit plan is established), it seems fairly clear that it is permissible.  In a one plan structure, it is less clear. The regulations state that a plan in Critical Status may not be amended to increase benefits “unless the plan actuary certifies that such increase is paid for out of additional contributions not contemplated by the rehabilitation plan, and, after taking into account the benefit increase, the multiemployer plan still is reasonably expected to emerge from critical status by the end of the rehabilitation period on the schedule contemplated in the rehabilitation plan.”

 Several of the potential benefit reductions shown are adjustable

• benefits that can be reduced or eliminated only while the Plan is in
• Critical Status, so the Trustees would want to decide on any benefit
• reductions before applying for amortization extensions.

Iron Workers Local No. 25 Pension Plan February 26, 2018 37

• Benefit Study Results
• Alternative
• 1
• 2
• 3
• 4
• 5
• 6
• Estimated

Savings Per Hour

• $0.35
• $1.30
• $0.02
• $1.07
• $0.09
• $2.59
• Plan Change
• Eliminate the supplemental retirement benefit for future retirements only.
• Currently, active participants with 10 years of service as of September 30, 2003 or 20 years of service

as of November 2, 2009 may be eligible for an additional supplemental retirement benefit of $400 per month prior to age 65 and $375 thereafter (subject to the maximum benefit limitation and having enough service in the years immediately prior to retirement). The benefit is actuarially reduced for retirement prior to age 62.

• Eliminate the early retirement subsidy for all future retirements.
• Currently, the early retirement benefit (which requires retirement from active status) is actuarially

reduced from age 62. This could be changed to an actuarial reduction from age 65.

• Eliminate the special 100% pre-retirement death benefit
• If a married vested participant dies prior to retirement, the spouse will receive 50% of the

participant’s Qualified Joint and 50% Survivor Annuity, accrued as of the date of death and payable upon the participant’s early or normal retirement date and reduced accordingly. The special provision is that the 50% is replaced by 100% (in both cases above) if the participant has 30 years

• f service and dies while in active status.
• Eliminate future benefit accruals

The existing accruals could be frozen.

• Eliminate the disability benefit for future disability retirements only
• A disability benefit of $210 per month plus (1) $30 for each year of service in excess of 7 (up to and

including 10 years of service) plus (2) $10 for each year of service in excess of 10 (up to and including 30 years of service) is payable until normal retirement age.

• Combine alternatives 1 through 5

 The results for all alternatives are based on the data, assumptions, methods and plan provisions that were used in the May 1, 2017 actuarial valuation results.  The estimated savings per hour was calculated assuming a plan change date of May 1, 2018. Assets and liabilities were projected to May 1, 2018 using the May 1, 2017 valuation assumptions.

Iron Workers Local No. 25 Pension Plan February 26, 2018 39

• Comparison of Key Design Features
• Variable Benefit Plans: Best of Both DB and DC

Traditional Variable DB DC Benefit Sponsor Subject to Investment Risk Yes No No Stable Costs No Yes Yes Professional Investment Management Yes No Yes Mortality Risk Pooling Yes No Yes Benefit Payable for Life Yes No Yes Inflation Protection No Yes Yes Benefit Never Decreases Yes No No Can Provide Ancillary Benefits Yes No Yes Can Provide Surviving Spouse Benefits Yes Remaining Balance Yes Investment Losses Impact Industry Yes No No

• Note: The “Yes” or “No” indicated above implies the general attribute rather than an absolute result in all cases.

Iron Workers Local No. 25 Pension Plan February 26, 2018 46

• Why Variable?

 Variable Benefit plans can help address the financing risk that is

• impacting traditional defined benefit (DB) plans

 Traditional DB designs are great at producing a stream of income in retirement, but as plans have matured the funding risk can be problematic  Having some portion of the investment risk/reward shared directly by plan participants can benefit all the stakeholders

 Variable Benefit plan designs can preserve the economic efficiency of

• DB plans.

 DB plan investment returns have outpaced DC plan returns  Pooling of mortality risk is of significant economic value  And participants receive lifetime retirement income  Ancillary benefits (e.g. death benefits, disability benefits) can be provided efficiently

Iron Workers Local No. 25 Pension Plan February 26, 2018 47

• Variable and DC Plan Illustrations

 We were asked to estimate the level of retirement income benefit that

• could be provided by a pure variable benefit plan and a DC plan,
• assuming the following new contributions:

 Year 1: An initial contribution of $1.00 per hour  Year 2: An additional $1.00 per hour (resulting in a $2.00 rate)  Year 3: An additional $1.00 per hour (resulting in a $3.00 rate)  Year 4: An additional $0.50 per hour (resulting in a $3.50 rate)  Year 5: An additional $0.50 per hour (resulting in a $4.00 rate)  The $4.00 rate continues after Year 5.

 We prepared illustrations for various investment return scenarios:

 In all scenarios, it was assumed that DC investment returns were 0.75% lower than investment returns in a variable benefit plan to reflect the advantage of professional investment management in the variable benefit plan.  The Repeat of Historical Return scenarios assume that the past 10 years of historical market value returns repeat indefinitely. These returns can be seen on page 9 of this presentation.

Iron Workers Local No. 25 Pension Plan February 26, 2018 51

• Participant Example 1: Late-Career Participant

 Assume:

 Age 50  Currently accrued the maximum monthly benefit of $3,600. Participant will receive this benefit from the current plan, in addition to the DC or variable benefit shown in these illustrations.  That is, the illustrations show the new Plan benefit only and do not include the $3,600 already earned.

 Assume this participant works 1,750 hours a year for 15 years until

• retiring age 65.

Iron Workers Local No. 25 Pension Plan February 26, 2018 54

• Late-Career Illustration: 5.0% Investment Returns
• Variable Plan Accrual Rate (% of Contributions) 2.00%

DC Balance at Retirement Age 65 $145,176 Age Monthly Retirement Income DC Plan Variable Plan 65 $ 805 $ 2,113 70 $ 805 $ 2,322 75 $ 805 $ 2,552 80 $ 805 $ 2,804 85 $ 805 $ 3,081

• Key Assumptions
• Current age: 50; retirement age: 65
• Contributions: $1.00 per hour in year 1; $2.00 in year 2; $3.00 in year 3; $3.50 in year 4;
• $4.00 thereafter
• Participant works 1,750 hours per year
• Variable plan hurdle rate: 5.0%
• Variable plan investment return: 7.0% per year, net of expenses
• DC plan investment return is 0.75% lower at 6.25% per year, net of expenses
• DC balance converted to an annuity using a 3.25% interest rate and the male
• RP-2017 mortality table with MP-2017 projection (participant’s current age as of 2018)

Iron Workers Local No. 25 Pension Plan February 26, 2018 55

• Late-Career Illustration: 5.0% Investment Returns
• Variable Plan Accrual Rate (% of Contributions) 2.00%

DC Balance at Retirement Age 65 $125,732 Age Monthly Retirement Income DC Plan Variable Plan 65 $ 697 $ 1,873 70 $ 697 $ 1,873 75 $ 697 $ 1,873 80 $ 697 $ 1,873 85 $ 697 $ 1,873

• Key Assumptions
• Current age: 50; retirement age: 65
• Contributions: $1.00 per hour in year 1; $2.00 in year 2; $3.00 in year 3; $3.50 in year 4;

$4.00 thereafter

• Participant works 1,750 hours per year
• Variable plan hurdle rate: 5.0%
• Variable plan investment return: 5.0% per year, net of expenses
• DC plan investment return is 0.75% lower at 4.25% per year, net of expenses
• DC balance converted to an annuity using a 3.25% interest rate and the male
• RP-2017 mortality table with MP-2017 projection (participant’s current age as of 2018)

Iron Workers Local No. 25 Pension Plan February 26, 2018 56

• Late-Career Illustration: Repeat of Historical Returns
• Variable Plan Accrual Rate (% of Contributions) 2.00%

DC Balance at Retirement Age 65 $121,281 Age Monthly Retirement Income DC Plan Variable Plan 65 $ 673 $ 1,807 70 $ 673 $ 2,175 75 $ 673 $ 1,820 80 $ 673 $ 2,191 85 $ 673 $ 1,833

• Key Assumptions
• Current age: 50; retirement age: 65
• Contributions: $1.00 per hour in year 1; $2.00 in year 2; $3.00 in year 3; $3.50 in year 4;
• $4.00 thereafter
• Participant works 1,750 hours per year
• Variable plan hurdle rate: 5.0%
• Variable plan investment return: Repeating 10-year historical returns for the current plan,
• averaging 5.07% per year, net of expenses
• DC plan investment return is 0.75% lower and averaging 4.32% per year, net of expenses
• DC balance converted to an annuity using a 3.25% interest rate and the male
• RP-2017 mortality table with MP-2017 projection (participant’s current age as of 2018)

Iron Workers Local No. 25 Pension Plan February 26, 2018 57

• Participant Example 2: New Participant
• Assume:
• Age 30
• No benefit earned yet.
• Assume this participant works 1,750 hours a year for 35 years until
• retiring at age 65.

Iron Workers Local No. 25 Pension Plan February 26, 2018 58

• New Participant Illustration: 5.0% Investment Returns
• Variable

DC Balance at Retirement Age 65 $760,854 Age Monthly Retirement Income DC Plan Variable Plan 65 $ 4,007 $ 6,451 70 $ 4,007 $ 7,089 75 $ 4,007 $ 7,791 80 $ 4,007 $ 8,561 85 $ 4,007 $ 9,408

• Key Assumptions
• Current age: 30; retirement age: 65
• Contributions: $1.00 per hour in year 1; $2.00 in year 2; $3.00 in year 3; $3.50 in year 4;

$4.00 thereafter

• Participant works 1,750 hours per year
• Variable plan hurdle rate: 5.0%
• Variable plan investment return: 7.0% per year, net of expenses
• DC plan investment return is 0.75% lower at 6.25% per year, net of expenses
• DC balance converted to an annuity using a 3.25% interest rate and the male
• RP-2017 mortality table with MP-2017 projection (participant’s current age as of 2018)

Iron Workers Local No. 25 Pension Plan February 26, 2018 59

• New Participant Illustration: 5.0% Investment Returns
• Variable

DC Balance at Retirement Age 65 $507,531 Age Monthly Retirement Income DC Plan Variable Plan 65 $ 2,673 $ 4,673 70 $ 2,673 $ 4,673 75 $ 2,673 $ 4,673 80 $ 2,673 $ 4,673 85 $ 2,673 $ 4,673

• Key Assumptions
• Current age: 30; retirement age: 65
• Contributions: $1.00 per hour in year 1; $2.00 in year 2; $3.00 in year 3; $3.50 in year 4;
• $4.00 thereafter
• Participant works 1,750 hours per year
• Variable plan hurdle rate: 5.0%
• Variable plan investment return: 5.0% per year, net of expenses
• DC plan investment return is 0.75% lower at 4.25% per year, net of expenses
• DC balance converted to an annuity using a 3.25% interest rate and the male
• RP-2017 mortality table with MP-2017 projection (participant’s current age as of 2018)

Iron Workers Local No. 25 Pension Plan February 26, 2018 60

• New Participant Illustration: Repeat of Historical Returns
• Variable Plan Accrual Rate (% of Contributions) 2.00%

DC Balance at Retirement Age 65 $488,748 Age Monthly Retirement Income DC Plan Variable Plan 65 $ 2,574 $ 4,490 70 $ 2,574 $ 5,406 75 $ 2,574 $ 4,522 80 $ 2,574 $ 5,444 85 $ 2,574 $ 4,554

• Key Assumptions
• Current age: 30; retirement age: 65
• Contributions: $1.00 per hour in year 1; $2.00 in year 2; $3.00 in year 3; $3.50 in year 4;
• $4.00 thereafter
• Participant works 1,750 hours per year
• Variable plan hurdle rate: 5.0%
• Variable plan investment return: Repeating 10-year historical returns for the current plan,

averaging 5.07% per year, net of expenses

• DC plan investment return is 0.75% lower and averaging 4.32% per year, net of expenses
• DC balance converted to an annuity using a 3.25% interest rate and the male
• RP-2017 mortality table with MP-2017 projection (participant’s current age as of 2018)

Iron Workers Local No. 25 Pension Plan February 26, 2018 61

Overview of the Benefit Funds

• Iron Workers Local 25 Pension Fund

– Bill Cumming, Richard Sawhill, Patrick Baker, James Buzzie

• Iron Workers Health Fund of Eastern Michigan

– Patrick Baker

• Iron Workers Training Fund of Eastern

Michigan

– Chris Vlk, Patrick Baker

Overview of the Benefit Funds

• Iron Workers Local 25 Pension Fund

– Bill Cumming, Richard Sawhill, Patrick Baker, James Buzzie

• Iron Workers Health Fund of Eastern Michigan

– Patrick Baker

• Iron Workers Training Fund of Eastern

Michigan

– Chris Vlk, Patrick Baker

50 100 150 200 250 300 350 Under 20 20 - 24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59 60 - 64 65 - 69

Iron Workers Local 25 Actives Age Distribution as of April 30th 2016

Average age at retirement is 58 Average age of active employees is 43.4

Actives Journeymen

The Vision Plan

• Overview of Industry Issues – Bill Cumming
• Components of the Vision Plan – Richard

Sawhill

• Status of the Vision Plan – Richard Sawhill

Future Direction

Patrick Baker, James Buzzie, John Wozniak, Tom Broad, Chris Vlk, Scott Fisher

• Continued willingness to talk about the Vision plan.
• Starting the planning process for alternative

approaches.

• Questions and Discussion