New York State Teamsters Conference Pension and Retirement Fund 1
Why Are We Here? • Pension Fund is running out of money • There are no other options • If we wait, the problem only gets worse • PBGC running out of money • Other funds have waited too long and now cannot be saved • If there is a pension bail- out, we’ll take advantage of it. But, we can’t just wait and hope. 2
25 Year Summary Increasing Reliance on Investment Returns Terminated Total Contributing Life Actives Retirees Vested Participants Employers Expectancy* Year 1990 23,883 10,150 3,920 37,953 490 72 1995 19,640 11,128 4,011 34,779 391 73 2000 16,827 14,198 3,866 34,891 308 74 2008 15,242 15,896 5,609 36,747 214 75 2016 11,575 15,976 6,908 34,459 184 76 Investment Return Needed Year Contributions Benefits Paid to Cover Difference 1990 $60,011,653 $46,804,437 0.00% 1995 $58,872,901 $81,527,130 2.32% 2000 $68,970,712 $128,067,986 2.88% 2008 $101,062,928 $236,814,862 5.96% 2015 $118,741,696 $280,144,634 13.48% 3
Changing Demographics Actives vs. Retirees & Terminated Vested 25,000 23,883 22,884 21,505 20,000 19,640 18,064 16,827 15,000 15,242 15,139 Actives 14,070 Retirees & 11,575 10,000 Terminated Vested 5,000 0 1990 1995 2000 2008 2016 Total Participants 37,953 34,779 34,891 36,747 34,595 Contributing Employers 490 391 308 214 184 Life 4 Expectancy* 72 73 74 75 76
Increasing Reliance on Investment Returns $300,000,000 $280,144,634 $250,000,000 $236,814,862 $200,000,000 $150,000,000 Contributions Benefits Paid $128,067,986 $118,741,696 $100,000,000 $101,062,928 $81,527,130 $65,970,712 $60,011,653 $50,000,000 $58,872,901 $46,804,437 $0 1990 1995 2000 2008 2016 Investment Return Needed to Cover Difference 0.00% 2.32% 2.88% 5.96% 13.48% 5
2016 Projection -0.74% investment return in 2015 followed by 8.50% in all future years Census data as of January 1, 2016 No changes to Plan provisions Color of Bar = PPA Status Height of Bar = Funded Percentage Blue Line = Credit Balance New York State Teamsters Conference Pension & Retirement Fund Funding Standard Account ($Million) = Left Axis Funded Percentage / PPA Zone = Right Axis FSA at 12/31 ($ Million) PPA Funded Percentage 500 100% 250 90% 0 80% (250) 70% Trust Fund Exhausted (500) 60% During 2026 (750) 50% FSA at 12/31 (1,000) 40% (1,250) 30% (1,500) 20% (1,750) 10% (2,000) 0% (1) Plan Year beginning 1/1 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 (2) Asset Return during Year 6.1% -0.7% 7.5% 6.8% 6.8% 6.8% 6.8% 6.8% 6.8% 6.8% 6.8% 6.8% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% (3) Active Population 11,896 11,678 11,576 10,399 10,245 10,098 9,957 9,821 9,690 9,561 9,441 9,324 9,212 9,102 9,000 8,897 8,799 8,703 8,610 8,522 8,437 8,355 8,274 8,198 8,122 8,050 7,980 7,911 7,845 7,782 7,717 7,655 7,595 7,537 7,480 6
The Pension Benefit Guaranty Corporation (“PBGC”) • The PBGC was established in 1974 so that workers are eligible for a PBGC insured benefit if their pension plan failed. It is a stand-alone entity and currently receives no money from the federal government. • In 2015, the PBGC’s Multiemployer Program had a projected deficit of $52.3 billion with projected insolvency within 10 years. • The calculation of the PBGC guarantee considers both the years of service that have been worked and rate of benefit accrual that the Fund has credited. The maximum benefit the PBGC will guarantee is $35.75 for each year of service that has been earned. For a participant with 30 years, the maximum PBGC guarantee generally is $1,072.50 per month, annually $12,870.00 • No protection for any participants. i.e. 80 years old and older, disability, 75- 79. All are subject to same reduction. 7
The Pension Benefit Guaranty Corporation (“PBGC”) (continues) • Congressional Budget Office report projects the Pension Benefit Guaranty Corporation’s multiemployer program to become bankrupt by 2025 under current law. • CBO said the PBGC would be unable to pay $3 billion of the total $9 billion worth of projected claims for financial aid filed with the Multiemployer Program from 2017 through 2026. • PBGC’s Multiemployer Program insures the benefits of approximately 10 million people that are covered by pension plans provided by groups of employers. • CBO projects PBGC to face a cash shortfall of $34 billion from 2017 through 2036 between the claims filed with the program and available resources to meet such insurance obligations. • According to the report, the Multiemployer Program’s total financial assistance claims would reach $101 billion on a fair value basis over the next 20 years. Edwards, Jane. August 3, 2016. CBO: Pension Benefit Guaranty Corp.’s Multiemployer Program Faces Insolvency 8 in 2025. Civilian Agencies .
Pension Preservation Plan (“PPP”) The Trustees approved the filing of an application for benefit reductions under the Multiemployer Pension Reform Act of 2014 (MPRA). The application will be filed with the U.S. Department of the Treasury in the coming week, and will contain the details of the PPP. The PPP calls for the following benefit reductions (subject to certain MPRA limitations described later in this presentation): • 20% reduction in monthly benefits for all Active Participants. • 31% reduction in monthly benefits for all retirees, beneficiaries, and terminated vested participants, and all other Non-Active Participants. If the Fund’s application is approved, the PPP benefit reductions will become effective on July 1, 2017. 9
Pension Preservation Plan (“PPP”) • Active Participants: • 500 hours of contributions in 2015, or 2016, or 2017 Plan Year before July 1, 2017 • Not retired as of July 1, 2017 • Non-Active Participants: • Retired; • Beneficiary; • Terminated Vested; and • All other Non-Active Participants 10
Equity • The law requires that suspensions be equitable across all Participant groups/statuses • The proposed suspension amounts are different for Active and Non- Active participants • The proposed suspension amounts are the same for orphan Participants • The following slides describe how the different suspension amounts are equitable across statuses • Benefit Comparison – Are the benefit amounts equitable across statuses after suspensions? • Liability Comparison – Are the liability reductions equitable across statuses? • Orphans – Why don’t orphan Participants have larger suspensions? 11
Equity – Benefit Comparison The following chart is an illustration showing that benefit amounts after suspension are equitable among Actives and Retirees Amounts are estimated based on a 30+ year career with the Plan’s largest employer Benefit at Service at Benefit at Proposed 2017 After Future Future Total Benefit After Status 2017 2017 Suspension Suspension Service Accruals Suspension Retired 30+ Years $5,000 31% $3,450 0 Years $0 $3,450 Active 20 Years $3,050 20% $2,440 10 Years $1,050 $3,490 Active 10 Years $1,300 20% $1,040 20 Years $2,200 $3,240 Active 0 Years $0 20% $0 30 Years $3,350 $3,350 Employer contribution rates have increased about 200% since the early 2000’s So, a person retiring in the future will receive approximately the same benefit as a current retiree but it will cost three times as much 12
Equity – Liability Comparison The approximate reduction in liability by status associated with the proposed suspensions is shown in the table below Status Suspension % Change in Liability Active 20% $135 million Retiree & Beneficiaries 31% $490 million The difference in liability as a result of the proposed suspension is about $355 million more for retirees and beneficiaries when compared to Actives This difference is equitable because of the reductions that were already made to active Participants as part of the Rehabilitation Plan This is described in more detail on the following slides 13
Equity – Liability Comparison The Trustees implemented the Rehabilitation Plan in 2011 At that time, future accruals and early retirement subsidies were reduced for Active Participants only By law, there were no reductions for retirees and beneficiaries The reduction in liability associated with the Rehabilitation Plan is shown below Reduction in Liability as of 2011 Rehab Plan Change Early Retirement Subsidies $190 million Reduction in Future Accruals $20 million per year Note that because of the Rehabilitation Plan, Active Participants have or will have lost $20 million in benefits each year starting in 2011 With interest, this amounts to over $160 million So, the combination of the Rehabilitation Plan and the proposed suspensions reduce Active liability by approximately $485 million This is approximately equal to the reduction in liability for retirees and beneficiaries as a result of the proposed benefit suspension 14
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