Understanding the Pension Preservation Plan July 22, 2018 Agenda - - PowerPoint PPT Presentation

Understanding the Pension Preservation Plan

July 22, 2018 Local 807 Labor-Management Pension Fund

1 Local 807 Labor-Management Pension Fund

• Overview
• How We Got Here
• Multiemployer Pension Reform Act of 2014 (MPRA)
• Our Proposed Pension Preservation Plan
• Do the Math: Some Examples
• What Happens Next

Agenda

2 Local 807 Labor-Management Pension Fund

• The Local 807 Pension Fund is facing very serious

troubles because it is critically underfunded

• If we do not take action, the Pension Fund will

become insolvent and run out of money in 10 years

• r less
• At that point, our Fund will have zero assets and will not

be able to pay benefits to current and future retirees

• While the Trustees have taken many steps to address

this issue, the situation now requires a Pension Preservation Plan

Overview

3

How We Got Here

What Caused the Pension Fund’s Problems and How the Trustees Have Tried to Fix the Fund

4 Local 807 Labor-Management Pension Fund

Pension Funding “101”

4

Fund Liabilities

• Benefits earned by active participants

and terminated vested participants— for payment in the future

• Benefits currently being paid to

retirees and beneficiaries

Fund Assets

• Used to pay benefits—now and

in the future

• Funded by employer contributions and

investment earnings

5 Local 807 Labor-Management Pension Fund

Where Our Pension Fund Stands Today

$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000

Benefits Paid Out and Administrative Expenses Cost About $20M More Than the Contributions Coming Into the Fund Each Year

Contributions Benefits Expenses 2012 2013 2014 2015 2016 2017 5

6 Local 807 Labor-Management Pension Fund

20 Contributing Employers went out of business or left the Fund for

• ther reasons since 2011:

How We Got Here: Loss of Contributing Employers

• ABC Supply
• AC Trucking
• Alside Aluminum
• Apex Xpress
• Brothers Roofing
• Dry Ice
• Farmer Brothers
• Goltens
• Independent Chemical
• Lindenmeyr Munroe
• Maio Trucking
• Nabisco/Kraft/Mondelez

(all but one facility)

• National Tinsmith
• Prest O Sales
• RJR Mechanical
• Stanley Supply
• Superior Printing
• VJ Marrian
• Williams & Wells
• Williams Specialized

7 Local 807 Labor-Management Pension Fund $395,860,285 $279,369,082 $257,543,842 $180,110,059 $146,959,183

$100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 $350,000,000 $400,000,000 $450,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Market Value of Assets

How We Got Here: Stock Market Crashes

Funding levels dropped almost 30% between 2000 and 2002 and then another 34% after the 2008 crash; in 2016 our funding percentage fell to 46.7% and we were certified as a Red Zone plan in Critical and Declining Status.

In 2008, despite years of negative returns, the Fund was still 87.1% funded In 2010, the Fund’s funded percentage fell to 64.9% and we were certified as in the Red Zone

8 Local 807 Labor-Management Pension Fund

600 1,100 1,600 2,100 2,600 3,100 3,600 4,100 4,600 5,100 5,600

1991 1996 2001 2006 2011 2016

Retirees Outnumber Actives By Over 5 to 1

How We Got Here: A Major Decrease In Active Participants

1991: 2 retirees for every active participant 2017: 5.42 retirees for every active participant

Actives Retirees

(retirees, terminated vested participants and beneficiaries)

The effect of losing income and members was compounded by the impact of the stock market crashes on our investments.

9 Local 807 Labor-Management Pension Fund

How We Got Here: Changes That Hurt Our Pension Fund

1,360 692

Active Members Dropped

2,470,005 1,328,491

Hours Worked Dropped Contributing Employers Dropped

87% 43%

Funding Percentage Dropped

2008 2017

Down 20%

2000 2017 2000 2017

10 Local 807 Labor-Management Pension Fund

How We Got Here: Short-Sighted Government Regulations

1970s 1980s 1990s 2000s

These short-sighted regulations left us unable to cope with severe economic downturns.

1990s-2000: Our Pension Fund was more than 100% funded, and we were forced to increase benefits rather than maintain a “rainy day fund” 1980: Multiemployer Pension Plan Amendments Act passes, requiring plans to turn surpluses into benefit increases 1974: ERISA passes, establishes anti-cutback rule

11 Local 807 Labor-Management Pension Fund

• The Trustees have taken the actions needed to keep the Pension

Fund on course based on historical factors and legal regulations

• 2000-2012: Annual contribution rate increases
• 2010: Accrual calculation and plan design changes
• 2012 Rehabilitation Plan:

– Increased contribution rates – Eliminated certain subsidized benefits, including service and disability pensions

Attempts To Fix The Pension Fund

Despite these steps to try to fix this problem, the funding shortage has become worse.

12 Local 807 Labor-Management Pension Fund

• Insolvency means that the Pension Fund does not have enough

money to pay benefits—$0 assets

• Our Pension Fund is projected to be insolvent by 2028
• We used to be sufficiently funded to sustain the ratio of actives to retirees and be

able to pay out benefits to current and future retirees

• Now, we are not sufficiently funded and our ratio is worse

What Does Insolvency Mean?

12

Drop in active members, hours, contributions and investments Insolvent Fund Cost of providing retiree benefits

Without changes, the Pension Fund will no longer be able to support benefits for current and future retirees.

13

The Multiemployer Pension Reform Act of 2014 (MPRA)

14 Local 807 Labor-Management Pension Fund

What is the Multiemployer Pension Reform Act of 2014?

Under MPRA provisions, there can be no benefit changes for retirees 80 years of age and older or those participants receiving a disability benefit from a multiemployer plan Any proposed benefit suspensions for retirees ages 75 – 80 would be done on a sliding scale to minimize impact MPRA allows trustees of severely underfunded multiemployer pension funds to develop benefit suspension plans that include benefit suspensions for both active workers and retirees, in order to save the funds and continue paying benefits for years to come In December 2014, the Multiemployer Pension Reform Act of 2014 (MPRA) was enacted and signed into law

15 Local 807 Labor-Management Pension Fund

• The Pension Fund has been certified as in “critical and declining”

status with the Department of Labor so it qualifies to use MPRA

• As a result, we are eligible to apply for benefit suspensions under

MPRA—and we submitted our application for MPRA benefit suspensions at the end of June

• This is the only way we can keep our Pension Fund from becoming

insolvent—so that you won’t have larger cuts in the foreseeable future

• This Pension Preservation Plan is designed to stabilize the Pension

Fund’s finances and allow it to continue to pay benefits

• This allows the Pension Fund to preserve the greatest benefit

amount to all participants

Why A MPRA Benefit Suspension?

16 Local 807 Labor-Management Pension Fund

• We have worked very hard to create suspensions that are equitably

distributed between all of the groups of participants and beneficiaries in the Pension Fund

• Because of the way MPRA works, the percentage by which benefits will be

suspended will differ based the participant’s age at the time that the suspensions go into effect

• A MPRA benefit suspension plan (our Pension Preservation Plan) includes

benefit suspensions not just to future payments for actives, but also to future pension payments for participants who already receive benefits

• Benefit suspensions cannot be more than what is needed to avoid

insolvency

• The proposed benefit suspension cannot take benefits for any participant

below 110% of the PBGC’s guaranteed benefit

• All participants were mailed an individualized notice that explains their

benefit suspension

• All participants vote on the Pension Preservation Plan

How Do MPRA Benefit Suspensions Work?

17 Local 807 Labor-Management Pension Fund

• The Pension Benefit Guaranty Corporation’s (PBGC’s)

multiemployer program protects over 10 million workers and retirees in about 1,400 pension plans

• Without MPRA benefit suspensions, our Pension Fund would

become insolvent and go to the PBGC

• If that happens, all participants would face much larger cuts,

regardless of age, active or retired status, or disability

• If our Pension Fund goes to the PBGC, it is essentially dead and

cannot be changed

• And the PBGC is expected to become insolvent in 2025—so even

these reduced benefits might disappear and our participants will be left with almost nothing

What About The PBGC?

18 Local 807 Labor-Management Pension Fund

• The PBGC uses a set formula to determine a participant’s monthly

benefit

• The PBGC maximum monthly benefit is limited to $35.75 times your

years of credited service

• If you have 20 years of credited service, your PBGC maximum

monthly benefit would be $715.00.

What Is The PBGC’s Guaranteed Benefit?

18

100% paid on the first $11 in benefit accrual rate 75% paid on the next $33 in benefit accrual rate Your years of credited service

+

x

19

Our Proposed Pension Preservation Plan

20 Local 807 Labor-Management Pension Fund

• Active Members or Any Member Not Yet Receiving Benefits

(including Terminated Vested Participants)

• You’re facing an accrued benefit suspension of up to 39.5%
• Retired Members Under Age 75 When the Suspensions Go Into Effect
• You’re facing an accrued benefit suspension of up to 39.5%
• Retired Members Age 75 to 80 When the Suspensions Go Into Effect
• Your benefit suspension will be decreased on a sliding scale, with suspensions smaller for

those closer to 80

• Retired Members Age 80 and Above When the Suspensions Go Into

Effect

• Your benefits will NOT be suspended
• Disabled Pensioners
• Your benefits will NOT be suspended

How Will Pensions Be Suspended?

21 Local 807 Labor-Management Pension Fund

How Are Benefit Suspensions Distributed?

1,991 660 313 217 1,311 500 1,000 1,500 2,000 2,500

No Suspension Less than 10% 10% to 20% 20% to 30% 30% to 39.5%

Benefit Suspension Percentage Distribution

• Over 44% of

participants will not have a benefit suspension at all and almost 60% will have a benefit suspension that is 10% or less

• About 34% of

participants will have a benefit suspension of 20%

• r more

22 Local 807 Labor-Management Pension Fund

What’s At Stake?

$1,495 $949 $977 $1,320 $483 $354 $503 $822

$9 $9 $9 $9

$941 $621 $740 $1,320 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600

Active Participants Terminated Vested Participants Participants Collecting Pensions Under 80 Participants Collecting Pensions Over 80

Benefit Level

MPRA Benefit Suspensions Are Better Than PBGC Pension Cuts

Accrued Benefit PBGC Guarantee PBGC Insolvency Pension Preservation Plan

If the PBGC runs out of money, your benefits will be reduced to almost NOTHING.

23

What Happens Next

24 Local 807 Labor-Management Pension Fund

Benefit Suspension Process

If the Pension Preservation Plan DOES NOT PASS: The Fund will go insolvent by 2028 To avoid this, the Treasury Department can override the vote and impose a MPRA benefit suspension plan that could include larger suspensions than those proposed under our Pension Preservation Plan If the Treasury Department Rejects the Pension Preservation Plan: The Fund will go insolvent by 2028 Application submitted to Treasury Department (June 29, 2018) Distributed Individualized Notices (July 5, 2018) Treasury Department Reviews and Approves the Plan Up to 225 days after June 29, 2018 (or by February 9, 2019) Participants and beneficiaries have 21 days to vote Vote to start within 30 days after the Treasury Department approves the Pension Preservation Plan If the Pension Preservation Plan PASSES: Pensions benefit suspensions allow the Fund to preserve the greatest benefit amount to all and stay viable Pension Preservation Plan takes effect May 1, 2019 (depending on the date that the Treasury Department approves the Pension Preservation Plan)

25 Local 807 Labor-Management Pension Fund

MPRA Benefit Application Statistics

Applications (as of July 19, 2018) Number Plans That Have Submitted Applications 19 Approved Applications (Note: Only one application has been approved on the first attempt so far) 5 Applications Denied or Withdrawn and then Resubmitted (Note: One application was withdrawn two times and then resubmitted) 7 Applications Denied, Not Yet Resubmitted 4 Applications Withdrawn, Not Yet Resubmitted 2 Applications Under Review (Note: Includes five that have been resubmitted after being denied or withdrawn) 8

The MPRA application process is not easy and the majority have not been successful.

26 Local 807 Labor-Management Pension Fund

• The vote takes place within 30 days of the Pension Preservation

Plan’s approval by Treasury, and the voting period runs for 21 days

• The Treasury Department has sole responsibility for the voting

process, which will be conducted by a third-party administrator that they select

• Voting will be conducted online
• If participants vote to support the Pension Preservation Plan, it will

go into effect around May 1, 2019

• If participants do not vote to support the Pension Preservation Plan,

it does not mean that the Pension Fund can simply continue the way it is today

• Without the suspensions, the Pension Fund will become insolvent

and participants will face far greater reductions

The Vote

27 Local 807 Labor-Management Pension Fund

• The Board of Trustees, in consultation with the Pension Fund’s Actuary,

has determined that the Pension Fund will become insolvent around 2028

• r sooner if the proposed Pension Preservation Plan is not implemented

in 2019

• When the Pension Fund becomes insolvent, the PBGC will step in and

provide the Pension Fund with financial assistance to continue paying a portion of your monthly retirement benefit

• When that happens, the PBGC will make cuts that apply to ALL

participants; disabled participants and participants over age 75 will also be cut to the PBGC-guaranteed level

• The PBGC has projected that it may run out of funds within 7 years; if this

happens, participants and beneficiaries in pay status would be at risk of receiving benefits that would be dramatically lower than the maximum PBGC guaranteed amount

• Your benefits could be reduced to almost nothing

What Will Happen If The Proposed Pension Preservation Plan Is Rejected?

The Trustees can refile the MPRA Pension Preservation Plan, but this will result in deeper cuts.

28 Local 807 Labor-Management Pension Fund

We want to share as much information with you as we can in as many ways as possible.

Resources Available

Meetings Mail Website Call Center Video

29 Local 807 Labor-Management Pension Fund

• This is not a case of mismanagement. A combination of external

factors caused this situation—stock market crashes, employers leaving the Fund and a related drop in active participants

• The Trustees have taken the actions we needed to keep the

Pension Fund on course based on historical factors and legal regulations

• While we are not happy at having to suspend benefits, our

Pension Preservation Plan is far better than the alternative— running out of money by 2028 and having to rely on a shaky PBGC for an even lesser benefit—or possibly nothing at all if the PBGC runs out of money

• We urge you to vote for the Pension Preservation Plan. If it fails,

the Pension Fund faces insolvency and then all participants will face much larger cuts

Conclusion

30 Local 807 Labor-Management Pension Fund

Questions?

?

If you have questions or want more information after today’s meeting:

• Call the Pension Preservation Plan Call Center:

833-593-3023

• Visit our Pension Preservation Plan Website:

http://www.807pensionpreservation.org/