December
10, 2007
IMPORTANT
NOTICE REGARDING CHANGES IN THE
BENEFITS PROGRAM FOR FUTURE EMPLOYMENT
TO:
ALL ACTIVE PARTICIPANTS & ALTERNATE PAYEES OF THE FUND
ALL
PARTICIPATING LOCAL UNIONS & DISTRICT COUNCILS
Greetings:
We
are writing to notify you that certain changes are being made in the Pension
Fund's benefit program, effective January 1, 2008, so that the Fund will
remain financially sound for the future.
These changes may result in a participant earning lower benefits for
covered employment on and after January 1, 2008 than for earlier covered
employment.
These
changes will not reduce or otherwise affect any benefits earned for
employment before January 1, 2008.
These changes will not affect the benefits of any pensioner who is
currently receiving benefits.
First
Change: Benefit Schedule Reductions
The
benefit schedule determines the monthly benefit after retirement earned by a
participant for a year of Pension Credit (credit earned by hours of covered
employment). The benefit amount
depends on the rate(s) at which employers made contributions to the Pension
Fund for the participant during the year.
The higher the contribution rate for a participant, the higher the
benefit he earns. At
retirement, the benefits earned for each year of Pension Credit are added to
determine the eligible participant=s
regular pension amount. Pension
benefits are paid monthly for the rest of the retiree's
lifetime and thereafter for the lifetime of his surviving spouse, if surviving
spouse protection applies.
The
first change is to introduce a new benefit schedule applicable for covered
employment after December 31, 2007. This
new benefit schedule applies only to participants for whom employer
contributions are required, and does not apply to the self-contribution
program.
Generally,
the new benefit schedule reduces the benefit provided for each rate of
employer contributions to the Pension Fund starting January 1, 2008.
In other words, the same contribution rate in 2008 will produce a lower
benefit than it did in 2007. If
the contribution rate for 2008 is increased and is higher than the
contribution rate for 2007, some or all of the reduction in the benefit level
can be avoided. Of course, the rate at which any employer contributes
to the Pension Fund for its employees is set by the collective bargaining
agreement between the employer and the Union.
For
an individual participant, this means that if the rate of contributions made
to the Fund for him in 2008 is the
same as the contribution rate for 2007, the benefit he will earn for 2008 will
be lower than the benefit he earned for 2007, assuming he earned a full year
of Pension Credit in each year. If,
however, the 2008 contribution rate is higher than the 2007 contribution rate,
he will earn a higher benefit for 2008 than he would have earned if the
contribution rate stayed the same as in 2007.
If the contribution rate for him is increased enough for 2008, he could
even earn a benefit at the same level as in 2007.
Second
Change: Year-By-Year Benefit Accruals
Generally,
the benefit level used to calculate an eligible participant=s
pension benefit upon retirement is the benefit level that corresponds to the
highest contribution rate at which the participant earned at least one Pension
Credit. This rule has allowed a
group to increase the value of all previously earned Pension Credits, as well
as future Pension Credits, by negotiating with their employer to increase its
contribution rate. An exception
applied if the contribution rate for the group was reduced and later
increased.
This
rule will be discontinued for 2008 and subsequent years. Starting January 1, 2008, the benefit earned by an active
participant will be determined on a year-by-year basis.
The benefit earned for a calendar year will be the benefit level that
corresponds under the amended benefit schedule to the average rate of employer
contributions made for the participant during that year.
If a participant works more than 1800 hours in covered employment in a
calendar year, his average contribution rate in that year will be based on the
highest contribution rate in effect for 1800 hours.
If the contribution rate for a participant changes during a calendar
year, the contribution rates are averaged based on the number of hours at each
rate.
Upon
retirement, the benefit earned for each year of Pension Credit for 2008 and
subsequent years will be added together to determine the participant=s
pension benefit. If the
participant also earned Pension Credits for years prior to 2008, the total
benefit for all of those years will be determined under the rules then in
effect and will be added to the participant=s
benefit for 2008 and subsequent years.
This
change applies to the self-contribution program participants, as well as to
the participants in the regular employer contribution program.
Third
Change: Later Retirement Age For New Participants
Individuals
for whom the Pension Fund first receives contributions on or after January 1,
2008 will have to wait longer to retire on a full pension than current
participants. This will not
affect individuals who are already participants in the Pension Fund as of
December 31, 2007. It will apply
to a new employee hired into a group that is already participating in the
Fund, as well as to a new group joining the Fund on or after January 1, 2008.
This change also applies to participants in the self-contribution
program.
The
required age for a full Regular Pension for new participants will be age 65.
The earliest age at which a new participant could retire on an Early
Retirement Pension will be age 55. If
a new participant retires before age 65, his or her benefit amount will be
reduced by 6% for each year that he or she is younger than age 65 (to account
for the longer period for which benefits will be paid).
For
current participants, the required age for a full Regular Pension will remain
age 62, and the reduction for Early Retirement between age 55 and 62 remains
at 3% for each year that he or she is younger than age 62 at retirement.
Examples
Of Effects Of The Changes
Example
1:
Participant
X has been working at least 1800 hours in covered employment every year since
January 1, 2000, and his employers have been contributing to the Pension Fund
at the rate of 50 cents per hour for him for all of those years. As of December 31, 2007, he has earned 8 years of Pension
Credit. His earned pension
benefit for just those years of Pension Credit is $176.00 per month at normal
retirement age (8 multiplied by $22.00 ).
This benefit is vested and is not affected by the change in the benefit
schedule on January 1, 2008.
Participant
X continues to work in covered employment in 2008 and earns another year of
Pension Credit. The hourly
contribution rate is still 50 cents. He
will earn an additional vested pension benefit of $11.00 per month for this
additional year of Pension Credit under the new benefit schedule. Under the old benefit schedule, he would have earned a $22.00
per month benefit for this additional year.
The additional $11.00 will be added to the $176.00 per month he earned
for his 2000-2007 Pension Credits so that his total earned benefit for
2000-2008 would be $187.00 at normal retirement age. He would receive additional benefits for Pension Credits he
earns in years after 2008 under the new benefit schedule.
Example
2:
Instead
of the 50 cents per hour contribution rate, Participant X's employer(s) during 2008
contribute to the Fund $1.00 per hour for him. He will earn an additional pension benefit of $22.00
per month for this additional year of Pension Credit under the new benefit
schedule. That is, he will
receive the same benefit under the new schedule that he received for 2007
under the old schedule because the contribution rate for 2008 is higher than
in 2007. Under the old benefit
schedule, he would have earned an additional $40.15 for the $1.00 contribution
rate.
Example
3:
Participant
X continues to work in covered employment and to earn a full year of Pension
Credit in 2009, 2010 and 2011. Contributions
are made for him at the 50 cents rate for 2009 and 2010. But, as of January 1, 2011, the Participant=s
employer increases the contribution rate to $1.00. The monthly benefit he has earned through the end of
2011 would be calculated as follows: $176.00 (2000-2007 earned benefit) +
$11.00 (2008 earned benefit) + $11.00 (2009 earned benefit) + $11.00 (2010
earned benefit) + $22.00 (2011 earned benefit) = $231 per month for life
commencing at normal retirement age. Under
the rules in effect prior to January 1, 2008, an increase in the contribution
rate from 50 cents to $1.00 would have increased the benefit level for all
previously earned years of Pension Credits.
Under the new rules, the increased contribution rate does not affect
any previously earned benefits.
Reasons
For The Changes
These changes are necessary to maintain the financial soundness of the Pension
Fund and ensure that the Fund will be able to meet all of its benefit promises
for decades to come
Since
1967, the Pension Fund has paid more than $500 million in pension benefits to
participants and their beneficiaries. The
Fund currently pays more than $50 million per year in benefits.
More than 59,000 employees, former employees, retirees, and family
members depend on the Fund for retirement income.
The
Pension Fund meets and exceeds all of the funding requirements of applicable
federal law, the Employee Retirement Income Security Act (ERISA) and the
Internal Revenue Code (Code). The
Board of Trustees set policies long ago to ensure that the Fund would be
funded at a faster rate than required by law to provide benefit security for
the participants. The Fund=s
investment program is prudently diversified and productive.
However,
certain developments have caused the current benefit levels to fall out of
balance with the rates of contributions received by the Pension Fund.
The number of active employees covered by the Fund has more than
doubled since the mid-1990s. In addition, using a longstanding rule of the Pension Fund,
many participating groups were able to increase their benefit levels for
previously earned Pension Credits by negotiating a contribution rate increase
with their employers. These two
developments substantially increased
the Fund's benefit liabilities.
The Board was able to effectively manage these liabilities while the
investment program continued to perform well and produce investment gains to cover the
liabilities. But, during 2000-2002, the Nation's
investment markets produced three consecutive negative years for the first
time since the 1930's. The
Pension Fund, like all investors, suffered investment losses during those
years.
The effects of those losses are still being felt despite good
investment performance over
the past few years.
In
August 2006, Congress enacted the The
Pension Protection Act
that, effective January 1, 2008,
imposes additional pension funding requirements.
That new federal law would compel the
Board to take action to re-balance benefit levels if the Board had not already
acted voluntarily.
