1. My local union increased its contribution rate to the Plumbers & Pipefitters National Pension Fund in 2004. I do not have the 1500 hours at this new rate, as of the end of 2004. Will I be able to have my pre-2005 pension credit accrue a benefit at this new contribution rate?
Yes, if you eventually have at least 1500 hours at this rate, including at least one hour prior to 2006. You can get the remainder of these hours in 2005 or after (if needed). If you do not have a total of 1500 hours at the highest rate (which was in effect in your local union for this work as of the end of 2004), you have as long as you need to get the additional hours at this rate as long as you do not first retire or have five consecutive calendar years without having at least 150 hours of work in covered employment in any one of those years.
2. If I need some hours in 2005, or later, to go towards the 1500 hours at my highest contribution rate in my home local union for my pre-2005 pension credit, when do I start earning an additional benefit for 2005?
In your situation, hours worked at your highest rate in 2005 count towards two objectives.
First, they count towards the 1500 hours you need to be eligible for the highest contribution rate negotiated for this work in your home local union, as long as you have at least one hour at that rate prior to 2006.
Second, all hours worked in 2005, including the hours going towards the 1500 hours at the highest rate to be applied to the pre-2005 pension credit, will earn a benefit for you under "Schedule B" for 2005, the benefit schedule for 2005 noted in the letter sent to you in December 2004.
However, any increase in that contribution rate during 2005 will not apply to the benefit for 2005, which will be based on the contribution rate in effect in your home local on December 31, 2004. But, any such increase will be applied toward the 25% increase necessary to have your benefit for hours worked in 2006 be based on the increased schedule of benefits for 2006 and after.
3. Does my local union have to increase its contribution rate on January 1, 2006 in order to get the higher benefit schedule "C" for 2006?
No, the 25% contribution rate increase does not have to be made exactly on January 1, 2006. However, if the 25% contribution rate increase is effective after January 1, 2006, then only pension credit earned after the effective date of the 25% increase will earn a benefit under Schedule C (the benefit schedule effective January 1, 2006 for members of local unions, which have negotiated the contribution rate increase on or before January 1, 2006). Any hours worked in 2006 prior to the 25% contribution increase being effective in your home local union will earn a benefit under Schedule B, which was effective January 1, 2005.
The Trustees encourage local unions to negotiate the 25% increase as early as possible. However, any such increase that takes place prior to January 1, 2006 will not result in higher benefits for hours worked before this date
4. I am retired from the trade and have been receiving a monthly benefit for the past two years. How will these plan changes affect me?
They will not affect your current pension. There will be no reduction in any pension now being paid as a result of these plan changes.
If you should return to work in covered employment, you will accrue additional pension credit at the lower benefit schedules adopted for 2005 and later. Individuals receiving a benefit should generally not return to work in the industry. There are significant penalties associated with such a return to work. Please review the plan rules before returning to work. If you have any questions, contact the fund office.
5. I am the beneficiary of a retired participant who is receiving the spousal portion of my husband's benefit. How will these changes affect me?
They will not affect your current pension. There will be no reduction in any pension now being paid as a result of these plan changes.
6. I currently have 35 pension credits and am planning on working in covered employment for two more years. How will these plan changes affect me?
Generally, they will not affect you. Your pension will be based upon your highest 35 years of pension credit, which you almost definitely have at present. Your next two years of pension credit, if worth less than any prior years of pension credit, will not be used in calculating your pension benefit.
7. I am currently 60 years old. I have worked in my home local union for my whole career under the building trades journeyman classification, which currently has a $3.00 per hour contribution rate. I have 33 pension credits as of December 31, 2004, which provides $2,854.17 per month. I was hoping to retire on January 1, 2007 with 35 pension credits, which I anticipated would provide $3,027.15 per month. How will these plan changes affect me?
You will receive a slightly lower overall benefit than you had been anticipating since your last two years of pension credit will be worth less than anticipated.
The monthly benefit you have accrued through December 31, 2004, $2854.17, will remain the same. If you work in your home local union and accrue two more pension credits in 2005 and 2006, your additional monthly benefit will depend upon when, and if, your home local union increases its contribution rate by 25%.
If there is no 25% increase made before you retire, your monthly benefit for a year of credit earned during 2005 and 2006 will be $43.24 ($21.62 each for 2005 and 2006). When added to your monthly benefit accrued through December 31, 2004 ($2,854.17), your pension effective January 1, 2007 would be $2,897.41, which is 95.7% of what you anticipated.
If the 25% increase (from $3.00 to $3.75) is made effective January 1, 2006, your monthly benefit for the year of credit earned during 2006 will be $43.24. When added to your monthly benefit accrued through December 31, 2004 ($2,854.17), and your monthly benefit accrued in 2005 ($21.62), your pension effective January 1, 2007 would be $2,919.03, which is 96.4% of what you anticipated.
If the 25% increase (from $3.00 to $3.75) is made effective sometime during 2006, the benefit increase will go into effect on the day the $3.75 rate goes into effect. Thus your monthly benefit for the year of credit earned during 2006 will vary depending upon how many hours of credit are accrued at the increased rate. When added to your monthly benefit accrued through December 31, 2004 ($2,854.17), and your monthly benefit accrued in 2005 ($21.62), your pension effective January 1, 2007 would be somewhere between $2,897.41 and $2,919.03, which is between 95.7% and 96.4% of what you anticipated.
8. Why was the Reduced Pension eliminated and the definition of Normal Pension changed? What effect will it have on my benefit?
There is no real effect on anyone's benefit regarding this change. The new definition of a Normal Pension allows for the Benefit Schedule to be stated on a per pension credit basis instead of the maximum number of pension credits, which is how it was previously stated.
A Normal Pension had been defined according to what the full, or maximum, pension is under the plan based upon the maximum amount of pension credit upon which a benefit was payable. A Reduced Pension had been defined as a pension benefit for a participant with pension credit between the minimum amount of pension credit needed for a monthly benefit but less than that needed for a Normal Pension.
The new definition of a Normal Pension encompasses both what was a Normal and Reduced Pension since it now covers pensions for individuals, with five to thirty-five pension credits, who are old enough not to have their benefit reduced by age. The same early retirement reduction factors are still in force for participants who retire between age 55 and less than age 62 with an Early Retirement Pension.
9. What is the Funding Standard Account?
The Employment Retirement Income Security Act (ERISA), the main federal law that governs pensions, requires that defined benefit pension plans maintain a funding standard account. Each year, the funding standard account is charged with amounts that must be paid to satisfy minimum funding standards and is credited with contributions made, any decrease in plan liabilities, and experience gains (including investments). The credit balance in the Funding Standard Account is the cumulative difference between what has actually been contributed and the minimum amount that was required by ERISA. An accumulated funding deficiency occurs if the total charges to the funding standard account exceed the credits to it, or put another way, if the credit balance goes negative.
10. What exactly will the participating employers have to pay if the Funding Standard Account shortfall is not met?
The Internal Revenue Code imposes an annual excise tax of 5% of the amount of the accumulated funding deficiency of a multiemployer plan in addition to having the employers pay a proportionate share of the shortfall. Since the National Pension Fund maintains a collectively bargained plan, the liability for this excise tax is allocated among all of the employers in a reasonable manner. If the IRS formally notifies the employers of the existence of an accumulated funding deficiency and the deficiency is not timely corrected, an additional 100% penalty may be imposed.
11. Why should employers, or the local unions, not just pull out of the National Pension Fund or reduce the contribution rate?
The National Pension Fund had a long run of increasing benefits for active and retired members over the previous 25 years. The benefit schedule was increased numerous times and there were increases given to pensioners and beneficiaries in pay status. The Fund was able to ride out all of the minor economic downturns during these 25 years without negative effects on benefit accruals or contribution rates. Unfortunately, the recent downturn in the investment markets was more severe, and at a level that has not been seen since the early 1970's. Because of changes in the law, the options available to the Fund this time are more limited than they were in the 1970's. This is a problem that is being faced by many pension funds throughout the country.
The National Pension Fund needs the local unions, the employers, and the participants to assist the Trustees now by doing their share to help "right the ship." This will put the Fund back on sound financial ground for the future. The Trustees are committed to resolving the funding problems and moving the Fund forward. With the help of the local unions, the employers, and the participants, the Fund will survive and even thrive.
In the meantime, if an employer withdraws from the Fund and remains in business in the industry or returns to the industry within five years of the withdrawal, the employer will be assessed withdrawal liability. This would happen to all of the employers in a local union group if the employer and the union decide to not continue participation in the Fund. Also, if a group pulls out of the National Pension Fund, past service credit for the group might be reduced or eliminated to preserve the Fund actuarially.
Past service credit will not be reduced and withdrawal liability will not be owed if the employers remain with the Fund and contribution rates are not decreased.
If a local union decreases its contribution rate, most of the negative ramifications noted above will take effect. In addition, the members of that local union will not be eligible for future benefit increases made by the trustees and they will be subject to even lower current benefit accruals, dependent upon the results of an actuarial study performed at the time of a rate reduction.
Withdrawing from the National Pension Fund or reducing the contribution rate to the Fund will only make the situation worse for participants, employers and the Fund as a whole.
12. Did the Plan's design contribute to the development of the funding problems?
The design of the Plan has allowed local unions to obtain an automatic increase in benefits with all increases in contribution rates. Each time a group increases its contribution rate, the benefit levels for all years of service with that group generally increase for all active employees who get 1,500 hours at the increased contribution rate. More and more local unions have been putting in larger contribution rate increases into the Fund more regularly during the past five to ten years. These automatic increases in benefits have increased the liabilities of the Plan.
The Trustees have decided to discontinue this particular feature of the Plan's design. Instead, benefits for a future period of time will be valued at the contribution rate earned during that time. This change is effective January 1, 2005
13. Why aren't the Trustees reducing or eliminating Past Service Credit for new groups?
This has been discussed by the Trustees. The current rules place major limitations on Past Service Credit for new groups, and its complete elimination for new groups would not have a significant impact. The Trustees will continue to monitor the use of Past Service Credit.
14. This news sounds very bad. Is the Fund going to survive?
The challenges facing the Fund are great. However, with everyone's cooperation and good long-term investment returns, the Fund will be able to solve these problems. But it will not be easy, and it will take time.
The immediate challenge over at least the next few years will be the Funding Standard Account. Over the long term, the Fund needs to get back to a point where the assets of the Fund are at least greater than the vested benefits. It is also the intent of the Trustees to ultimately restore the reduced benefit levels to the 2004 benefit level.
15. My local union has negotiated the 25% contribution rate increase (above the December 31, 2004 contribution rate) effective January 1, 2006. Does this mean that all of my work in 2006 will accrue a benefit under Schedule C and all my work in 2007 will accrue a benefit under Schedule D?
Generally, this is correct. However, there are some circumstances in which your work outside the jurisdiction of your home collective bargaining agreement may not result in a benefit under these Schedules. For example, if you work in another local union in 2006 in employment covered by the National Pension Fund but the applicable collective bargaining agreement does not have the 25% increase in contributions, then your benefit for that work will be calculated under Schedule B.
If however, you perform work in another local union or under another bargaining agreement that is not covered by the National Pension Fund, but pension contributions are sent to the National Pension Fund via a reciprocal agreement, those contributions retained by the National Pension Fund will accrue a benefit under Schedule C during 2006 (and Schedule D in 2007 and later).
16. What Schedule of benefits will travelers into my local union earn in 2006 and 2007 since my local's collective bargaining agreement has the 25% increase in the contribution rate effective January 1, 2006?
National Pension Fund participants from other local unions will earn benefits under Schedule C during 2006 (and Schedule D in 2007 and later) while working as a traveler in your jurisdiction. This will be true even if work in the traveler's home local union is covered by Benefit Schedule B.
17. My local union has not increased its contribution rate by 25%. However, I usually work as a traveler in another local union and they increased their contribution rate(s) to the National Pension Fund by 25% effective January 1, 2006. Will I receive Schedule C for my work in the other local union in 2006 (and Schedule D for work in my sister local union in 2007)?
Yes. Your benefit will be earned under the Schedule applicable to the away from home local union, which is Schedule C, in this situation. When you work in your home local union, however, your benefit will be earned under Schedule B.