The Board of Trustees of the New York State Teamsters Conference Pension and Retirement Fund (“Fund”) has developed the Pension Preservation Plan (PPP) to save the Fund. This document is only a summary of the PPP, and is being provided to all Fund participants in order to provide as much information as soon as possible.
The PPP requires the Trustees to reduce participants’ pension benefits to prevent the Fund from running out of money and becoming insolvent. This is a difficult, but necessary action. If the Fund becomes insolvent, there is a good chance that participants will not receive their pensions. By proactively adopting the PPP, the Trustees can still save participants’ pensions. Without the PPP, the Fund’s financial condition is projected to deteriorate to where it is beyond repair. Also, by acting now, the required benefit reductions are much less than what they would be if the Trustees waited to take action.
Other pension funds are in worse shape. For some funds, it’s too late, and they cannot be saved. Others will have to cut benefits to the maximum amount allowed under the law. By adopting the PPP now, our Fund can still be saved, and it can be saved without reducing pension benefits by the maximum amount.
This document also summarizes an additional and important change to the Fund’s post-retirement employment rules. The Trustees have modified the Fund’s restrictions on re-employment after retirement, effective September 1, 2016, to permit a retiree to return to certain types of work, which would otherwise be considered prohibited employment, up to 1,000 hours per year without having his or her pension suspended.
Additional information regarding the PPP, including individualized benefit statements were mailed at the end of August. These individual benefit statements included the estimate of your monthly benefit after the reduction under the PPP. There are other ways you can get more information about the PPP described later in this summary.
OVERVIEW OF THE PPP
On August 31, 2016, the Trustees filed an application for benefit reductions under the Multiemployer Pension Reform Act of 2014 (MPRA) with the U.S. Department of the Treasury. The application contains the details of the PPP. The PPP calls for the following benefit reductions (subject to certain limitations described below):
- 20% reduction in monthly benefits for all Active Participants.
- 31% reduction in monthly benefits for all Retirees, Beneficiaries, Terminated Vested Participants, and all other Non-Active Participants.
If the Fund’s application is approved, these PPP benefit reductions will become effective on July 1, 2017.
Under the PPP, an Active Participant is any participant who (1) has not retired and entered pay status as of July 1, 2017 and (2) had at least 500 hours of employer contributions submitted to the Plan on his behalf in the 2015 Plan Year, in the 2016 Plan Year, or in the 2017 Plan Year prior to July 1, 2017.
The amount of the proposed reduction for Active Participants is 20% of the participant’s accrued monthly benefit as of July 1, 2017. For example, an Active Participant who has earned a $3,500 monthly benefit as of July 1, 2017 will have this amount reduced by 20%, to equal a final post-reduction benefit of $2,800 ($3,500 x 0.80). The formula is below:
A. Projected Pre-Reduction Monthly benefit: $3,500
B. Reduction Percentage: 20%
C. Amount of Reduction (A x B): $700
D. Final Post-Reduction Benefit (A – C): $2,800
Active Participants will continue to earn additional monthly benefits by continuing to work after July 1, 2017, based on the applicable Rehabilitation Plan Schedule.
Under the PPP, all Retirees, Beneficiaries, Terminated Vested Participants, and any other Non-Active Participants are considered Non-Active Participants.
The amount of the proposed reduction for all Non-Active Participants is 31% of the participant’s monthly benefit amount. For example, a Retiree receiving a $2,000 monthly benefit will have his/her benefit reduced to $1,380 ($2,000 x 0.69). The formula is below:
A. Projected Pre-Reduction Monthly benefit: $2,000
B. Reduction Percentage: 31%
C. Amount of Reduction (A x B): $620
D. Final Post-Reduction Benefit (A – C): $1,380
MPRA’s MINIMUM BENEFIT PROTECTIONS
There are specific benefit protections under MPRA that limit the amount of reductions the PPP can impose.
1. Maximum Allowable Benefit Reductions
Under MPRA, a participant’s pension cannot be reduced below a legally-established amount. Specifically, no participant can have his or her benefit reduced below 110% of the amount that the PBGC would guarantee if the Fund were to become insolvent. This means that a Retiree, for example, could not have his benefits reduced by 31% if that reduction results in a monthly benefit below 110% of the PBGC guarantee.
The calculation of the PBGC guarantee is complicated, as it considers both the years of service that have been worked and rate of benefit accrual that the Fund has credited. The maximum monthly benefit the PBGC will guarantee is $35.75 for each year of service that has been earned. For participant with 30 years of service, the maximum PBGC guarantee generally is $1,072.50 per month. 110% of this amount is $1,179.75. The PBGC formula generally does not guarantee all benefits that have been earned. For example, in order for a participant with 30 years to receive the maximum monthly PBGC benefit of $1,072.50, the benefit payable from the Fund would have to be higher than that amount. Also, it means that participants with benefits from the Fund that are below the PBGC maximum guarantee would generally receive less than their full benefits under the PBGC guarantee formula.
2. Age Protections
MPRA also limits the amount of reductions the PPP can impose on participants 75 and older, as follows:
Age 80 and Over: Participants age 80 or older as of July 31, 2017 (the last day of the month in which the PPP goes into effect) will receive no benefit reductions.
Age 75-79: Participants who are at least 75 but less than 80 as of July 31, 2017 will have their benefits reduced, but the reductions will be limited depending on their age on July 31, 2017. The reductions will be determined on a sliding scale based on age and the amount of the participant’s preliminary (non-age adjusted) benefit reduction in accordance with the following formula:
The number of months until the participant reaches age 80, divided by 60 months,multiplied by preliminary PPP benefit reduction, which will equal the final, age-adjusted benefit reduction.
For example, a participant who is age 77 years and 6 months on July 31, 2017 would have two years and 6 months (30 months) until the age of 80. As a result, this participant’s proposed pension benefit reduction would be limited to 50 percent (30 months/60 months) of what the reduction would otherwise be without the age protection. The reduction without the age protection would be 31% so the reduction with the age protection would be 15.5% (31% x 50%).
NOTE: The benefit reductions are based on the participant’s age as of July 31, 2017. Once the benefit reductions take effect, they will remain in place for the duration of the PPP and will not change as the participant ages.
3. Disability Protections
Under MPRA, participants who are currently receiving a disability benefit from the Fund are protected and will not be reduced. Additionally, if a participant receiving a disability benefit from the Fund converts to a retirement benefit under the Fund, the participant’s benefit cannot be reduced below the amount of the disability benefit received prior to the conversion.
MPRA does not apply this same protection to Social Security disability benefits. A participant receiving a disability benefit from the Social Security Administration will be subject to benefit reductions under the PPP unless the participant is also receiving a disability benefit from Fund. Fund rules do not permit participants to switch from a retirement benefit to a disability benefit.
Under the PPP, spousal/survivor benefits are also subject to benefit reductions. The amount of the reduction depends on whether the participant is living on July 31, 2017 (last day of the month in which the PPP takes effect). If the participant is alive on July 31, 2017, the reduction is based on the participant’s age as of July 31, 2017. If the participant is deceased, the reduction will be based on the surviving spouse’s age as of July 31, 2017.
Different Reductions for Active and Non-Active Participants
MPRA requires the PPP’s proposed reductions to be equally and fairly distributed among groups of participants. MPRA required the Trustees to consider a number of factors as they developed the proposed benefit reductions. After thorough consideration of the factors, the Fund’s PPP proposes a different reduction in benefits for the two different groups: Active Participants and all Non-Active Participants.
Although it may not seem fair to treat these two groups differently, it is important to understand the Trustees’ reasons for doing so. First, the Fund will not survive – regardless of the PPP – unless it is able to keep Active Participants and their employer contributions in the Fund. This means keeping employers and bargaining unit groups from leaving the Fund, which has been happening at an alarming rate over the last decade as contribution rates have steadily increased, and the Fund has had to cut benefit accruals and early retirement subsidies for Actives. The Trustees fear, and history has demonstrated, that cutting the benefits for Actives further will result in more employers and bargaining groups leaving the Fund. Further losses of Active Participants will destroy the Fund.
Second, the Active Participant population has already incurred several benefit reductions since 2004. Prior to the passage of MPRA, federal law prohibited the reduction or modification of retiree benefits. This meant all pension cuts required to address any funding issues fell exclusively upon the Active Participants. In 2004, the Fund reduced the accrual rate from 2.6% to 1.3% for Active Participants. Then, under the Rehabilitation Plan effective January 1, 2011, the Trustees reduced the accrual rates to a range of 1.0% to 0.25%, depending on the applicable Rehabilitation Plan Schedule and eliminated most adjustable benefits.
The Trustees believe these prior cuts must be reflected in the decision concerning the proposed PPP reductions. For this reason, the Trustees decided against reducing Active Participants’ benefits as much as others.
POST-RETIREMENT EMPLOYMENT RULE CHANGES
Recognizing the hardship these benefit reductions will likely have on many Retirees, the Trustees have modified the Post-Retirement Employment Rules to make it easier to return to work without the penalty of a pension suspension. The change is effective September 1, 2016, and is intended to provide those Retirees wishing to find work the opportunity to do so immediately. This change in the Post-Retirement Employment Rules will be automatically repealed in the event the PPP does not go into effect.
Application Submitted to Treasury
The Trustees submitted the Fund’s application and explanation of the PPP to Treasury on August 31, 2016. Treasury acknowledged its acceptance of the application on September 2, 2016. The application includes detailed information about the status of the Fund and the specific efforts the Trustees have taken over time to try to avoid insolvency. The application also includes detailed and technical actuarial information demonstrating that the proposed reductions meet MPRA’s requirements. Specifically, MPRA requires that the benefit reductions be deep enough to keep the Fund solvent, but also not larger than needed to avoid the impending insolvency. The Trustees must also show that the proposed reductions are distributed equally and fairly amongst participant groups.
PPP Reduction Effective Date
If Treasury approves the application and the PPP satisfies MPRA’s other legal requirements, including a participant vote (described below), the Fund can implement the benefit reductions on July 1, 2017.
Notices and Benefit Statements
The Fund previously mailed notices of the PPP and proposed benefit reductions to all contributing employers, unions representing participants, and every participant and beneficiary. These notices contained individualized benefit statements explaining how the proposed benefit reduction under the PPP will work and potentially affect benefits.
Treasury Application Review
Treasury has 225 days from the date it accepted the application (September 2, 2016) to review it. Treasury will make the application available on its website for public review and comment during the first week of October 2016. There will be opportunities for comment by all interested parties.
Vote on Proposed Benefit Reduction
If Treasury approves the PPP, then participants and beneficiaries will be given the opportunity to vote on the proposed reductions within 30 days after approval. Generally, unless a majority of all participants and beneficiaries vote to reject the PPP, it will go into effect on July 1, 2017.
However, if Treasury determines that the Fund is a “systemically important” plan (a plan with a present value of projected PBGC financial assistance payments that exceeds $1 billion), Treasury can approve the Fund’s proposed reductions, or a modified version of the proposed reductions, regardless of whether the participants vote to reject the PPP.
As required under MPRA, the Fund’s Trustees selected an independent retiree representative to advocate on behalf of retirees, beneficiaries and deferred vested participants during this process. In February, the Trustees appointed Tom Baum as the Retiree Representative. Mr. Baum is a retiree from Teamsters Local Union No. 294 in Albany. He worked for United Parcel Service (“UPS”) and Local 294 for over 35 years before he retired in 1999. He has always been an advocate for his fellow members and retirees. Mr. Baum, who is not paid for his role as the retiree representative, has been participating in an advisory role during the Trustees’ development of the PPP.
Under MPRA, the Retiree Representative has the right to hire independent legal counsel and actuaries. Mr. Baum has done so, and his law firm and actuarial firm have provided him with independent advice and assistance. In this capacity they have attended numerous meetings, provided suggestions on the actuarial information being used and have been fully engaged throughout the process.
Mr. Baum established a website to share his communications to retirees and additional information about the Fund’s PPP. Retirees may visit Mr. Baum’s website at http://nystfundretireerep.com. Retirees who want to share comments or concerns with Mr. Baum can email him at: email@example.com.
- Please be assured that we will continue to keep our participants updated on this website at http://www.nystpensionfund.org and/or by US mail.
- To submit a question, please visit the above website.
- For further information and assistance you can also write to the Treasury Department at the following address: Department of the Treasury Attn: MPRA Office, Room 1001 1500 Pennsylvania Avenue, NW Washington, DC 20220.