Under the "Hybrid" model, the Pension Fund sets up two departments: the traditional pension model and the new one with no employer liability.
To switch to the department with no future withdrawal liability, a company has to pay off all its current withdrawal liability, either in a lump sum or on a payment plan.
For example, over 10,000 UPS Teamsters in New England were switched into the new plan in September 2012. UPS had to pay off its withdrawal liability. But the Fund allowed them to stretch their payments out over 50 years.
The move saved UPS money, because as part of the deal the company's contribution rate was reduced to $6.20 per hour and will be frozen at that rate for 10 years. If UPS had stayed in the old pension plan, its contributions would be about $11.56 per hour presently.
The switch could affect future accruals and benefits, because under this new "hybrid" plan, each year the fund will evaluate the withdrawal liability and adjust pension accruals to keep the employer's withdrawal liability at zero.
The New England Pension Fund now has 70% of all employer contributions going to the new hybrid fund. The withdrawal liability payments from UPS and other employers go to the old fund, to help pay members’ pensions.
What does the new model mean for members' pensions?
Under the Hybrid plan, members' pension accruals and benefits can go up or down each year.
That's because every year, the new "hybrid" plan evaluates withdrawal liability and adjusts members' pension accrual to keep the withdrawal liability at zero. If stock market returns are high and pension fund assets are growing, members' accrual will go up.
As part of the New England deal, UPS Teamsters were guaranteed that there would be no cuts (or increases) in their pension accrual rate for ten years. The present accrual is $248 per month for each extra year of service, so UPS Teamsters can retire with good pensions.
Pay Attention to Your Pension
The Hybrid plan model is gaining momentum. Members need to understand it and keep their eyes open. The Central States Pension Fund has also adopted this model.
Some pension trustees say this new model is win-win-win, for the employers, the members, and the fund itself.
That remains to be seen. In the short term, the new model should help stabilize underfunded Teamster plans.
Over the long term, zeroing out withdrawal liability every year will tend to keep pension benefit levels from increasing, unless the union bargains increased employer contributions.
The Hybrid Plan may help convince some employers who want to eliminate withdrawal liability from trying to break out of Teamster plans, but it won't change the fact that corporations will always prefer cheap 401(k)s to good union pensions.
TDU will continue to help Teamsters understand and watchdog their pensions.