November 20, 2012: 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. 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 millions, because as part of the deal the company's contribution rate was reduced from $8.50 an hour to $6.20 per hour and will be frozen at that rate for 10 years.
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.
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.
But if pension fund assets are dropping, because of a stock slowdown, then members' accrual will go down.
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.
Pay Attention to Your Pension
The Hybrid plan model is gaining momentum. Members need to understand it and keep their eyes open.
Central States Fund representatives 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 may help stabilize underfunded Teamster plans. Over the long term, zeroing out withdrawal liability every year will tend to keep pension benefit levels from increasing.
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 defined benefit union pensions.
The devil is in the details. Members need to take a close look before approving major changes in something as important as their retirement.
TDU will continue to help Teamsters understand and watchdog their pensions. Support the movement for strong and secure benefits by joining TDU today.