December 5, 2007: This is the second part of our series on the impact of the Pension Protection Act (PPA), which takes effect on January 1, 2008. In our first part, we covered the new funding rules (including “Red Zone” and “Yellow Zone” rules). Click here for the first article.
In this section we take up a few frequently asked questions. If you have a question that is not covered here, contact TDU at (313) 842-2600 or info [at] tdu.org.
Q. We are being told that the Central States Fund is only about 50 percent funded. But a representative of the Fund reported at our recent union meeting that it is 63 percent funded. What gives?
A separate law passed prior to the PPA requires every multi-employer fund to temporarily (for two years, 2007-2008) change the way it estimates its earning on its investments. A pension fund, in making plans and calculating its funding, uses a basic assumption about how much it will make each year on average on its investments. Most assume about seven to eight percent return per year. The law requires that for 2007-2008 every fund use the PBGC figure of about four percent.
So, while Central States is presently about 63 percent funded, it will have to temporarily report an “official” figure which is lower. Some pension funds are sending a letter to all participants giving both figures and explaining the difference. By 2009 that law phases out, and every pension fund will again report the higher and more accurate figure.
Q. TDU strongly opposed the PPA. Is there anything positive in this law?
Yes, there are positive aspects to it. One of them, which we successfully lobbied for, is more availability of information to members and retirees. As TDU’s pension attorney Ann Curry Thompson says about this provision “forewarned is forearmed, and the PPA will give participants more advance information.”
The PPA requires that participants have a right to obtain any periodic actuarial report; any quarterly, semiannual, or annual financial report prepared by the plan, or by an investment manager, advisor, or fiduciary; any application to the Secretary of the Treasury; and certain other information. Most plans have denied this info to members in the past.
The Department of Labor is presently drawing up regulations to implement these disclosure laws. The Pension Rights Center has submitted comments on proposed regulations, aiming to get real information available to members and retirees.
Because the law is so new, it will take a while to sort out how this works. TDU will work to make sure Teamster members get information they are entitled to.
Q. I’m concerned that my pension will be cut right after January 1. Should I retire now to escape possible cuts?
A. While there are lots of complications to this issue, the basic answer in almost all cases is No. First of all, we believe that almost no Teamster pension funds will be in the so-called “Red Zone.” Funds in the Red Zone may possibly implement cuts in already-earned pension credits (but not for those already retired, TDU fought for and won that protection).
Second, there should be lots of advance notice for members. No fund goes into the Red or Yellow Zone on January 1. There is a long timeline in the law, with reports due in April, and a determination of where the fund stands by the beginning of 2008, and a plan in place by December 2009, two years from now. See our previous issue for more on this timeline.