PENSIONS

Protecting Participant InterestsPENSIONSProtecting Participant Interests:Pension Basics (very basic)Defined Benefit (DB) Plans Funds normally contributed exclusively by the employer in private plans; the employer/plan sponsor/trustees are responsible for financial health of the plan. Paid according to formula such as: Final Average Pay x Years of Service x 1.5. Payment must be offered in the form of an life annuity Risk of investment lies with the employer/plan sponsor/trustees.PBGC insurance coverage.

Protecting Participant Interests:Pension Basics (very basic)Defined Contribution (DC)PlansFunds generally held in individual accounts though there is some variation on this theme.Contributions may come from the employee, employer, or both. The contribution formula may vary.Risk of investment; responsibility for account monitoring and investment choices generally lie with the participant/employee, with some variation on this theme. No PBGC insurance coverage.Retirement benefit is the account balance at retirement; the plan may or may not offer the benefit in annuity form. Protecting Participant Interests:Pension Basics (very basic)Hybrid PlansSome publicly funded plans self identify as hybrid, may have DC and DB component, or may involve an employee contribution formula.Cash Balance Plans; have hypothetical individual accounts; but a cash balance plan is actually a DB plan with an annual pay and interest credit formula.Risk of investment of plan assets lies with the employer/plan sponsor/trustees. PBGC Insured.

Protecting Participant Interest: Pension Basics (very basic)Qualified private pension plans are subject to the Employee Retirement Security Act of 1974 (ERISA), the Retirement Equity Act of 1984 (REA), and the Internal Revenue Code (IRC) 3MIBMPublicly funded government plans are not subject to ERISA, generally, though terms often mirror ERISA. Individual plan provisions are determined by a governing body through the legislative process. Some IRC provisions apply.Minnesota Public Employees Retirement Association (PERA)Central Intelligence Agency Retirement and Disability System (CIARDS) Protecting Participant Interest: Pension Basics (very basic)Form of benefit (DB plan)Must offer an annuityUnmarried participant must have choice of straight life annuity; the plan may offer other options such as co-pension annuity which may be used to provide survivor benefits to domestic partners or othersMarried participant must be offered a 50% or 75% Qualified Joint and Survivor Annuity (QJSA). 50% QJSA can only be waived by a signed, notarized spousal waiver, or a waiver signature witnessed by a plan officialPlan may offer lump sum but is not required to do so

Protecting Participant Interests:Pension Basics (very basic)The form of benefit is determined by marital status at the time the participant retires and enters pay status, regardless of previous marital history or later marital developments, with some exceptions only when plan terms allow themThe annuity may be divided according to provisions of a Qualified Domestic Relations Order (QDRO) for private plans and Domestic Relations Order (DRO ) for most public plans

Protecting Participant Interests: Collecting a PensionFundamental Issue: vestingVesting requirements must be met or there is no existent interest in the pensionOnce vested, breaks in service cannot take away a right to an accrued pension, and ERISA anti-forfeiture provisions (for private plans) or locally legislated anti-forfeiture provisions (for public plans) applyProtecting Participant Interests: VestingVesting requirements have been amended over the years, becoming more liberal. Some pre-ERISA plans didnt allow vesting until retirement at age 65 or after the employee reached a combination of age and years of serviceIf you left service at 64 you were out of luckProtecting Participant Interests: VestingVesting often an issue for trade union employees who follow the work, particularly in the pastbut fortunatelyUnions have now become internationals or have reciprocity between locals of the same trade or of similar tradesFive year vesting decreases likelihood of a permanent break in servicePermanent breaks still occur even in continual employmentBreak in service rules can be harsh and the plan has the right to enforce themReciprocity often only covers floor level vesting and not subsidized benefitsProtecting Participant Interests: VestingAll private plans are now required to vest participants in five years for DB plans, three years for DC plans unless using a graded vesting schedule, and three years for cash balance plansPlans vary on the age at which service for vesting commences; must now count all years after age 21 (originally age 23)Often a matter of reconstructing work history through detailed social security earnings report, union withdrawal cards, tax records, former co-workersProtecting Participant Interests: Anti-forfeiture ViolationsERISA provides that vested, accrued benefits cannot be reduced or eliminated and future benefits cannot be reduced or eliminated without proper notice given to participantsPlan provisions in affect at retirement, along with those in affect after the point of vesting, are those that determine the participants benefitPost-vesting amendments can be result in pro-rated early retirement subsidy Post-retirement amendments generally cannot negatively affect a retiree (PBGC non-standard termination is an exception to the rule, as well as QDRO)Protecting Participant Interests: Anti-forfeiture ViolationsMergers and Acquisitions is phenomenon that results in varying treatment of the company pension plans; plan sponsors must tread carefullyPlan amendments may need to be closely examined for anti-forfeiture violations; IBM is an example of considerable litigation in their conversion to a cash balance system (additional issues: discrimination on account of age and notice) Protecting Participant Interests: Surviving and Former Spouse BenefitsThis is an area where many things can go wrong due to many reasonsParticipant and spouse may not understand pension application or terms of alternate forms of benefit and make an unintentionally detrimental choiceRecent legislation has corrected some aspects of disclosure relating to this issueParticipant may be dishonest regarding pension applicationParticipant may have passed away pre-REA and under age required by the plan for pre-retirement death benefitQDRO may not be qualified by private plan, or never filed with the military DFAS for instance, or SBP never notified of survivorship

Fiduciary Breach, Damages and Equitable RemediesPlan trustees have a fiduciary duty to follow the terms of the plan as written in the Plan Document and Therefore remedies may be difficult to come by when make-whole relief would require varianceERISA provides cause of action to enforce the terms of the plan, or equitable remedies in cases of a breach of fiduciary responsibility by a plan fiduciaryERISA does not offer damages as it does not offer contractual (i.e.legal) remedies if not the terms of the plan

Fiduciary Breach, Damages and Equitable RemediesThis, along with the issue of individual equitable relief vs. relief to the plan as a whole, is a currently a hot button issue, beginning with ENRON and so-called stock-drop and 401(k) fee litigation.This is also an issue in claims relief at the administrative level for detrimental reliance and /or overpayments situations with DB plans

Protecting Participant InterestsFrom ERISA (29 USC) Title I Protection of Employee Benefit Rights-101(1021): Duty of Disclosure203(1053): Minimum Vesting Standards204(g-h)(1054) [No]Decrease of Accrued Benefit Through Plan Amendment; and Notice Provisions502(1132): Civil Enforcement503(1133): Claims ProcedureUniformed Services Former Spouse Protection Act 10 USC 1408.Bedtime Reading Policy IssuesAnything from the Center for Retirement Research at Boston College - an extensive research resource http://crr.bc.edu/index.phpTheresa GhilarducciThe End of Retirement http://www.monthlyreview.org/0506ghilarducci.htmWhen Im Sixty-Four http://press.princeton.edu/titles/8608.html

More Bedtime ReadingConversation on Coverage, www.conversationoncoverage.org.Congressional Research Service Pension Sponsorship and Participation, Summary of Recent Trends, http://assets.opencrs.com/rpts/RL30122_20080908.pdfOlder Workers, Employment and Retirement Trends http://assets.opencrs.com/rpts/RL30629_20080915.pdf

Other ResourcesPension Rights Center, www.pensionrights.orgPension Help America www.pensionhelp.org or .netUpper Midwest Pension Rights Project, http://mnseniors.org/content/category/2/17/64/Employee Benefits Security Administration (DOL), http://www.dol.gov/ebsa/Pension Benefit Guaranty Corporation, www.pbgc.orgFree ERISA Form 5500s Filings and EIN finder, www.freeerisa.com