Instead, adds Ken Boyd, President of UFCW Local 1546 in the Chicago area, pension plan trustees will have to educate their members about risks some local plans face. And providing funds to cover those risks might involve tradeoffs between higher paychecks, health care benefits and pension plan funding, he noted.
Boyd spoke to Press Associates a week after Peter Orszag, director of the non-partisan Congressional Budget Office, told lawmakers that assets of pension plans – public and private, traditional and 401(k) – declined by an estimated $2 trillion in the last year, half of that since June. The $1 trillion loss between the second quarter of 2007 and the second quarter of 2008 was about 10 percent of pension plan assets, Orszag said.
Most of the losses were in 401(k)s, Orszag said, which account for four-fifths of all pension money nationwide. But traditional "defined benefit" pensions had lost 15 percent of their value on paper, including the recent market crash, he added.
Boyd said the amount of losses in an individual union\'s pension plans negotiated with employers depends on both its investment pattern and sufficient contributions. Those may have to increase to offset losses from stock market turmoil, he added.
"If a plan is 60 percent funded and has a credit balance issue within the next seven years" – meaning whether it would be able to pay all its obligations to retirees over that period – "it\'s in the ‘red zone,\'" defined by federal law and needs more cash, Boyd said.
Boyd, who also sits on the board of UFCW\'s national pension plan that covers 80,000 meatcutters and allied workers in 39 states at the Royal Ahold (Giant and Stop ‘N Shop), Safeway, Kroger and A&P grocery chains, explained that details of pension law could force even some well-funded pension plans to raise more money.
That\'s because the 2006 Pension Protection Act, which provides new funding from healthy traditional "defined benefit" pension plans for the federal Pension Benefit Guaranty Corp. – which takes over insolvent plans – also set two criteria for whether a pension plan is in trouble or not. One is whether it has enough assets to pay 90 percent or more of its estimated payments, and the other is whether it can cover its obligations seven years down the road. Even healthy plans now – those with assets covering at least 90 percent of present payments – may not meet the seven-year requirement.
Taking the national meatcutters\' plan as an example, Boyd noted it has more than 100 percent of the assets it needs to cover present payments. But since figures are recomputed quarterly, its trustees do not know right now whether it would meet the seven-year rule. He believes it will, because after a slump in asset values in 2000, plan trustees opted to shift millions of dollars of its assets from the stock market to lower-risk investments, such as Treasury bonds. Not all pension plans can do that, however.
Such problems under the mechanics of the pension law mean trustees must sit down with members, explain the rules, and potential problems, and ask them what to do to get their pension fund up to meet the requirements, contract by contract, Boyd added.
"Say in a normal pension plan, the payout is $10 million a year and the company contributes $8 million, investments have to come up with the rest. When investments are down by 10 percent," the company may be able to send in only $7 million "and that means you have to come up with more money to fund the rest," he said.
Mark Gruenberg writes for Press Associates, Inc., news service. Used by permission.
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Instead, adds Ken Boyd, President of UFCW Local 1546 in the Chicago area, pension plan trustees will have to educate their members about risks some local plans face. And providing funds to cover those risks might involve tradeoffs between higher paychecks, health care benefits and pension plan funding, he noted.
Boyd spoke to Press Associates a week after Peter Orszag, director of the non-partisan Congressional Budget Office, told lawmakers that assets of pension plans – public and private, traditional and 401(k) – declined by an estimated $2 trillion in the last year, half of that since June. The $1 trillion loss between the second quarter of 2007 and the second quarter of 2008 was about 10 percent of pension plan assets, Orszag said.
Most of the losses were in 401(k)s, Orszag said, which account for four-fifths of all pension money nationwide. But traditional "defined benefit" pensions had lost 15 percent of their value on paper, including the recent market crash, he added.
Boyd said the amount of losses in an individual union\’s pension plans negotiated with employers depends on both its investment pattern and sufficient contributions. Those may have to increase to offset losses from stock market turmoil, he added.
"If a plan is 60 percent funded and has a credit balance issue within the next seven years" – meaning whether it would be able to pay all its obligations to retirees over that period – "it\’s in the ‘red zone,\’" defined by federal law and needs more cash, Boyd said.
Boyd, who also sits on the board of UFCW\’s national pension plan that covers 80,000 meatcutters and allied workers in 39 states at the Royal Ahold (Giant and Stop ‘N Shop), Safeway, Kroger and A&P grocery chains, explained that details of pension law could force even some well-funded pension plans to raise more money.
That\’s because the 2006 Pension Protection Act, which provides new funding from healthy traditional "defined benefit" pension plans for the federal Pension Benefit Guaranty Corp. – which takes over insolvent plans – also set two criteria for whether a pension plan is in trouble or not. One is whether it has enough assets to pay 90 percent or more of its estimated payments, and the other is whether it can cover its obligations seven years down the road. Even healthy plans now – those with assets covering at least 90 percent of present payments – may not meet the seven-year requirement.
Taking the national meatcutters\’ plan as an example, Boyd noted it has more than 100 percent of the assets it needs to cover present payments. But since figures are recomputed quarterly, its trustees do not know right now whether it would meet the seven-year rule. He believes it will, because after a slump in asset values in 2000, plan trustees opted to shift millions of dollars of its assets from the stock market to lower-risk investments, such as Treasury bonds. Not all pension plans can do that, however.
Such problems under the mechanics of the pension law mean trustees must sit down with members, explain the rules, and potential problems, and ask them what to do to get their pension fund up to meet the requirements, contract by contract, Boyd added.
"Say in a normal pension plan, the payout is $10 million a year and the company contributes $8 million, investments have to come up with the rest. When investments are down by 10 percent," the company may be able to send in only $7 million "and that means you have to come up with more money to fund the rest," he said.
Mark Gruenberg writes for Press Associates, Inc., news service. Used by permission.