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INTERNATIONAL PAINTERS AND ALLIED TRADES
INDUSTRY PENSION FUND

FREQUENTLY ASKED QUESTIONS

1. What happened that forced the Board of Trustees to take action?

2. What is the current status of the Pension Fund?

3. Was the problem solely the result of the investment markets?

4. Are the benefits that I have accumulated in the Pension Fund secure?

5. Instead of taking action now, why not simply wait for the stock market to go higher and cure the problem?
 
6. What is the Funding Improvement Plan?

7. My collective bargaining agreements are being renegotiated this year or next year – what happens if I increase our contributions by 35% earlier than January 1, 2012?

8. Is there any hope that things will improve and the goals of this Plan can be achieved in less than 13 years?

9. What is the track record of our Pension Fund in achieving better than anticipated investment returns on our investment portfolio?

10. Once the objectives of the Funding Improvement Plan are achieved, can our benefits be improved?

11. How are we doing compared to other pension funds of similar size and design in our industry?

12. How does this situation affect my pension?

13. If we are a comparatively healthy fund, why are we taking the steps of adopting  a Funding Improvement Plan?

14. Under the Funding Improvement Plan, my contributions will go up by 35% as of January 1, 2012 and I will not receive any additional benefit for this extra money.  Why should I be willing to pay more when my benefit will not increase?

15. What happens to the extra money from the 35% supplemental contribution when the Funding Improvement Plan is no longer needed to save the Pension Fund?

1. What happened that forced the Board of Trustees to take action? [Back To Top]

The short answer is:  the economy, the bond market and the stock market.  All of our members, as well as every union leader and all of our signatory contractors are aware of what has happened to our economy and the economies of the industrialized countries in the world during the past year.  Since January 1, 2008, the key measurements in the stock market have fallen more than 40%.  In the fixed income market, the issuance of debt and commercial paper and the ability to get funding from banks have virtually ceased. These declines have been accompanied by deterioration in almost all other investment classes that are available for investment of pension fund assets, including investments in real estate, infrastructure and private equity.

As a result of this poor investment climate, the investment portfolios of virtually every pension fund, endowment fund, charitable trust and other large investment portfolios have declined significantly.  Simply stated, there was no place to hide in this investment climate and, as a result, the IUPAT Industry Pension Fund suffered losses in its portfolio.

2. What is the current status of the Pension Fund? [Back To Top]

As of January 1, 2008, the Pension Fund was considered to be in “GREEN” status under the provisions in the Pension Protection Act of 2006 (PPA).  This meant that the Fund was 82.9% funded and was in the highest status in which pension funds are categorized under the Pension Protection Act.  As a result of the stock market decline in 2008, our Pension Fund suffered losses in its investment portfolio of 23.6% (approximately $800 million).  This compares to a decline in the S & P 500 Index during 2008 of more than 37%.  Thus, although the Pension Fund’s portfolio performed much better than the stock market generally, these investment losses need to be considered and taken into account as a basis for future action by the Board of Trustees.  As of December 31, 2008, the Pension Fund had assets of $2.478 billion dollars.

Because of the investment losses during 2008, the Pension Fund moved from a “GREEN” status under the PPA to a “YELLOW” status.  The funded percentage of our Pension Fund, as a result of the losses sustained in the investment portfolio, is now 72.1%, compared with 82.9% one year earlier.  The movement of the funded percentage below 80% is what has caused the change in the Pension Fund status under provisions in the Pension Protection Act.

3. Was the problem solely the result of the investment markets? [Back To Top]

Yes.  The Fund employs a number of professional investment managers to assist the Board of Trustees in wisely investing the Fund assets.  The Pension Fund assets are well diversified, spread among various classes of investments; including stocks, bonds, real estate, international equities, infrastructure, private equity and other recommended investment vehicles.  Unfortunately, during 2008 and continuing into the first quarter of 2009, virtually every class of investments suitable and appropriate for our Pension Fund declined. 

4. Are the benefits that I have accumulated in the Pension Fund secure?

Yes.  Promised benefits to active members, retirees and their beneficiaries are secure.  No participant’s benefit that has been accumulated to date will be reduced.

However, as a result of the declines in the investment portfolio that have occurred and because of the near term economic outlook, the Board of Trustees has been required to take action to ensure that the future funded status of the Pension Fund does not deteriorate to the point where more serious problems could result.  The Board of Trustees has decided to be proactive in its approach to assuring the financial integrity of the Pension Fund.

5. Instead of taking action now, why not simply wait for the stock market to go higher and cure the problem? [Back To Top]

Because it would be irresponsible to wait.  While we all hope that the stock market will recover from its recent significant losses, no one knows for sure whether that will happen in the near term or, even if it does happen, what the extent of a stock market recovery will be.  The Board of Trustees is charged with the responsibility of securing the promised pension benefits for all participants.  This important responsibility requires that the Trustees, after receiving extensive reports and analysis from their professional advisors, take action now to recognize the possibility that things could get worse before they get better. 

Remember, the stock market declined more than 37% as measured by the S & P 500 Index in 2008 and it continued its significant slump well into the first quarter of 2009, with a result that the S & P 500 Index is down more than 40% from its previous highs.  Although the Trustees hope that the stock market will recover promptly, no one has an accurate crystal ball that will tell us when the recovery will occur and how great the recovery will be.  The Trustees are required to take action based upon a recognition of the current losses in the investment portfolio and a realistic approach to what the future may hold.  The asset losses that occurred in 2008 are unprecedented and restoring the funding position of the Plan cannot be accomplished by relying on future asset returns alone.  It is important to start on the road to recovery as soon as possible.  Waiting to act will only make the challenge greater.

6. What is the Funding Improvement Plan? [Back To Top]

As a result of being in the “YELLOW” status, the Board of Trustees is required to adopt a Funding Improvement Plan under provisions contained in the Pension Protection Act of 2006.  The Funding Improvement Plan is required, over a thirteen year period, to increase the funded percentage for the Pension Fund to a level of at least 82%.  In order to achieve this objective, the Trustees adopted the following changes in the Plan going forward:

A.            Amendment to Plan of Benefits:  Under the current Plan of Benefits, hourly contributions receive an accrual rate of one percent (1%) and increased contributions after January 1, 2006 receive a two percent (2%) accrual rate on the increased amount.  Effective January 1, 2010, the accrual rate will be one half percent (0.5%) of contributions and a one percent (1%) accrual rate on the amount that contributions increased after January 1, 2006.  This Plan Amendment was adopted separate and apart from the Funding Improvement Plan.

B.            The Board of Trustees also adopted a “Funding Improvement Plan”.  Under this “Funding Improvement Plan”, the following will occur:

1.            Contribution rates to the Pension Fund in effect as of March 1, 2009 may not be reduced, in any manner. 

2.            Effective January 1, 2012, the hourly contribution rate in effect as of March 1, 2009 will be increased by a supplemental contribution equal to 35% of that rate.  This supplemental contribution will not yield any additional benefit for the participant, but will be used to offset the unfunded liability of the Pension Fund and to secure the objective of the Funding Improvement Plan. 

Participants for whom contributions are received under the Funding Improvement Plan will, in addition to the benefit accrual provided in the Plan of Benefits, continue to be eligible for disability subsidies, early retirement credits and death benefits under the Plan of Benefits.

C. Default Option – What if we don’t pay the supplemental contribution? [Back To Top]

While it is hoped that all District Councils, Local Unions and signatory employers will understand and cooperate by approving payment of the additional 35% supplemental contribution in their collective bargaining agreements, the Trustees have recognized the possibility that some (hopefully few or none) parties may not modify their collective bargaining agreements by the deadline.  As a result, if the appropriate amendments to the collective bargaining agreements for compliance with the Funding Improvement Plan are not approved by the parties, the “default option” will take effect in such situations.  Under the “default option”:  the signatory employer will be required to continue to make contributions to the Pension Fund in an amount not less than the hourly contribution rate in effect as of March 1, 2009 plus a surcharge will be added to this contribution rate in the amount of fifteen percent (15%).  In addition, participants for whom contributions are received at the “default option” rate will not receive any benefit credit for such contributions on or after January 1, 2012 and such participants will not be eligible for disability subsidies, early retirement subsidies or death benefits.

7. My collective bargaining agreements are being renegotiated this year or next year – what happens if I increase our contributions by 35% earlier than January 1, 2012? [Back To Top]

The Board of Trustees anticipated that many District Councils, Local Unions and signatory employers will need to plan ahead and increase contribution levels, in order to satisfy the Funding Improvement Plan, ahead of time.   In such circumstances, the Board of Trustees will allow, and even encourage, having District Councils, Local Unions and signatory contractors elevate their contribution rates early in order to get the contributions to the Pension Fund for the 35% supplemental contribution as promptly as possible.  For those parties that choose to elevate their contribution rates earlier than January 1, 2012, the Plan of Benefits will provide that a two percent (2%) of contribution benefit rate will apply to the additional 35% contribution that is received prior to January 1, 2012.  Then, as of January 1, 2012, when the FIP supplemental contribution goes into effect, this extra contribution that you have made will simply be converted into the supplemental contribution (and no further benefits for the participant will be received on that extra 35%).  In this manner, no party need be concerned about modifying its collective bargaining agreement early in order to get the extra 35% percent built into its contribution rate – the members and participants will benefit from that extra money paid early by accumulating a 2% benefit on it.

8. Is there any hope that things will improve and the goals of this Plan can be achieved in less than 13 years? [Back To Top]

            Yes.  The IUPAT Industry Pension Fund has adopted an actuarial assumption that assumes the Fund will receive returns on its investment portfolio at an average rate of 7.5% per year.  If the investment climate improves significantly and the Fund returns to achieving greater than an average 7.5% return on its investments, it is possible that the goals of the Funding Improvement Plan can be satisfied at a much earlier date.  The Board of Trustees will be reviewing the Fund’s investment returns and the objectives of the FIP on at least an annual basis.  Decisions will be made along the way to reflect changes in the funding position of the Plan.  The FIP goals and supplemental contribution requirements will be modified accordingly.  However, the Board of Trustees cannot, in planning ahead, rely on hope alone – future decisions will depend upon real improvement in the investment climate and the Fund’s investment portfolio.

9. What is the track record of our Pension Fund in achieving better than anticipated investment returns on our investment portfolio? [Back To Top]

            As recently as 1999, our Pension Fund was 100% funded.  Everyone knows what happened after that.  Beginning in March 2000 and for more than two years thereafter, the stock market crashed.  This was in part due to the impact of the terrorist attack on the United States on September 11, 2001 and the resulting recession that occurred thereafter.  Virtually every pension fund in the country, as well as most other substantial investment portfolios involving foundations, charities and the like suffered substantial losses.  Our Pension Fund was affected as well.  Nevertheless, in 2003, 2004, 2005, 2006 and 2007, our Pension Fund investment portfolio improved by 16.8%, 9.3%, 8.4%, 12.3% and 7% in each respective year.  This produced average returns that were well above the Fund’s actuarial assumption of 7.5%.  The result was that, as of December 31, 2007, our Pension Fund was in the “GREEN” zone and more than 80% funded.  We hope that these returns can be achieved again and the objectives of the Funding Improvement Plan can be satisfied much earlier

10. Once the objectives of the Funding Improvement Plan are achieved, can our benefits be improved? [Back To Top]

            Yes.   Once the objectives of the Funding Improvement Plan are achieved, the Board of Trustees will consider improving benefits for all Plan participants.  However, it is important to note that the Board of Trustees will always consider the financial integrity of the Pension Fund and the need for planning ahead before making any benefit decisions.  The Board of Trustees has always sought to maintain one of the highest and best benefit programs for our participants based upon the dollars that each participant contributes to the plan.  Few other pension plans provide a similar bang for the buck.  At the present time, the average retiree in our Pension Fund receives back in retirement benefits all of the money he or she contributed to the Fund within approximately three years following retirement – after which all of the continuing benefits that the participant receives throughout his/her lifetime represent a profit on their contributions to the Fund.  This is an outstanding benefit level that few pension funds can match.  The Board of Trustees will continue to seek to achieve the best benefits for our entire membership and their beneficiaries once this crisis in the investment markets is resolved and the objectives of the Funding Improvement Plan are achieved.

11. How are we doing compared to other pension funds of similar size and design in our industry?
[Back To Top]

            Many others are in much worse position.  Although the records of every other pension fund in the building trades industry are not available to us, we can determine from public information and from other information provided to us that our Pension Fund, comparatively, appears to be doing much better than many others.

12. How does this situation affect my pension? [Back To Top]

Current retirees and beneficiaries are not affected.  They will continue to receive their benefit checks as usual.

For active members, the benefits you have already earned are fully protected and will not be reduced

13. If we are a comparatively healthy fund, why are we taking the steps of adopting  a Funding Improvement Plan? [Back To Top]

            For two reasons:  first, under the provisions in the Pension Protection Act of 2006, when a pension plan is in “YELLOW” status, it is required to adopt and file a Funding Improvement Plan; second, the Board of Trustees has decided to be proactive in these circumstances and take action early in order to assure, to the extent possible, that the vitally important pension and retirement benefits for our membership remain secure.  The Trustees, like each of our members and participants, want our Pension Fund to be prosperous and in a position to improve benefits in the future.  The only way to responsibly achieve this goal is to act now, in the face of the reality of the investment climate, to assure that our membership does not suffer what other pension funds in our industry and outside of our industry have suffered.

14. Under the Funding Improvement Plan, my contributions will go up by 35% as of January 1, 2012 and I will not receive any additional benefit for this extra money.  Why should I be willing to pay more when my benefit will not increase? [Back To Top]

This question can be answered in several ways.  First, in the more than forty year history in which our Pension Fund has existed, it has never asked any member to pay more in his/her contribution rate without receiving additional benefits from the Fund.   Never.    However, at this time, as a result of this economic climate in which we are living, the price of the benefit that you will receive from the Pension Fund must go up.  We simply have no choice.  It is unfortunate that we are in such circumstances at the present time but it would be irresponsible not to recognize it.

            Second, throughout the forty plus years in which the Pension Fund has provided excellent and secure benefits on behalf of our membership, the Board of Trustees has periodically increased the amount of benefits that our members have received in return for the same contribution rate.  Retirement and disability benefits throughout the years have increased significantly, even though the member was not required to increase his/her hourly contribution rate to receive such benefits.  It is not unreasonable to expect that these benefits may now cost more.

            Finally, each of us needs only to look around and witness what is happening in other trades and in other industries.  Many of our colleagues in other building trades are participants in pension funds that have required increases in contribution rates of 50%, 100% or more simply in order to maintain their present level of benefits or, in some cases, to support a reduced level of benefits.  This present investment climate has resulted, for the first time in our history, in a need for our members to support the Pension Fund by increasing their contribution rates by the amount of the supplemental contribution in the Funding Improvement Plan.  The proposed increase in these contribution rates is relatively modest when compared to the benefits that all of our members receive from the Pension Fund, it is clearly modest when compared to contribution rates in other pension funds and it is realistic and necessary in view of the present investment climate.

15. What happens to the extra money from the 35% supplemental contribution when the Funding Improvement Plan is no longer needed to save the Pension Fund? [Back To Top]

Once the Pension Fund Board of Trustees rules that the goals of the FIP are met and the funding level of the Fund has reached a point that satisfies federal and self-implemented minimums, the 35% supplemental contribution undergoes one of two scenarios:

1)            Through no action of the membership, the 35% supplemental contribution is considered part of the base contribution to the Pension Fund.  That full amount would receive full benefit accrual going forward.

Remember, when the Funding Improvement Plan has satisfied its goals, the various collective bargaining agreements throughout the country will have the supplemental contribution amounts designated for the Pension Fund.  Thus, the Board of Trustees of the Pension Fund cannot simply tell everyone to no longer to contribute the supplemental contribution amounts.  That would require a modification of each specific collective bargaining agreement.  Instead, the Board of Trustees will provide a notice to everyone, that these extra contributions will, from that moment forward, receive benefit accrual on the amounts received.

2)            The membership votes to reallocate the 35% supplement contribution between hourly wages and pension contributions. 

Once the amount is in the hourly wage package, unless there is some other restrictive language in the collective bargaining agreement that has been agreed upon by the parties, the members are free, following satisfaction of the FIP and an announcement by the Board of Trustees to that effect, to reallocate their hourly package and place the extra money into their wages.

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