AHPension

In the cited instance, there are no plan definitions that assist with defining FAC. Even if there were, the terms and definitions of the CBA would amend them. The Board has no policy or procedure that specifies how FAC will be calculated. In fact, three similarly situated retirees had their FAC calculated in three different manners, each of which progressively reduced the retirees pension payment. Therefore, institute a written appeal!!!

Good afternoon, As a former Trustee and Participant in a governmental DB plan in Michigan, I ran into a question regarding how the plan administrator determines Final Average Compensation. The applicable Collective Bargaining Agreements indicate FAC "shall be calculated by multiplying the FAC (the employee's highest consecutive 5 year income average) by the number of eligible years of service by the pension multiplier (2.8%)." However, in the case I am concerned about, the Plan Administrator went back 5 years and 10 months and determined an average monthly income for year #1. Following is the manner in which he calculated this FAC: Year #1 - Determined an average monthly income and multiplied that by 1.4 months. Year #2 - used actual income. Year #3 - used actual income. Year #4 - used actual income. Year #5 - Although the retiree severed employment in good standing on October 31, he was credited as if he received 10.6 months of compensation (prorated based on the number of pay periods in that year. The remaining 1.4 months was credited to year #1). The net effect of using this methodology was to reduce the retiree's pension payment by $100 per month. According to my research, consecutive five year income is usually limited to actual income over a 60 month period. In fact, the Plan Administrator used that precise method in the past FAC calculations. I might add, the Plan Administrator is also the Plan Sponsors Chief Financial Officer. Any thoughts on this?

I have been a Trustee on a Board for a local unit of government's Defined Benefit Plan and we have never submitted the Plan Document to the IRS for a Determination Letter. Every time I bring it up, I get nowhere. Are we required to submit the Plan Document to the IRS for review?

After representing the Pension Board for nearly a decade, the attorney in question admitted his law firm had previously represented the Plan Sponsor during a restatement of the Plan Document. Several months later, when the attorney was asked to provide written disclosure of the services his law firm had provided the Plan Sponsor, he now claimed his law firm had always represented the Pension Board. The attorney added, the prior Pension Board had authorized his law firm to work with the Plan Sponsor's representative to restate the Plan Document. However, provided that prior Pension Board was a public body, as defined by Michigan law, the public record of that Board should support the attorney's written disclosure - but does not. Nowhere in that Pension Board's public record does such an authorization exist. This may be a ridiculous question, but is this a conflict of interst the current Pension Board should deal with?

Previously, the Pension Plan Document (governmental plan) provided for a 5% COLA benefit, which, on an annual basis, was factored into the Plan's Normal Cost. Employee contributions (5-6% of their pre-tax gross wages) were deducted from that Normal Cost, and the employer paid the balance in the form of Annual Required Contributions (ARC). This process had went on for 15 years when the employer successfully reduced the COLA benefit from 5% to 2.5%, retroactively. As a result, Plan assets that were reserved for a potion of the 5% COLA were now used to offset the employers future ARC. This description may be over simplified, but did this offset violate the Exclusive Benefit Rule? I should add, because this Plan is situated in the State of Michigan, there are statutory requirements that require Plan assets to be held for the exclusive benefit of Participant's and Beneficiaries (PA 314).