Payment of Cash Benefit

[Guest MC2]

A multiemployer pension plan has a cash benefit contribution account add-on and the payment provisions of the cash benefit portion allow for the payout of an individual's account, if that individual has no reported hours worked for a period of 2 years. The plan seeks to amend this provision and reduce the 2 years to 3 months After 3 months of no reported hours worked, the individual can apply for distribution of their cash benefit account. Does anyone see a problem with this?

[SoCalActuary]

Yes. Now its not a pension plan, it is an unemployment benefit

[Effen]

Is this a DB, DC plan or "Subpay" plan?

If DB, how do you determine the value of the "cash benefit account"? Is the amount of the monthly annuity adjusted depending on if/when they take it or is it like the participant has a cash balance plan on the side?

[Guest MC2]

It is a DB Plan. For periods prior to termination of service, interest credits are credited to the participant's cash benefit account as of the last day of each calendar year by applying the interest rate set forth in the plan to the value of the participant's account as of the last day of the previous calendar year. For periods after termination of service, interest credits are credited to the participant's account, who terminated employment prior to their normal retirement date, for the calendar year in which such termination occurs and for each calendar year following such termination of employment by applying the interest rate to the value of the participant's account as of the last day of the previous calendar year. I hope this helps to answer my question. Thank you.

[SoCalActuary]

Sounds like a traditional cash balance plan with quarterly interest updates. I am curious, though.

How is the contribution determined? Does each participant make an election or does the

negotiating unit determine the amount? Is this supplemental to a traditional DB formula?

Also, if the participant takes the funds, do they give up any other benefits?

I still have a problem giving faster access to the funds, because you will get a big increase in

short-term participants, who will take the penalty and treat the account like an unemployment

benefit.

[Guest MC2]

The current contribution rate is $1.25 for each hour of service performed by the participant in covered employment. This rate is set by the negotiating unit. Yes, this particular cash benefit contribution account is supplemental to a traditional pension plan. I'm not aware of the participants giving up any other benefit if they elect to receive a payment of their cash benefit.

I appreciate your point as to short term participants; however, the participants are causing the Fund's staff grief at having to wait 24 consecutive months of no hours reported before they can apply for their benefit. It has gotten to the point of the Fund's staff being threatened. Therefore, the Fund seeks to change the time period from 24 months to 3 consecutive calendar months of no hours reported before a participant can apply for their benefit.

Further thoughts?

[Effen]

I think you have some real issues because you are trying to do this with a cash balance type formula in a DB plan. SoCal is right that paying someone out after being gone for 3 months in the multiemployer situation creates in-service distribution issues when the guy goes back to work 1 month later.

I have a client that has a "subpay" plan to handle short term layoffs. They also have a DC plan that allows for hardships if the person is in real financial straights. They also changed their DC distribution rule to "no hours in the last 3 months" when things got real bad, but it only applied to the DC plan. Although they didn't like doing it, it was useful in allowing some of the men to keep their house.