Accrued Benefits

[Guest jjm]

I'm an active employee covered by a Defined Benefit plan comprised of a fixed and variable portion. I've tracked my total accrued benefit (including Fixed + Variable pieces) for the past 15 years by using the data the Company sends me in a Personal Statement of Benefits. The total accrued benefit declined for the first time in 2008 due to the value of the variable piece dropping significantly.

On the Department of Labor website it says, "Defined Benefit plans cannot reduce the amount of benefits you have already accumulated." I've tried to obtain information from our CFO but have had no success to date. My questions for the forum are first, can accrued benefits decline year-over-year? Second, if so, how do you quantify the risk of a definitley determinable benefit that declines? Lastly, aren't plan fiduciaries required to provide plan participants information if so requested? Any comments/feedback would be greatly appreciated.

[SoCalActuary]

You are in a rare type of plan. In my 40 years of pension work, we only had one similar design.

The plan is required to follow its terms, and if that includes a variable component, you must live with it.

The goal of these designs was that a rising investment market would benefit the participants as well.

But the opposite result can and does occur. We terminated the plan I worked on when it showed 3 loss years in the past 5.

But that still leaves you with this thought: There are still participants who have not recovered the balances they had in 1999.

At least part of your benefit is fixed and guaranteed.

[Mike Preston]

You should also have a Summary Plan Description that lays out how your benefits can change over time. It should include an explanation of how your variable piece can decline. Besides the Summary Plan Description and the statement of benefits that you receive, you should also receive an "Annual Funding Notice" if your plan is covered by the PBGC (which it appears it is).

You also have a right to inspect a copy of the plan document at the administrative office of the plan, although most plans would rather just make a copy and send it to you rather than have you camp out in the office.

[frizzyguy]

Is your "variable" piece by chance a cash balance piece? Some statements, especially for Defined Benefit Plan that converted from a traditional defined benefit plan, might have an approximate straight life accrued benefit portion. They might have the variable piece (cash balance peice) projected to your normal retirement age and then converted to an annuity.

The variable portion of the plan, most likely if it's frozen, could actually go down depending on actuarial assumptions and interest crediting rates. You're companies 5500 is public domain. Go check out that. If can be found at "http://www.efast.dol.gov/welcome.html". I don't think your CFO is hiding anything from you, I would try HR first. They can probably very easily get you the answer you need from the administrator of the plan.

Not sure what you mean by "how do I quanify the risk"? If it is a cash balance plan, the definitely determinable piece is the lump sum. In theory the accrued benefit will go up every year but in a bad market, the projected annuity might go down. I hope this helps.

[Guest jjm]

You are in a rare type of plan. In my 40 years of pension work, we only had one similar design.

The plan is required to follow its terms, and if that includes a variable component, you must live with it.

The goal of these designs was that a rising investment market would benefit the participants as well.

But the opposite result can and does occur. We terminated the plan I worked on when it showed 3 loss years in the past 5.

But that still leaves you with this thought: There are still participants who have not recovered the balances they had in 1999.

At least part of your benefit is fixed and guaranteed.

Thank you for your insight. The DoL should have a disclaimer noting these unique types of plans. I would have assumed the variable piece could decline only to the point where the total benefit equaled at what it was the year before. That way you have a definitely determinable benefit.

[Guest jjm]

Is your "variable" piece by chance a cash balance piece? Some statements, especially for Defined Benefit Plan that converted from a traditional defined benefit plan, might have an approximate straight life accrued benefit portion. They might have the variable piece (cash balance peice) projected to your normal retirement age and then converted to an annuity.

The variable portion of the plan, most likely if it's frozen, could actually go down depending on actuarial assumptions and interest crediting rates. You're companies 5500 is public domain. Go check out that. If can be found at "http://www.efast.dol.gov/welcome.html". I don't think your CFO is hiding anything from you, I would try HR first. They can probably very easily get you the answer you need from the administrator of the plan.

Not sure what you mean by "how do I quanify the risk"? If it is a cash balance plan, the definitely determinable piece is the lump sum. In theory the accrued benefit will go up every year but in a bad market, the projected annuity might go down. I hope this helps.

No cash balance for the variable piece. If the variable piece can decline such that it causes the total accrued benefit to decline then I want to know how bad can it get (e.g. how low can the total benefit go?). I guess the answer is the variable piece could possibly got to zero leaving the fixed.

[Guest jjm]

You should also have a Summary Plan Description that lays out how your benefits can change over time. It should include an explanation of how your variable piece can decline. Besides the Summary Plan Description and the statement of benefits that you receive, you should also receive an "Annual Funding Notice" if your plan is covered by the PBGC (which it appears it is).

You also have a right to inspect a copy of the plan document at the administrative office of the plan, although most plans would rather just make a copy and send it to you rather than have you camp out in the office.

Thanks I'll check out the formulas to determine my risk