Determining Final Average Compensation

[AHPension]

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?

[david rigby]

First. Plan definitions

Second. Administrative procedures.

Third. If the participant believes the administrative procedure is in error, or in violation of a plan provision, plan appeal provisions.

[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!!!