September 8, 2009

Pension Plan Update

The latter part of 2008 and early part of 2009 proved to be a difficult period for investors in general. Our Pension Plan has not been immune to these turbulent markets and the Pension Plan did incur some investment losses over that period. Over the next few months, you may be hearing about how some of the other industry pension plans have been adversely affected by the investment markets. You may also hear about some pension plans being required to reduce benefits because of their investment losses. The Board of Trustees for this Pension Plan is pleased to report that no changes or reductions are currently being contemplated for this Pension Plan.

While the Board of Trustees previously adopted a diversified investment strategy in order to minimize investment risk, no investment strategy completely eliminates investment risk and some investment losses were realized. For the 2008 calendar year, the Pension Plan’s rate of return was ‑13.6%. Relative to other plans across the country, this was a less significant loss of what many other plans incurred.  After a tough start to this year, the markets have turned around and the Pension Plan’s rate of return over the first six months of the year was 6.5%. Although this represents a positive change in direction, the recent gains have not been sufficient to date to fully offset the losses from last year.

One of the strengths of a defined benefit pension plan is its ability to weather a storm over a short period of time. While investment professionals did not predict the timing and extent of the recent investment losses, the Board of Trustees knew that these types of events do occur and that they will re-occur again at some point in the future. From the Pension Plan’s perspective, the average long-term rate of return earned by the Pension Plan’s investments is more important than any single year’s results. For our Pension Plan to meet its financial targets, it must earn an average net rate of return of 6.0% per year.

Because the occurrence of investment losses from time to time is expected, even if the timing is not predictable, the Board of Trustees decided many years ago to hold a buffer or “rainy day fund” to cushion the impact of periods of poor investment results. This buffer has been successful in allowing the Pension Plan to weather the recent storm. Even after this troubling period, the Pension Plan remains on a sound financial footing and it is fully expected that the Pension Plan’s current assets, when combined with future contributions and future investment earnings, will be more than sufficient to pay for all the pensions earned by individuals in the past and the future.

For pension plans registered in Alberta, there is currently a requirement to fund every pension plan on a basis that assumes the pension plan will be immediately terminated. This is most commonly referred to as solvency funding. The appropriateness of funding pension plans such as your Pension Plan using solvency funding has been under scrutiny for a number of years, both here in Alberta and in other provinces. Alberta, British Columbia, and Ontario have all implemented temporary measures that allow pension plans to seek an exemption from solvency funding. It is expected that these measures will become permanent in Alberta within a few years. To date, this Pension Plan has not sought the relief allowed under the legislation as the Pension Plan was fully capable of meeting the more stringent solvency funding standards. However, given the significant drop in value of the financial markets, the Pension Plan may be in a position where it will be beneficial to apply for the solvency funding exemption. This will depend on the status of the anticipated changes in legislation yet to be put in place.

In summary, the recent financial experience has been poor but the Pension Plan’s strong financial position prior to the recent investment losses will allow it to maintain the current benefits levels and no changes or reductions are being contemplated at this time. The Board of Trustees will continue to keep you informed should any significant changes in financial position occur in the future.

Working Beyond Age 60..

The working population today is generally healthier than prior generations. For that reason, and due to labour shortages, we are now seeing a general trend whereby insulators are working at older ages than we have seen in the past.

To stay current with the times, the Pension Plan now provides insulators with a choice in respect of their retirement savings. An active insulator who is 60 years of age or older can choose between the following two options:

A.        Continue to work and earn additional pension – Under this option, your pension does not start until such time as you apply to have your pension commence. Every hour of work you complete prior to pension commencement will continue to earn you additional pension credit. This option is the default option. Thus, if you do nothing, you will simply continue to earn additional pension benefit in the Pension Plan.

B.         Continue to work while starting to receive your pension – With this option, your pension payments commence immediately, even though you are still working. Instead of earning additional pension, your employer’s pension contributions are added to your paycheck. In order to select this option, you must apply to the Fund Office to have your pension commence on or after age 60. The Fund Office will then send a letter to your employer. The letter will direct the employer to not send further pension contributions to the Pension Plan, and instead add them to your paycheck. Note that the employer cannot add the contributions to your paycheck without first receiving the letter from the Pension Plan.

If you return to work after commencing receipt of your pension prior to age 60, you are not eligible for Option B above. Instead, you can choose between the following two options:

C.        Continue to receive your monthly pension without interruption – Under this option, you do not get any credit for the additional pension contributions sent in on your behalf. In addition, the pension contributions remitted to the Pension Plan will reduce the amount of your permissible RRSP contributions. Once you attain age 60, you can then elect Option B.

D.        Suspend your monthly pension and start earning additional pension again – With this option, you can request that the Pension Plan starts paying your pension again at any point in the future. At that time, the additional pension you earned after your pension was suspended is added to your original pension. The additional work may also increase the amount of your original pension. Once you attain age 60, you can then elect Option B if desired.

Should you be in a situation where you can choose between Options A and B, or Options C and D above, the Board of Trustees recommends that you first obtain financial advice to determine which option is most beneficial for you. You can also contact the Fund Office to obtain additional information.

Working Past Age 60

One new feature of the most recent collective agreement now allows individuals who are 60 years of age or older to add their pension contributions to their wages. With this feature, individuals who have yet to retire can start receiving their monthly pension while remaining on the job site. Similarly, any individual over 60 years of age who is already in receipt of a pension from the Pension Plan is eligible for this feature. Individuals who elect this option will cease to earn any benefit in the pension plan but will instead have their pension contributions added to their wages, both of which will be paid in addition to their monthly pension.

If you are over 60 years of age, the Board encourages you to review this option, as it may be financially beneficial in most circumstances. As a general rule of thumb, if your accrued pension is more than $325 per month, it may be to your benefit to take advantage of this feature. Because individual financial and tax circumstances before and after retirement vary, it is strongly recommended that you seek financial advice before deciding whether or not to make use of the feature. In evaluating the benefits of this feature, you should consider that having more money in your pocket today does not necessarily mean you will be better off financially down the road, especially if you continue to live for many years after your retirement, or if the short term financial gain you may enjoy is directed towards products or services that will not provide income in the future.

Please contact the Pension Manager (Linda Lajoie) to obtain additional information on this new feature of the collective agreement.

BENEFICIARY DESIGNATIONS

Sometimes it seems like it would be easier to have ONE beneficiary card/form that would apply to ALL THREE plans at the Hall.  So why don’t we do that?

Each plan runs independent of each other and the law requires us to make sure you know who you are naming as beneficiary for each plan.  If we don’t meet the terms of the law, your beneficiary could be denied the benefits you wanted them to have.  That’s why you must fill out a separate card/form for each of:

•       Local 110 Mortuary Plan

•       Asbestos Workers Insurance Benefit Trust Fund of Alberta

•       Asbestos Workers Pension Plan of Alberta

It is also important to review your beneficiaries with each plan after major life events such as: start or end of a relationship or death of a loved one.

For the Pension Plan it is important to note that if there is someone who meets the definition of spouse and you die before you retire, your spouse is automatically the beneficiary of your pension benefits from this Plan, even if you name someone else on your beneficiary card/form or in your Will, UNLESS your spouse has waived his/her entitlement to the pre-retirement death benefits in writing.

If you wish to designate someone other than your spouse and if your spouse agrees to this designation, contact the fund office so we can provide you with the appropriate Waiver form.

GENERAL INFORMATION/EXPLANATION

DEFINITIONS

Commuted Value - The current lump sum value of a future monthly benefit.

Contribution Date - The date which your first contributing employer first makes contributions to the Plan on your behalf.

Contributory Hours of Work — Hours of work with a contributing employer for which he is required to make contributions to the Plan.

Former Participant — You are a "former participant" if you are vested; have not worked at least 350 contributory hours within 3 consecutive years and have left your pension in the Plan.

Normal Retirement Age - Age 60, or if later, your age when you meet the rules for participation in this Plan.

Participant — You are a participant if you work for a contributing employer who contributes to the Plan on your behalf, you meet the minimum rules to participate in the Plan and you have not incurred a permanent break in service.

Pension Credit - The sum of your years and complete months of past service credit and future service credit.

Permanent Break in Service - When you fail to work 350 contributory hours within 3 consecutive years, or, if you elect the portability option after you incur a Statutory Break in Service.

Spouse - A person who is married to you and is not living separate and apart from you for 3 or more consecutive years. If you are not in a qualified married relationship, a person with whom you are living in a marriage-like relationship for at least 3 years or of some permanence, if there is a child of the relationship by birth or adoption.

Statutory Break in Service - When you fail to work 350 contributory hours within 2 consecutive years.

Vested Status or Vested —You will be vested after you become a participant and have at least: 2 years of vesting service, or 5 years of pension credit, or reach normal retirement age

Years of Vesting Service - Once you are a participant, you get 1 year of vesting service for each year after your contribution date in which you work 350 or more contributory hours in covered employment.

BENEFITS

Normal Pension - You are eligible for a normal pension if you are a participant; are at least age 60; and are vested. Your pension must start by the end of the calendar year in which you reach age 71.

Early Retirement Pension - You are eligible for an early retirement pension if you: are a participant; are at least age 50 and are vested.   If you start your pension early it will be reduced.

Deferred Pension - You are eligible for a deferred pension if you are a vested Former Participant and have not elected the portability option.  A deferred pension can start as early as age 50 and will be reduced if you start it early.

 
Disability Pension - You are eligible for a disability pension if you: become totally and permanently disabled while you are a participant; are not eligible to retire on a normal pension; and  have at least 3 years of pension credit.

 
Portability Option - You may choose the portability option if you: have a statutory break in service or a permanent break in service; you are vested and have not reached age 50.  Under the portability option, you may transfer the commuted value of your pension to a locked-in RRSP, another pension plan, if that plan permits, or buy an immediate or deferred annuity. There is a time period in which to choose this option and if you fail to make an election during the required time period, you are deemed to have elected the Deferred Pension.  If you chose the portability option, you will not be entitled to any further benefits from the Plan.

DEATH BENEFITS: - BEFORE RETIREMENT

If there is someone who meets the definition of spouse and you die before you retire, your spouse is automatically the beneficiary of your pension benefits from this Plan, even if you name someone else on your beneficiary card or in your Will, UNLESS your spouse has waived his/her entitlement to the pre-retirement death benefits in writing.

Where a valid waiver is in place, you may designate any beneficiary to receive the pre-retirement death benefits payable by the Plan.  In order to waive his/her entitlement, your spouse must complete and deliver a written waiver to the Board.  Once a valid waiver is in place, your spouse retains the right to revoke the waiver by written notice to the Board anytime while you are still alive. 

Spouse's Pension

If you die while you are a Participant and are vested, your spouse will receive, for his/her lifetime, a monthly benefit based on your pension credit at the date you died. The monthly pension is the greater of the monthly pension calculated as though you were age 50, or your actual age if higher, and had elected the 50% joint and survivor option or the amount of monthly pension based on 100% of the commuted value of your pension at the date of your death.  Instead of a monthly benefit, your spouse may elect the portability option

Survivor Pension

If you are a Former Participant, upon your death, your spouse is entitled to a pre-retirement survivor pension.  Your spouse will receive a monthly benefit based on 100% of the commuted value of your accrued pension at your date of death.  Instead of a monthly benefit, your spouse may elect the portability option.

Death Benefit – Beneficiary

If you die after you are vested and you do not have an eligible spouse to receive the spouse's pension or the pre-retirement survivor pension, your beneficiary or estate will receive a lump-sum cash payment equal to 100% of the commuted value of your normal pension earned to the date of your death.

If you die before becoming a participant or before your benefits are vested, your beneficiary will receive a lump-sum cash payment of your self-payments, if any, with interest.

Death Benefits After Retirement

If you die after retirement, your spouse or beneficiary may be eligible for a benefit depending on the pension option that you have chosen.

For additional information or further explanations, please contact

Linda Lajoie at the Fund Office: 780-426-2623.

08/20/2008