Why We Are Proposing Changes
The Trustees are proposing pension benefit changes because there is not enough money in our Fund to pay benefits past 2024. We must take action now to address this situation and protect our plan for the future. The sooner we do this, the less drastic the changes will need to be.
Yes, due to the Fund’s financial situation, we reduced benefits twice:
- 2006: We made changes due to the impact of the 9/11 World Trade Center attacks on our nation’s economy. After 9/11, the stock market plunged and the Fund’s investment returns dropped dramatically.
- 2014: We made changes due to the Great Financial Crisis of 2007 and 2008, which caused another significant stock market decline. This resulted in an additional huge drop in our Fund’s investments. In addition, the industry suffered numerous layoffs and shop closings, which meant far fewer contributions coming into the Fund from active participants.
On the other hand, we have made benefit improvements five times in the last 30 years. We did this when the Fund was in a stronger position, the industry was in better shape, there were more active participants and our investments were performing well. When we have been able, we have always made improving your retirement security our priority.
We were hopeful at the time that the changes in 2006 and 2014 would improve the Fund’s financing for a longer period of time. However, we continue to face two ongoing problems:
- Fewer active members: Like all pension funds in the printing industry, the Fund has been unable to replace the thousands of active union jobs lost as a result of the decline of print media and rise of electronic communication. This has resulted in fewer active members, which means lower contributions to the Fund. Our active members currently pay $17 million in annual contributions. But the Fund is paying out $131 million in annual pension benefits. That’s an annual shortfall of $114 million.
- Lower investment returns: To make up for the $114 million annual shortfall, the Fund’s investments would have to earn over 13% each year, which is extremely difficult to achieve annually. Over the last three years, our average annual investment return was 6.2%. The Fund is now projected to run out of money in 2024—only seven years from now. If the number of active participants declines by more than 6% per year, the Fund could run out of money sooner.
The changes made in 2014 were based on the following:
- Keeping active GCC/IBT membership at the same level each year: Active members have declined by 11% since 2014. This is due in part to the impact of shop closings, member retirements, and seven new right-to-work states.
- Adding new Teamster groups to increase active members by 10% per year: Other Teamster groups were reluctant to join our fund due to growing concerns over the decline of their own existing funds and the declining funded status of our Fund. We believe that with the proposed changes and the flexibility to make changes in the future, there will be much more interest from other groups in joining our Fund.
- Achieving an 8% investment return each year: Our actual results were less than anticipated. Although stock market performance has been good, we also have a range of investments that do not correlate with the stock market, such as bonds, real estate and alternative investments, which have had lower overall returns.
- Accumulating Plan assets of $999.7 million by June 30, 2016: Due to the impact of fewer active members and lower investment returns than assumed, the Plan’s assets dropped to $901.4 million.
The changes made in 2014 increased the Plan’s funding from 56% in 2013 to 71% in 2014. Because the active membership declined and the investment returns underperformed, our funding dropped to 66% in 2015, then to 58% currently.
The Trustees have been working with experienced professionals including actuaries, auditors and investment advisors to analyze various ways to improve the Fund’s financial situation. The goal is to protect the Fund while preserving the highest level of benefits for all of us.
To address the shortfall, the Fund’s investments would have to earn over 13% each year, which we do not expect to happen. We need to take action now to address this situation, or it will only get worse.
The Fund has maintained the same investment consultant for over 20 years, and for many years their investment advice was beneficial. In addition, it’s important to remember that the decline in active membership contributions was not due to the investment consultant. However, the Fund has now changed its investment consultant and has made changes in its investment portfolio to improve the likelihood that our current investment targets will be met.
Despite the financial issues we face, it’s important to remember that our Fund offers many advantages over other plans:
- With 401(k) or other defined contribution plans, you have an individual account, and you make all the investment decisions. The money you have for retirement depends on how those investments perform. If you lose that money, you cannot get it back. There is also the risk that you will outlive what you have saved. Our Fund is a defined benefit plan, which is designed to provide benefits for life, for both you and your spouse. These benefits are based on a formula, so you can estimate the monthly pension you’ll receive. Investment decisions are made by the Trustees, with input from professional investment advisors.
- With most defined benefit pension plans, employers make the contributions, so they make the benefit decisions. Because we make all the contributions to our Fund, we have full control over our pension plan.
Our Fund began in 1950, long before the Employee Retirement Income Security Act (ERISA) of 1974, which guarantees benefit payments through the Pension Benefit Guaranty Corporation (PBGC) if a pension plan is terminated. Our Fund is not an ERISA plan and is not covered by the PBGC. However, the PBGC only provides minimal benefits for the plans it does cover—it does not fully replace pension benefits that have been lost. In addition, you may be aware that the PBGC is experiencing a projected shortfall; it’s not clear how PBGC-guaranteed benefits will be affected in the future.
Details on the Proposed Changes
Yes, the proposed changes affect retired, active and terminated vested participants. In past years when the Fund’s investments performed well, all participants benefitted through pension increases. In fact, since its inception, the Fund has paid out several billion dollars in benefits. Now, in challenging times, we feel it’s important that everyone pull together to protect the Fund’s long-term financial security by voting to reduce our benefits.
The proposed changes include:
- Active participants and terminated vested participants who have not yet retired: The accrual rate will be reduced to 1.75% for all new and past contributions. With this change, if you retire with a full pension at age 65, you will get back all your contributions in 58 months instead of the current 50 months.
- Retirees and surviving spouses who are receiving a monthly pension: Benefits will be reduced by 35%. This is comparable to the reduction for active participants.
- Trustees’ ability to adjust benefits: The Trustees will be able to adjust benefits each plan year if necessary to ensure the plan does not drop below 80% funding. However, they will not be able to make an adjustment until July 1, 2021 unless a financial market downturn occurs. In addition, any adjustment by the Trustees can be disapproved by a majority vote of the participating Local Unions and a participant referendum.
In addition to the proposed changes, the Trustees have also adopted a policy clarifying that if the Fund only has enough money left to repay all participants at least all of their contributions (reduced by the benefits they have received), the Fund will be terminated and all participants will receive their total contributions minus benefits received. This is not a proposed change and will not be voted on, since the Plan already has a provision that allows this to happen.
If the changes are approved, the planned effective date is January 1, 2018.
If you are a retiree, starting January 1, 2018, your monthly pension will be reduced by 35%.
If you are an active participant, starting January 1, 2018, once you retire your monthly pension will be calculated by multiplying all contributions you made during your working career by 1.75%.
You have probably heard that many multiemployer funds and corporations are freezing or cutting back their plans. Even with the changes, the benefit accrual rate for our Fund will be far higher than those of other multiemployer plans. In addition, the changes will help ensure the Fund will not run out of money in future years, and offer the flexibility to increase benefits in the future if the Fund’s finances improve.
The proposed changes give the Trustees the ability to adjust benefits each plan year if necessary to ensure the plan does not drop below 80% funding. We cannot predict whether this will happen, but will notify participants well in advance of any changes. Also, any adjustment by the Trustees can be disapproved by a majority vote of the participating Local Unions and a participant referendum.
Our priority right now is to stabilize the Fund so that it does not run out of money. However, if it becomes fully funded over a three-year period, the Trustees have the ability to equitably improve the benefits provided by the Fund. In fact, from 1987 to 1998, the Fund increased benefits for all active and retired participants five times, by a total of 33 percent.
Two votes must take place to approve the proposed changes:
- First, participating Locals representing two-thirds of the Fund membership must approve the changes. The voting took place during Local Union meetings in September and October. Local Unions representing over 74% of the membership have voted to approve the changes, and that number is expected to grow as the final Locals cast their votes.
- Second, two-thirds of all voting active and retired participants must approve the changes in a referendum vote. You will receive a referendum packet including a ballot and self-addressed envelope through the mail in October; ballots will be due in November.
The Trustees will work with an independent third party to tally the referendum vote. After the voting takes place, we will share the results with all of you.
If two-thirds of the voting members do not vote in favor of the proposed changes, the Trustees will terminate the Fund once it reaches the point where it only has enough money left to repay all participants at least all of their contributions (reduced by the benefits they have received).
In addition to this website, we will offer a number of communications and events in the coming months where you can get additional details, including:
- Mailings with additional information and reminders.
- Call the Fund Office at 630-752-8400.
- Regional meetings where you can hear about the changes first-hand and get answers to your questions.
Be sure to watch your mail for information on the timing of these communications and events.