Plan Comparisons

1. Defined Benefit Determined by formula Known benefit at retirement Employer risk Plans “back funded” Benefits older workers Guaranteed by PBGC Defined Contribution Individual account – determined by investment choice Employee risk Benefits younger workers Can be “transferred” No guarantee Plan Comparisons

2. Cash Balance Plans • Defined benefit plan that has characteristics of defined contribution plan • Each year a participant’s account is credited with a pay credit and an interest credit • The pay credit is dependent upon the participant’s compensation • The growth of the account depends on pay credits that the employer contributes, not on profit sharing • Offers more portability than traditional pension plans since you can take your vested account as a lump sum whenever you terminate employment • Will not be reduced because of your age

3. Pension Plan Legislation • Tax Equity & Fiscal Responsibility Act of 1982 (TEFRA) • establishes rules for “top heavy” pensions • curb inequities of only key employees as beneficiaries • 60% of benefits go to owners, officers, key employees • Retirement Equity Act of 1984 (REA) • improves likelihood of women receiving benefits • includes provisions to include: • how retiree chooses survivor benefits • how to account for breaks in service • how pension rights are assigned in divorce settlements

4. Pension Plan Legislation • Tax Reform Act of 1986 (TRA) • limited benefits allowed in all plans that coordinate benefits or contributions with social security (integrated plans) • modified coverage and participation rules to expand number of workers participating in plans • imposed limit on annual compensation used to determine benefits or contributions

5. Pension Plan Legislation • Employee Retirement Income Security Act of 1974 (ERISA) • Established Pension Benefit Guarantee Corporation

6. Pension Benefit Guarantee Corporation • Per ERISA, PBGC is to guarantee payment of retirees’ benefits in the event of a plan termination • PBGC covers defined benefit retirement plan – not retiree • 1990 – PBGC announced that it does not cover insurance annuities (periodic lifelong payments by insurance companies to retirees or their survivors) purchased by pension plans • If insurance company fails – pensioners holding annuities must rely on various state insurance guarantee laws • 3 – 4 million retirees in • Hurricane Andrew, Hugo, Charlie, Francis, Ivan, Katrina

7. Pension Benefit Guarantee Corporation • PBGC was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of  private-sector defined benefit pension plans • The Pension Benefit Guaranty Corporation (PBGC) protects the retirement incomes of 44.1 million American workers in 30,330  private-sector defined benefit pension plans • PBGC is responsible for the current and future pensions of about 1,296,000 people in 3,595 pension plans that ended • .

8. Pension Benefit Guarantee Corporation • Provides timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum. • PBGC collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over

9. Pension Benefit Guarantee Corporation • The maximum pension benefit guaranteed by PBGC is set by law and adjusted yearly. For plans ended in 2005, workers who retire at age 65 can receive up to $3,801.14 a month ($45,613.68 a year) • The guarantee is lower for those who retire early or when there is a benefit for a survivor. • The guarantee is increased for those who retire after age 65.

10. Pension Benefit Guarantee Corporation • Most states continue payments to annuitants • Few states provide no guarantees • Colorado • Louisiana • New Jersey • District of Columbia • Some states limit amount of individual coverage • Example: California • guarantees no more than 80% of an annuity • limit total annuity coverage to $100K present value or

11. Employees Pension Security Act of 2005 Sponsor:Rep Peter J Visclosky • Amends the Employee Retirement Income Security Act of 1974 (ERISA) to require assets of single-employer pension plans to be held in trust by joint boards of trustees. • Requires pension plan benefit statements to be provided periodically to plan participants (as well as, under current law, to any plan participant or beneficiary who so requests). Directs the Secretary of Labor to develop a model benefit statement to be used by plan administrators. • Requires plan sponsors and administrators to provide all material investment information in an accurate form to participants and beneficiaries • Authorizes the Secretary to assess civil penalties for violations of certain information requirements.

12. Employees Pension Security Act of 2005 • Sets forth additional requirements for plan termination, to prevent abuse of the bankruptcy and termination process, including requirements relating to: • (1) distress termination; • (2) bankruptcy court decrees, and the right to intervene to challenge them; • (3) consideration of alternatives by the Pension Benefit Guaranty Corporation (PBGC) and the plan sponsor; • (4) PBGC efforts at consulting on alternatives with plan participants and their union representatives; and • (5) notice of the right to challenge determinations relating to plan termination.

13. Employees Pension Security Act of 2005 • Amends federal bankruptcy law to include, in a priority order for recovery of expenses and claims, allowed unsecured claims for benefit liabilities to participants and beneficiaries under a single-employer plan in connection with the plan termination, in excess of the benefits payable to them by the PBGC in connection with such termination.