Pension Plan for Hospital and Health Care Employees – Philadelphia and Vicinity
This document outlines the key provisions of the Pension Protection Act of 2006, focusing on its implications for hospital and healthcare employees in Philadelphia and surrounding areas. The Act establishes criteria for assessing pension plan health, including guidelines for endangered (Yellow Zone) and critical plans (Red Zone). It details the necessary funding improvement plans, certification requirements, and consequences for non-compliance. Employers and participants are informed about transparency measures, contribution limits, and the process for responding to funding deficiencies.
Pension Plan for Hospital and Health Care Employees – Philadelphia and Vicinity
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Presentation Transcript
Pension Plan for Hospital and Health Care Employees – Philadelphia and Vicinity Outline of the Pension Protection Act of 2006 James J. McKeogh, FSA June 12, 2007
TOPICS • General Provisions • Endangered Plans (Yellow Zone) • Critical Plans (Red Zone)
General Provisions • Fast track 412(e) and shortfall method applications • Amortize all future charge/credit bases over 15 years (benefit and assumption changes as well as gains/losses) • Section 412(e) interest rate = plan rate • Greater transparency to participants/ employers • Maximum deductible increased to 140% CL • 25% Pay Combined DB/DC limit gone
Endangered Plans – Triggers • Plans whose funded percentage is less than 80%, OR • Plans with projected funding deficiency in next seven years (after taking into account any 412(e) extensions) • If both, then considered Seriously Endangered (Orange Zone?)
Endangered Plans – Consequences • Must establish funding improvement plan(s) to meet certain benchmarks and present to bargaining parties • Benchmarks are 1/3 improvement in “unfunded” percentage and no funding deficiency projected over funding improvement period (10 years) • Funding improvement period begins after expiration of CBAs or in two years after entering endangered status, if earlier
Example – Unfunded Percentage • Say plan is 76% funded at beginning of period – then it is 24% unfunded • 1/3 of 24% = 8% • Unfunded percentage must drop 8% to 16% • Target funded percentage is 84% (100% less 16%)
Endangered Status – Other Rules • Special rules for plans less than 70% funded • Funding improvement plan status reported on Form 5500 and to participants & employers • Plan cannot accept CBA with reduction in contributions • No benefit increases pending adoption of funding improvement plan and some restrictions after adoption
Critical Plans – Triggers • Funded % < 65% AND cash flow problem in 7 years, or • Cash flow problem in 5 years, or • Funded percentage < 65% and projected funding deficiency in 5 years, or • Funded % > 65% and funding deficiency in 4 years, or • Contributions not covering NC + interest on UAL AND inactive participant liability > vested liability for actives AND projected funding deficiency in 5 years, or
Critical Plans – Consequences • Employer surcharge of 5% first year and 10% thereafter (in lieu of excise tax) • Expanded ability to cut non-core benefits (e.g. early retirement subsidies and recently adopted benefit increases not guaranteed by PBGC) • Trustees must develop and adopt rehabilitation plan to improve funding
Critical Plans – Other Rules • Section 412(e) extensions not taken into account in red zone determinations • Employer surcharge ceases upon execution of CBA implementing rehabilitation plan • Plan can reject employer CBA not consistent with rehabilitation plan and create deemed withdrawal
Timing • Plan Actuary must certify as to funding status within 90 days from beginning of year • Can use liabilities projected from prior year • Use best guess as to assets – (need help from inv. consultant, auditor, custodian, etc.) • After certification due, 240 days to develop funding improvement / rehabilitation plan.
