NEW YORK NURSE: January/February 2009
by Nancy Webber
A law designed to shore up retirement funds is now creating a nationwide pension crisis. It also could have a major impact on workers covered by defined benefit pension plans, including the NYSNA Pension Plan.
To hold off the possibility of future reductions in retirement benefits, NYSNA members are urging pension plan trustees to take advantage of a one-time offer to defer the effects of this law, the Pension Protection Act (PPA) of 2006.
The PPA was enacted after several large companies, including United Airlines, defaulted on their pension plans. The new law was designed to ensure that all plans are fully funded by 2015. When plans are fully funded, they have enough cash to meet their obligations to plan participants.
The law was applauded as a protection for workers’ retirement income. But no one, including the members of Congress, anticipated the economic collapse of 2008.
All pension plans rely on investments to grow their assets over the long term. Historically, the NYSNA Pension Plan has performed extremely well – in January 2008 it had a surplus of $370 million and has been ranked in the top percentile of all plans in the country.
But, during the last quarter of 2008, the value of defined benefit pension plans nationwide declined by $1.9 trillion while IRAs and 401(k)s fell by $2 trillion. It’s estimated that the NYSNA Pension Plan ended the calendar year with a loss in value of 28% to 35%.
Other pension plans are in the same condition. For example, the 1199SEIU Health Care Employees Pension Fund started the year with a $752-million surplus and ended it with a $3.1-billion deficit.
Losing about a third of a fund’s assets would be bad enough. But the provisions of the PPA put added pressure on plan trustees who must find a way back to solvency.
According to the new law, by March 31 of each year, an independent actuary must notify the federal government if pension plans are underfunded. If plans are in the “red zone,” their trustees must develop plans to get them to acceptable funding levels within 15 years.
Due to the stock market disaster, just about every defined benefit pension plan in the nation, even if it was “green” in 2007, could be in the “red zone” for calendar year 2008.
Late last year, both business leaders and unions called on Congress to prevent a tidal wave of “red zone” notices in March 2009. The call was answered in December 2008 with the passage of the Worker, Retiree, and Employer Recovery Act.
Under this interim measure, for one year only, the fund can be certified at its 2007 value instead of its 2008 value, essentially deferring the effects of the PPA for one year. The NYSNA Pension Plan was rated good or “green” in 2007.
Pension plan trustees must decide by March 31, 2009, whether to take this option. If they don’t act by then, the fund could be certified “critical” or “red” and warning letters would be sent to all plan participants.
The NYSNA Pension Plan board of trustees is made up of association representatives and employer representatives and each side gets one vote. The association trustees, which include both NYSNA staff and members, are in favor of delaying the impact of the PPA.
“We are urging the plan’s employer trustees to join us in ‘keeping it green’ for one year,” said Nancy Kaleda, special projects manager for the NYSNA Economic & General Welfare Program and chairperson of the NYSNA Pension Plan. “This is clearly the best choice at a time of uncertainty in the economy. It won’t fix the problem, but it will allow time for a market recovery and further national legislation.”
Because the NYSNA Pension Plan was well-funded in 2007, there is enough cash ($1.5 billion) to pay benefits to retirees now and in the immediate future.
But the future is uncertain in terms of the benefits the plan will offer. When a pension fund is in the red zone, the PPA requires trustees to develop a plan that will get the fund back to green status. This plan must reduce “adjustable benefits” to the greatest extent allowed by law. The PPA defines adjustable benefits as provisions such as early retirement with full benefits and post-retirement death benefits.
Even before the trustees develop this plan, however, employers must start paying a 5% surcharge on their current contributions, which increases to 10% the following January.
“The PPA, as it now stands, represents a threat to the retiree benefits our members have fought to achieve over the past 50 years,” said Kaleda. “We intend to use every available means to find a solution to this challenge.”
If you belong to the NYSNA Pension Plan, you must let the plan’s employer trustees know how important it is for them to take the PPA extension and keep the plan green. Here’s what you can do: