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Volume 35

Number 1

April 30, 2005

Summary of Material Modifications

 

This CPF Report presents a Summary of Material Modifications to the Plan of Benefits of the Central Pension Fund of the International Union of Operating Engineers and Participating Employers, which will become effective August 1, 2005.

At its January, 2005 meeting the Board of Trustees of the Fund adopted three amendments, which will modestly reduce the Plan of Benefits in the future, for active participants only. The amendments will not become effective until August 1, 2005. This Summary will describe each amendment, and provide examples of how each will apply.

It is important to understand that these amendments will not diminish or in any way affect the benefits of active participants accrued through July 31 of this year; nor will they diminish or in any way affect the existing benefits being paid to pensioners and beneficiaries.

AMENDMENT 1: REDUCTION OF FUTURE BENEFIT ACCRUAL RATE

EXPLANATION:

Effective for work performed on and after August 1, 2005, the monthly benefit accrual rate will be reduced from 3.3% to 3.0% of contributions.

EXAMPLE:

  • Assume that, as of July 31, 2005, Participant A has an accrued benefit of $1,000 a month which will be payable at his/her Normal Retirement Age.
  • And assume that, between August 1, 2005 and his/her Normal Retirement Age, an additional $10,000 in contributions are made on behalf of Participant A.
     
  • Because of this amendment, the contributions made after August 1, 2005 will accrue a monthly benefit at the rate of 3.0%, thereby adding an additional $300 a month ($10,000 x 3% = $300) to the $1,000 a month accrued before August 1, 2005.
  • Therefore, in this example, Participant A’s Normal Retirement benefit would be $1,300.

AMENDMENT 2: ELIMINATION OF 60-PAYMENT GUARANTEE FEATURE

EXPLANATION:

For all retirement benefits accrued on and after August 1, 2005, such benefits will be paid in the form of a lifetime annuity for the participant, participant and spouse, or participant and contingent annuitant, depending upon the option selected. However, there will no longer be a guarantee of at least 60 minimum monthly payments.

EXAMPLE:

  • Assume that, as of July 31, 2005, Participant A has an accrued monthly benefit of $1,000, and then accrues an additional benefit of $300 between August 1, 2005 and reaching his/her Normal Retirement Age.
  • And assume that, at retirement, Participant A chooses a benefit that, prior to August 1, 2005, had a 60-Payment Guarantee feature.
     
  • Because of this amendment, if Participant A dies before receiving 60 monthly benefit payments, his/her spouse, designated beneficiary, or contingent annuitant will receive the remainder of 60 payments of only that portion of the benefit that had been accrued prior to August 1, 2005.
  • Therefore, in this example, Participant A’s spouse or designated beneficiary would receive payment of the remainder of 60 payments of $1,000 a month --- the portion of Participant A’s benefit accrued prior to August 1, 2005 --- but would receive no payment(s) for the remainder of the $300 a month that had been accrued after August 1, 2005.

AMENDMENT 3: CHANGE IN DISABILITY BENEFIT

EXPLANATION:

For participants with a disability onset date on and after August 1, 2005, the amount of the Disability benefit will be equivalent to the participant’s accrued Early Retirement benefit, instead of the accrued Normal Retirement benefit. Furthermore, the Disability benefit will be converted to an Early Retirement benefit at age 55, instead of converting to a Normal or Special Retirement benefit at Normal Retirement Age. Finally, Disability benefits will not be paid to participants who are otherwise eligible to begin receiving Early, Normal or Special Retirement benefits.

EXAMPLE

  • Assume that, Participant A becomes disabled on or after August 1, 2005, and meets all of the eligibility requirements to receive a Disability benefit from the Fund.
  • And assume that, at the time of the disability, Participant A has less than 25 years of Credited Service, meaning that his/her Normal Retirement Age is 65. (Normal Retirement Age is 62 for those with at least 25 years of Credited Service.)
  • And assume that, at the time of the disability, Participant A is younger than age 55, has an accrued Normal Retirement benefit of $1,000 payable at age 65, and an accrued Early Retirement benefit of $700 payable at age 55. (Early Retirement benefits are equal to the Normal Retirement benefit reduced by 3% per year for each year younger than Normal Retirement Age, with the earliest retirement at age 55.)
     
  • Because of this amendment, Participant A’s Disability benefit will be $700 a month --- the amount of the Early Retirement benefit that would otherwise have been payable at age 55.
  • By further example, if Participant A is 55 years old on the date of the disability, no Disability benefit would be available, because Participant A would be eligible to begin receiving a $700 a month Early Retirement benefit.

It is important to remember that all those who receive Disability benefits from the Fund, also receive disability benefits from the Social Security Administration.