Thursday, March 16, 2006

Defined Benefit Plan

This is the classic pension, the one that pays you a monthly annuity once you hit retirement age. The DBP was formed in 1953 and began payouts in 1960. Prior to 1990, part of the DBP was funded through payroll deductions. Since that time, the DBP is completely funded by employer contributions ($1.0165 per hour worked, increasing to $1.2665 this August), so nothing comes out of your paycheck. In the past this was the primary type of pension that large companies provided their workers. Because DBPs can be relatively expensive for employers, virtually no new companies in the last 10-12 years have offered them. Put simply, employers love 'modern' retirement plans like the matching 401(k) -- because it saves them money, and because it transfers much of the burden for building a retirement nest egg onto individual workers. Recently you may have heard about a crisis in Defined Benefit Plans around the country. Many such plans are underfunded, and depend on a steady stream of contributions made on behalf of current employees to pay for the benefits of retirees. When such a company runs into trouble, it defaults on its pension obligations, and the federal Pension Benefit Guaranty Corp. (PBGC) steps in to pay at least part of the pensions due. There are worries that the PBGC itself will fail. Fortunately, when our DBP was formed, the usual accounting games weren't allowed. It was structured very conservatively (i.e., it has to be fully funded), so it's going to be there when we need it. Because the specifics of the DBP are complicated, I encourage everyone to come to the next General Membership meeting, where we will have a representative of the Motion Picture Industry Pension & Health Plans (MPIPHP) to answer questions. Till then, here are some of the DBP highlights: - 5 year vest. In order to collect from the DBP at retirement, you must work a minimum of five qualified years at union shops (a qualified year is 400 or more hours of work in one calendar year). - Payout is based on hours worked. For your first 10 qualified years, the formula for the monthly annuity is hours worked x .0295. Hours in subsequent years are multiplied by .0393. So 15 qualified years, with 1500 hours worked each year, would yield a monthly annuity of $737.25.* - Claim it or lose it. You won't automatically start receiving your monthly annuity at retirement. You must claim it. If you forget to claim it for a few years after retirement, you will forfeit the money you missed. So don't do that. Every time you move, send a change of address from to the MPIPHP. And when you retire, call them up. - Early Retirement and Survivor Death Benefits are available. These parts are complex, so I'll do no more than mention them here. There's lots more info at the MPIPHP site, or come ask questions at the membership meeting on March 28. *Addendum (4/29/06): I just learned that the payout formula has improved significantly. Retroactive to 2003, those multiplier numbers are increased by 15%. They increase a further 10% (or 26.5% total) beginning this year. So for those retiring from 2006 on, you multiply your hours worked by 0.0373 for your first ten years, and by 0.0497 thereafter. To use the above example again, someone who worked 15 qualified years with 1500 hours in each year, and retired in 2006 or later, would now end up with a monthly annuity of 932.25. That's a healthy increase! I understand that the MPIPHP is working on an on-line calculator function that will allow us to not only see where our pensions stand, but to make estimates going forward. We'll of course let you know when that's available. In the meantime, we should all be getting our annual pension statements by early June, which will let us know where we stand through the end of 2005.


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