FAQ on Proposed AP contracts

News Media Guild FAQ ON CONTRACT (will be updated)

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Pension and Retirement plan questions

Make the proposed retirement program easy for me to understand.

For DB (pension) participants, the DC Plan would be a third retirement vehicle. You would have the pension (frozen), the 401k (if you enrolled in it), and the new non-contributory DC Plan.

 

What wage payments are factored in when AP when makes employer contributions to the DC plan?

Company contributions would be based on regular pay, merit pay, and differentials. Contributions would not be made on overtime, holiday pay, liquidated vacation and compensation paid after termination with the AP. The contributions into the DC plan would occur quarterly.

What are the changes to the current plan?

  • For current pension (DB) participants, the pension would be “frozen.” You would keep the monthly benefit payable at retirement that you earned as of July 1, 2011. The monthly benefit would no longer grow. EXAMPLE: Your monthly benefit is $1500 a month at retirement as of July 1. This amount will stay unchanged – whether you are 15 years away from retirement, or just a couple of years away.

You would be automatically enrolled in the retirement plan called the “DC” plan. This separate account would consist of employer contributions only – you couldn’t add to it. You would have investment choices. For current pension (DB) participants, AP would put 7% of regular salary for those with less than 10 years of service, and 8% for people with 10 or more years of service. It would be an 8-year transition. If during the next 8 years, you pass the 10-year service mark, AP would increase its contribution to 8% when you hit that point.

 

  • For current DC enrollees: The AP’s DC plan contribution would change from 3% of regular pay to 6% of regular pay.
  • The 401k would continue, but going forward, it would be only your contributions (deductions from pay) that would go into it. The “matching” contribution (max 3% of regular pay and overtime) is ending.

The three percent match is now the ‘base’ or ‘guarantee’ of the DC plan. The amount of the matching contribution that AP would pay into the DC Plan would not depend on how much money you put into the plan.

The 401k would still provide a tax-deferred way of saving for retirement as well as taking loans and hardship withdrawals.

The one-year waiting period to participate in the 401k plan would be eliminated so new hires could enroll.

 

What can we do to help make up the difference between the pension and the new arrangement?

A frozen basic pension plan means that the “monthly payment for life” at retirement would no longer grow. It would remain whatever it is as of July 1. You would now build money in the DC plan, and if you are not in the 401k, you should enroll and start saving money immediately, even if it’s just 1% of salary. If you are in the 401k, you should contribute as much as you can. Your goal would be to build a “nest egg” that would be available to you at retirement that would have to last the duration of your retirement. You should be careful in managing your investments in the DC and 401k plan. Vanguard offers a service (at a cost) that would have a professional money manager make investment choices for you.

What does it mean now that the company has taken away the 3 percent match on the 401k?

Most of the match is simply “moving” from the 401k to the DC plan. In order to get the full match of 3%, you had to put in at least 6% of your own money.  In the plan members are voting on, there would be no requirement to put in your own money to get the 3% from the company. Overtime would not be included in the DC’s 3% of salary. The Guild negotiated an additional wage increase (.25%) that carries over into each year of the agreement to help offset this.

Is the “sweetener” of 1 or 2 percent given on an annual basis? For the length of the contract, or for the eight years?

The “sweetener” is protected by what’s known as an “Evergreen Clause,” which means it survives expiration of the contract. It is non-negotiable until 2019.

 

Should the defined benefit plan be frozen on July 1, would we receive a tally from the company on what that figure is?

You can request a statement once each year from AP about your pension benefit.

Let’s say my pension payment for life would be $1,500 in terms of a monthly payout at retirement by the time the DB plan is frozen. Can an employee expect to receive that amount for life, guaranteed, while the pot of money accumulated in the defined contribution plan is finite and paid out in equal installments until it runs out?

Yes. The term “frozen” simply means that the benefit amount would no longer increase after July 1. In this example, you would still get the $1,500 monthly payments for life. AP is required by law to put money into the plan to meet the obligations that have accrued by the freeze date. Your pension, even though it is frozen, would remain insured by the Pension Benefit Guarantee Corporation. This insurance only comes into play if there were a “distress termination,” such as a bankruptcy. In 2011, PBGC’s guarantee was up to $54,000 a year, or a $4,500 monthly pension payment. This is a worst case scenario. AP is not terminating the plan, much less considering a “distress termination.” AP is freezing the plan, which means it is legally obligated to put enough money into it to maintain the benefit obligations that have accrued as of July 1.

The 401k plan lets employees take out loans and, if need be, make an early distribution, with a hefty tax penalty. Will the defined contribution plan be managed as a 401k that would let workers borrow funds under similar terms?

The DC plan would not allow hardship withdrawals or loans. This rule is the same for the current pension (DB) plan, which the DC is replacing. Employees can use their 401k accounts for loans and hardship withdrawals as they have done previously. The employer payment would no longer be linked to your own contribution so you could reduce your savings rate without penalizing yourself by losing the “match.”

For example, a 10-year employee whose pension was frozen and chose to have 10% of pay deducted for the 401k, would be saving a total of 18% of pay between two accounts: 10% in the 401k and 8% in the new DC. In case of hardship, the employee could stop or reduce the 10% deduction into the 401k and get an immediate “pay boost” without disrupting or losing the 8% that AP is putting into the DC, because AP’s contribution would be guaranteed. Any money in the 401k could be used for loans or hardship withdrawals based on the plan’s rules.

Retirement experts advise employees not to take distributions or loans from their savings accounts because it’s hard to make up for the losses.

For those of us who have had a defined contribution pension our entire career, does this improve what we already get? It seems like it raises the AP contribution by a percent, but I wasn’t sure.

AP’s contribution into your DC account would rise to 6% of regular pay from 3%. However, matching 401k contributions would end. The main advantage of this is that AP’s contribution would “de-link” from your 401k. That means that if you need to decrease or stop your 401k savings in the future because of a financial emergency, you would not be penalized with a corresponding loss of employer contributions, as now happens with the 401k plan. In other words, you would get a 6% employer contribution, even if you put zero into the 401k.

Will we be able to manage our own accounts and determine the investments?

Yes. Both the DC and 401k are with Vanguard and can be managed online with the same log-in. Investments can be the same for both plans or be different.

Can we take it with us when we leave AP?

Yes. When you leave employment, the money belongs to you. There are a number of “rollover” options for this.  See the summary plan description for details.

Will we be able to check on it any day of the week, like our 401(k)s, to see the value or change investments?

Yes. You would have online access to both accounts through the same Vanguard log-in.

Can it be tapped into before retirement?

In the 401k plan, the rules are unchanged. In the DC plan, the answer is no. This is no different than the current DB (pension) plan that the DC would be replacing. If you leave the company and you rollover funds into another plan it would be subject to the rules of that plan.

What are the tax consequences of the pension changes, if any?

All of the retirement plans are IRS qualified plans, and remain tax-deferred compensation as before.

 

Now, the AP’s 3 percent contribution is not counted in adjusted gross income or taxable income. Nor is the employee match. Although taxes must be paid when money is eventually withdrawn. Will this change with the new plan?

No. All three plans – the 401k, the DC, and the frozen pension – remain “tax deferred.” They are not part of your adjusted gross income or taxable income while the money remains in your account. You pay taxes when you withdraw the funds. If you change employers, you can rollover the money and maintain the tax deferral until you actually withdraw the money to spend it.

Is there a provision for employee contributions or just an AP match? And what are the possible tax consequences of essentially running two 401(k) plans at the same time? Will taxes be deferred on both?

You can still make tax-deferred contributions into the 401k plan. The match would be ending, but instead, there would be a tax-deferred guarantee in the DC plan. Taxes will remain deferred on all the plans – the 401k, the DC , and the frozen pension.

Can we designate that the percentage the AP is going to contribute on our behalf go to into our existing 401 (K) accounts? Seems it would grow faster for anyone who has been saving over the years.

No. The employer match into your 401k would end, but the minimum 6% contribution in the DC would start. (It will be 7% or 8% for people who are having their DB pension “frozen”). You would still be able to manage the amount AP has contributed into the 401k when you make asset allocations. The only contributions that would go into the 401k would be the elective deferrals you make, and you would still manage these as you do now.

The rate of growth in both accounts would be determined by your investment choices, not the amount of money you have in either plan. It is a common misconception that the amount of money changes the rate of “compounding growth.” If you have $1,000 or $100,000 in an account, if the rate of growth for both accounts is identical, then both plans compound at the same rate. They are just in different accounts.

Regarding the eight-year “sweetener” — Is the company legally required to honor the eight-year commitment when this contract expires in August 2013? Don’t all provisions of the contract end when the contract expires?

In the proposed contract, the Guild negotiated a special “evergreen clause” that survives the expiration of the contract. The sweetener would be non-negotiable until 2019.

What about the money that Guild-covered staff paid into the pension fund until 1978? It’s been drawing interest. Does the AP now keep all interest paid after July 1?

No. Your personal savings (pre-1978) inside the frozen DB plan would continue to draw interest as it has in the past.

 

What is the price tag?  What do our actuaries think the 1,200 people who are eligible to vote on this contract will lose over our lifetimes and over the lives our beneficiaries?  I understand that can only be an estimate, so either their best estimate or the range of estimates would be fine.

The Guild’s actuaries earlier said that losses (compared to the current DB pension) for some employees could range up to 50 percent. The loss of the guaranteed benefit from the DB plan is offset by the amount of money AP puts into the DC plan and the investment performance. The current DB plan guaranteed a benefit. The DC plan only guarantees the amount of company contributions. You would be responsible for the investment performance.

I am not asking for the potential loss to me personally, but our collective loss: something like “$3 billion over the next 50 years.”  The formula would something like the total pension credits we would have earned x years retired – value of the extra 3, 4 or 5 percent into the saving account.

The actuaries concluded that AP would be saving about $18MM over five years. Beyond 8 years, AP’s pension obligations are projected to matched by plan assets and would not require additional AP payments into the pension plan. Eventually, the plan will become overfunded. Typically, when that happens, Employers purchase annuities that precisely duplicate an employee’s monthly pension benefit. This is called a normal plan termination. If there is money left over, our agreement says it goes to the employees, not the company.

 

How can I calculate or look up how much I stood to gain in monthly pension payments for each year I continue to work with the AP, under the previous contract? I would like to be able to do a side-by-side numbers comparison between the two plans. I realize the amount gained each year changes depending on how many years you’ve been with the company, but the formula must be available somewhere. 

Please see the chart prepared by our actuaries. We cannot provide an individualized calculation for each member. Since AP is the plan sponsor and fiduciary, AP is required to issue a pension statement to you on request. The chart gives you an approximate idea of the percentage “hit” that employees are taking, based on the assumptions used by the actuaries.

 

If a numbers analysis shows this amounts to a giveback to the company compared to our previous agreement, can you explain what the argument is for voting yes? Given that our previous agreement stands until a new one is approved, why wouldn’t we opt to continue working under the previous plan?

There is no doubt that for current pension (DB) plan participants, the changes represent a significant reduction. The Guild fought as hard as it could to preserve the DB plan, offering creative solutions that met AP’s cost targets. AP rejected all of them and insisted on a pension freeze. The Guild team then negotiated a DC plan that tries to replace the freezing of the pension to the best extent possible. The leadership believes this is the best deal possible, short of more intense mobilization, upt to and including a strike. Members have that choice on their ballots.

It is inaccurate to say “our previous agreement stands until a new one is approved.” The terms of the old agreement stand until both parties have “bargained to impasse” under the law. If a true impasse is reached, the employer is legally free to implement its demands. While impasse had not been reached, eventually it would have been.

 

When is the AP going to stop contributing 3% to our 401K? Is this going to be on July 1 when they freeze our pensions?

The contributions would end on 7/1, the same day that either a 6, 7, or 8% contribution starts in the DC plan.

How do I know that they will actually fund the pension so that when I want it, it will be there?

The frozen DB plan is insured by the Pension Guarantee Benefit Corporation. The 401k and DC plans are “your money” in personal accounts that you own, if you are vested. All current pension (DB) participants will be immediately vested in the DC plan.

The current 401K account, if I get to keep it, do the fund choices all stay the same?

Yes, you get to keep it. You can continue to put your own savings into it and make it grow.  And the investment choices remain the same.

I have money in a 401K account. I keep that too, the same investments, and I can still contribute to it, but the AP no longer puts in any funds?

Yes, the 401k remains in place and you continue to manage investments and manage your contributions to it. AP is putting funds – at least 6% of regular salary – into the DC plan that you will also be able to manage. People whose pensions are being frozen will get either a 7% or 8% employer contribution, based on length of service.

The new plan that AP contributes money into? What is it? Where is the money? Who decides how/where the money is invested? Is there a waiting period like there was for vesting in the pension?

AP will put contributions into the DC plan starting 7/1, at least 6% of regular salary. People whose pensions are being frozen will get 7% or 8% of salary, depending on length of service. You decide how the money is invested. There is no waiting period for current DB (pension) participants – you will be immediately vested in the DC plan.

May I move it to another investment fund?

If you leave AP employment, yes. However, as long as you are employed by AP, you cannot “rollover” either the DC or 401k money into other accounts under IRS rules.

Will the account be federally guaranteed like our current pension plan?

No. The Guild fought hard for a revised pension plan that had a federal guarantee and was professionally managed, but AP would not budge. Just as in the 401k, you make the investment decisions and assume the risk in the DC.

After the pension is frozen, will we receive a statement indicating our vested benefit level at age 65? If so, when? If not, why not?

AP is required to send you information about your pension account once a year, upon request.

Do we have immediate ownership of the money that is put into the new defined contribution plan?

The funds are yours, but they are subject to IRS and plan rules concerning withdrawals and rollovers.

Is the new DC plan portable?

Yes. If you leave AP employment, it can be rolled over, according to IRS rules. Please see the summary plan document.

Will it be managed by Vanguard, or will we have a choice of administrator?

The DC plan is administered by Vanguard.

If membership rejects the contract agreement, can the company freeze the defined-benefit pension unilaterally?

Bargaining would resume with AP, along with much more intense mobilization, up to and including a strike. AP is required to bargain in good faith until it has “bargained to impasse.” However, once AP meets the legal tests of impasse, it is free to unilaterally impose its terms.

What was the result of our check of whether AP’s claims that it needed to put $5 million into the editorial unit’s DB plan right away were valid?

AP never provided proof that it had to make an immediate payment. The issue is temporarily moot with the tentative agreement.

Is the new defined contribution plan something that we would contribute to ourselves in addition to or instead of the 401k, or is it purely to be made up of the company’s 6 percent contribution (and hopefully whatever market gains we can manage)?

No. You cannot contribute to the DC plan, just as you could not contribute to the pension. Like the pension, the DC plan is 100% funded by AP as part of your base compensation. You keep whatever market gains you make through your investment choices. You also can continue to contribute to the 401k plan and get the same tax advantage that you get now.

Is any tax on the money in the defined contribution plan deferred as the 401k is?

The defined contribution plan is like the pension and the 401k in that taxes are deferred. You pay taxes when you make withdrawals.

If I retire before it takes effect, will the value of my pension investments continue to grow? In other words, could my pension be worth more if I leave AP before it’s frozen?

You don’t have direct investments in the pension plan, unless you are one of the few employees who were making contributions before 1978. You have a benefit that is a monthly “payment-for-life” when you retire. Because the plan is freezing, that means the amount of this monthly benefit will not increase. It will be frozen at the level you earned as of 7/1/2011.

Is there a vesting requirement for portability after employment at the AP? Or is it the same as current, where after 1 year you’re eligible for a 401k match from the company (which is obviously changing to the DC).

If you are in the pension (DB) plan, you will be immediately vested in the new DC plan. The DC plan is portable. See the summary plan description.

Could we please see a chart that compares our pension and 401(k) to the current offer? I feel like I need to see this before I can make an educated vote on this offer.

Please see the actuaries’ chart

What evidence do we have from the AP to support their statement that the new DC plan will be ‘portable,’ meaning you can take it with you when/if you leave the company?

Please see the summary plan document.

What happens to the defined contribution plan if the company is sold?

The DC plan is an individual account that is sponsored by AP.  The new employer would not be allowed to make changes to the plan (for future contributions) unless it bargained the changes with the union. Contributions that you have made belong to you, because they money is held in your account via Vanguard.

What happens to the defined benefit plan if the company is sold?

The DB (pension) plan would remain a legal obligation for the new employer. The DB is also remains insured by the federal government through the PBGC.

If I were to leave the company, would I need to roll over the DC plan into an IRA? Or could I leave it in place?

In order to make new contributions, you would need to roll it over. The rules would depend on the plan you are “rolling” it to. Or you can leave it in the plan.

 

Does the DC plan allow employees to contribute beyond the 6 percent (plus the additional 1-2 percent contributions for those with frozen pensions) to save for retirement? Or are employees limited to making contributions to their 401Ks?

Like the pension it is replacing, the DC plan is 100% funded by AP. You cannot contribute to it. If your pension was frozen, you come in at either 7% or 8% contribution that is guaranteed until 2019, depending on your length of service. If you cross the 10-year mark during the 8 years, you “step up” to the 8% amount. Your contributions are limited to your 401k.

How does the DC plan work upon retirement? Does the employee receive all of the money in a lump sum payment? Would the employee need to pay taxes on the lump sum?

You can take a lump sum, roll it into another plan, or purchase an annuity. The terms of the annuity would depend on market conditions you could obtain at the time of withdrawal. As with other retirement income, you pay taxes on the amount that you withdraw.

What happens, if anything, to loans we’ve taken out against our 401Ks? Money is automatically deducted from every paycheck to pay this off. Will these deductions continue?

The loans will not be affected. That is because when you take a loan from your 401k, you are taking a loan from yourself. The only thing changing about the 401k plan is that AP is no longer matching your contributions. Instead, AP is paying the contributions into the DC plan, which is 100% employer funded.

Will we have the ability to continue making payments or will we have to pay the amount in full? I worry if it’s the latter, I don’t think I’d be able to repay it, which means I’d also have a tax penalty because my loan would be converted to a withdrawal.

Again, if you have loan in the 401k, it is not affected.

This stuff you were discussing you about the existing 401k not meeting some government requirements and our contributions being subject to refunds is all news to me. If a bunch of people no longer contribute to the 401k under the new plan, does that create new potential chaos for the 401k? Are we able to roll that balance to the DC plan? Should we?

Our actuaries have told us that because the 300 non-participants in the 401k plan will now all be participating in the DC, the chances of the AP flunking the IRS discrimination test are greatly reduced. Three times previously, AP’s 401k plan flunked the IRS tests – meaning that a portion of the contributions were refunded, and thus excluded from the tax defferal. The IRS testing is to prevent employers from designing plans that are too tilted to in favor of highly-compensated employees. If the plans flunk these tests, then refunds are ordered. But again, or actuary has advised us that with 300 people now participating, the plan will pass IRS discrimination testing. That actually increases the ability of people to save in the 401k without fear of having a refund.

The IRS looks at the total participation rate, but it looks across all of the non-DB plans. Our actuaries have told us that because there is 100% participation in the DC plan, it means that all the plans won’t flunk the IRS anti-discrimination tests. Those tests – -because 300 people were not participating, will now show them as participants. Because of the non-participation level in the 401k, the AP has flunked the anti-discrimination test 3 times in the past, resulting in refunds. That is much less likely to happen now.

I currently have a very aggressive portfolio for my 401K. What are the options going to be for the DC?

The investment options are very similar. And you can have differing strategies in each plan – or they can be identical. It’s up to you.

I heard that there were several options for the DC plan. What were they? And how do they compare to what the Guild chose?

The Guild improved on the best of the three options the AP provided. One option would have “frozen” people in the DC at certain employer contributions, even as they gained years of service. Another option was essentially the same as its March proposal.

Is it safe to assume that the company has no rules preventing one from rolling their 401k (once the company match ends) to another retirement vehicle besides Vanguard?

IRS rules do not allow rollovers while you are still employed at AP. That’s because all of the plans are employer-sponsored.

I am confused about the differences between the defined contribution we would still get vs. the 401k match. Would the funds continue to be invested in Vanguard, so in effect, it would be a seamless transition, or will there be two totally separate investment vehicles?

If you are in pension (DB), you will now have a new, third account. You will have to make investment choices with Vanguard for the new DC.  You can duplicate the same investment choices you are using in the 401k, or you can use a different strategy for your DC investments.

Is there a way for employees to have the option of keeping the 3 percent match in the 401K if we want to? It would be nice if the company offered us a choice.

The Guild offered to have the 3% flat (not a match) contribution in the 401k. The AP rejected it, but it did increase its wage proposal to 1.75% in the first year. The additional .25% is paid in addition to the 1.5% bumps. AP says that employees can use that money, if they wish, to add to their 401k contributions.