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Pension Basics
by Ron Kutak , Guild Executive
Director
As you probably have noticed on your yearly pension statement, your Individual Account Plan (IAP) balance has increased dramatically in the last several years. Unfortunately, many members are confused
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how our plan works. |
Pension plans generally are referred to as either ‘defined benefit’ plans, or ‘defined contribution’ plans. A defined benefit plan is what people think of as a traditional pension, that is, a ‘defined’ amount of money paid each month from the date of retirement until death. A defined contribution plan, on the other hand, ‘defines’ the contribution into the plan, but does not ‘define’ what the benefit will be, similar to a 401k or 403 b plan.
Companies nowadays prefer the defined contribution model, since the defined benefit model commits them to liabilities they must meet over time (monthly checks for retirees), while a defined contribution plan entails no future liabilities for them once contributions are made.
Upon retirement, a participant in a defined contribution plan receives the contributions made in his or her behalf, plus any investment income. The amount is usually paid as a lump sum.
Our pension contains both types of plans. Our defined benefit plan guarantees you a monthly check for life after retirement based on a formula derived from your qualified years and hours worked. Our defined contribution plan, also known as the IAP, has been in existence since 1979, but came into its own during the 1996 renegotiation of the Hollywood agreement. Prior to that time, 30.5 cents per hour were contributed to a member’s IAP account, which produced rather slow growth. The 1996 agreement aimed to increase the contribution and furthermore, since the defined benefit plan provides a contribution based on hours worked irrespective of salary, our goal was to augment the pension in a way that took a member’s salary range into account.
The 1996 agreement created a formula that resulted in 3% of a participant’s scale wages paid into the IAP for each day or week worked. This will increase to 4% by the end of our current agreement in 2003.
There is one final and critical component that places money in your individual account. Our health plan is funded from per-hour contributions made by the employer. In addition, money is paid to the plan under our current residual formula, that is, as a percentage of videocassette and free television sales. The health plan maintains a reserve in case of a reduction in investment income, increasing health costs, or an interruption of hourly contributions (such as a work stoppage). This reserve is now set at 12 months, which means there is money in the plans to pay claims for a period of 12 months should all income stop.
Any money in excess of this 12-month cushion goes into the pension plan – divided among the active participants and placed in their IAP’s. Between 1997 and today this has resulted in a $294.6 million bonus, divided among the participants.
This means, by way of example, that a participant with 10 years and 20,000 hours would receive in excess of $3,000 for the 2000 plan year, someone with 15 years and 30,000 hours would receive over $4,000, and someone with 20 years and 40,000 hours would receive about $5,000.
The improved IAP contribution formula and these additional residuals contributions were achieved without sacrificing anything in the traditional defined benefit plan. In fact, we achieved considerable improvements in that plan, as well: an 18% increase in benefits under this plan for future retirees in 1996, increasing to 23% under our recently concluded negotiations.
Your IAP money is invested by the plans until you take distributions when you retire. The plans’ investment program has produced double-digit returns in the last several years, and your account statement indicates the investment income you received in the previous year. The health and pension plan investments are managed by a plan committee, utilizing many money management firms with different investment styles. The managers’ performance, our asset allocation and the suitability of investments for each plan is examined on a monthly basis.
Your yearly pension statement indicates the contributions made on your behalf during the previous year, the balance in your IAP, and the defined benefit that you are eligible to receive on a monthly basis when you retire. You should know, however, that you’ll have several choices when you retire that will affect both your monthly benefit and your IAP. If you are contemplating retirement, call the plans, make an appointment, and have someone explain your options.
If you have questions about our pension plans, call the plan office at: (818) or (310) 769-0007 ext 627.
Reprinted from
The Motion Picture Editors Guild Magazine
Vol. 22, No. 1 - March/April 2001
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