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Tuesday, March 27, 2012

LLNL TCP1 contributions FAQs

Anonymously contributed:

Frequently Asked Questions
1. What are the employee and employer contributions to the defined benefit plan for fiscal year 2012?
A. Employer pension contributions will be $20 million for fiscal year 2012 and employee contributions will be 5 percent of pay. Contributions will begin in June.
2. Who is affected?
A. Employee contributions apply to only those employees who selected TCP1 during contract transition.
4. Why are pension contributions required?
A. Pension plan contributions are legally required based on the plan's assets and obligations.The assets are the cash, stocks, and bonds owned by the plan. The obligations are the amounts that the plan owes to participants - the stream of pension payments that current and future retirees (and their beneficiaries) will receive.
When a pension plan's funding ratio drops such that its assets are insufficient to cover the present value of its current obligations, contributions to the plan are legally required. The present value of the current obligations is a calculation performed by the plan's actuaries to determine the amount of dollars required today (including interest earned) to make the stream of pension payments to the plan's current and future retirees. This calculation is complex and takes into account expected years of service, age at retirement, salary, lifetime, etc.
Employee and employer contributions will help offset future payment obligations. For more information, refer to the Director Parney Albright's column.
5. Is my contribution pre-tax or after-tax?
A. The level and type of contributions permitted in the plan are governed by the Employee Retirement Income Security Act (ERISA). Under ERISA law it is required that participant contributions be made on an after-tax basis. As a result, a portion of the future retirement income that you receive that is attributable to your after-tax contributions will be tax free.
6. What happens to my contributions?
A. Participant contributions made to the plan will be tracked by Aon Hewitt and attributed to employees as required. At the time of retirement Aon Hewitt will provide participants with the necessary tax documents to identify the taxable/non-taxable portion of the benefit. The LLNS Defined Benefit Pension Plan is a retirement plan that provides a pre-determined retirement benefit to participants based upon a formula that includes factors of age, credited service and salary. The benefit is a promised lifetime monthly income that funded by a combination of employer contributions, employee contributions and plan asset accumulations.
7. How secure is my pension?
A. With a defined benefit plan the employer is legally required to make sure there is enough money in the plan to pay the guaranteed benefits. As a contractual commitment, DOE is responsible for funding the employer portion of contributions. In addition, defined benefit plans are the only type of pension insured by the Pension Benefit Guarantee Corporation (PBGC). The insurance works similarly to the federal deposit insurance that backs up bank accounts.
8. Can I opt out of TCP1 or transfer to TCP2?
A. No, you may not opt out of TCP1 or transfer to TCP2.


Anonymous said...

The PBGC is severely underfunded and pays out 25 cents on the dollar...

Anonymous said...

5:31pm has a good imagination.

Wikipedia says the PBGC corporation has $102.5 billion in obligations and $79.5 billion in assets. That's not severely bad considering that they have several decades to raise more money (the obligations are spread out over a long period of time). So far as I know, they are paying 100% of what they guarantee - but they don't guarantee 100% of our pensions. Visit their web site if you want to get a taste of their complicated rules.

Anonymous said...

I'm 8:30pm again.

I'd like to speculate that the purported ERISA law making pension contributions after-tax, only applies to private corporations. Thus it wouldn't apply to UC, for example. Does anyone really know?

Anonymous said...

I'd like to speculate that the purported ERISA law making pension contributions after-tax, only applies to private corporations.

That is my understanding.

Anonymous said...

Obligations: $102.5b
Assets: $79.5b
Funding level 77.5%

The PBGC needs a PBGC bailout....

Warning: Max benefit PBGC pays out is $54k/yr @ 65 years old, less at lower ages, that's far less than almost everyone in TCP1 will have coming to them.

If you're counting on PBGC, you're dreaming...

Anonymous said...

>I'd like to speculate that the
>purported ERISA law making pension
>contributions after-tax, only
>applies to private corporations.
>Thus it wouldn't apply to UC, for
>example. Does anyone really know?

That is correct. The contributions that the UC employees are now making to their Defined Benefit plan are pre-tax. LANS and LLNS employee contributions to their Defined Benefit plans are after -tax.

Anonymous said...

Obligations: $102.5b
Assets: $79.5b
Funding level 77.5%"

If TCP1 reaches bankruptcy, then many, many other pension plans will be in the same boat (since most follow similar long term investment strategy). Thus "Assets" may be the same, but liability/obligations goes up 10x? 100x? Don't get too comfy with the 77.5% funding level.

Anonymous said...

The answer to 4. is deliberately misleading. Contributions are not required at all, but for those who elect to participate in ERISA, participants must make up 1/7 of the yearly negative difference between the actuarial assets and acturial basis of current liabilities.

LLNL chose to resume contributions prior to a shortfall being reached, a cautious step, but costly to TCP-1 employees who now lose 5% of their gross wage in after tax income, a real effect of 7% or more in take home pay.

This in spite of the fact the the acturial basis of liabilities is inflated by more than 20% because a very temporary and unusual discount rate of 4.9% is used to value the present value of liabilities rather than a average and more likely value of 6.6%. ( the change is direct in the numerator of the net present value of the discounted cash flow.

Anonymous said...

Further, Cy11 was a very poor year for pension portfolio returns, even 1% was above average,so the assets were artificially low.

The TCP-1 assets are now (1Q12 30mar 2012) probably 10% higher than on 30dec11.

So the numerator is too low.

Anonymous said...

So PARNEY seems to have blundered into taking 7% of the take home pay of half the lab, at the worst possible moment, when the TCP-1 shortfall is likely to be temporary, the ratio is likely 10% improved today, and will be 10%better when Bernanke stops quantitative easing and the discount rate returns to above 6% from the current 4.9%.


It reminds me of another fine LLNL moment when a project engineer reported that "we fixed the questionable power supplies, and now they are all broke."


Anonymous said...

Have you noticed that LLNL management can do nothing right since the transition?

Anonymous said...

If continuing scientific support of the DOE strategic mission is important, it must be removed from the blundering DOE puppeteers who frog march lab managment's into folly.

There is only so much employees can do though extra to compensate for poor direction.

Anonymous said...

Someone said: "PARNEY blundered into taking 7% of take home pay of half the lab...THIS IS A CAUTION THE BORDERS ON THE ABSURD."

You have a very good grasp of ERISA and pension/investing math. Kudos.

What you're missing: this is just a forcing function to get as many of us TCP1ers to quit as possible before they have to VSP/RIF (merry Xmas) and pay us all severance.

Last time they did a lay off the severance killed their profit margin on the layoff. LLNS is not making that mistake twice.

Hence all this BS about "protecting" our pension...

Read some financial history, all of these techniques are out of the standard corporate playbook.

Read "Retirement Heist" by Ellen Schultz or look up her interview on CSPAN


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