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The Qwest Pension Plan Post-Merger, what happens to the Plan?

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Presentation on theme: "The Qwest Pension Plan Post-Merger, what happens to the Plan?"— Presentation transcript:

1 The Qwest Pension Plan Post-Merger, what happens to the Plan?
Does anything change? Can CenturyLink change the Plan? How does the Qwest Pension Plan work? How does the Qwest Retiree Healthcare Plan work?

2 Post-Merger, what happens to the Qwest Pension Plan?
CenturyLink is bound by the provisions of Section 1.3 “Successorship” of our contract. As such, CenturyLink “. . . shall be bound by the Terms and conditions of this Collective Bargaining Agreement between Qwest Corporation, Qwest Business Resources, Inc. and CWA, and shall assume all other duties and responsibilities of a successor (as that term is construed under the National Labor Relations Act).”

3 Successorship Any change to any of the negotiated benefit plans is
subject to the provisions of Addendum 10. Section A.10.4 states that the employer can propose changes "provided, however, that no change shall be made without the consent of the Union in the Plans which would reduce or diminish the benefits or privileges thereunder for the employees within the bargaining unit."

4 Can the Plan be changed for the already retired?
You cannot change the Plan and then retroactively change the rules. Changes to Pension Plans must conform to certain rules established under the law. To illustrate how that works, we can look to how both Qwest and CenturyLink ended their Plans for all non-represented employees.

5 Qwest In November 2009, Qwest amended the Pension Plan
freezing those non-represented employees where they currently were in the plan. While they could “freeze” those employees, those employees retained what they had up to that point. Additionally, non-represented employees hired after January 1, 2009 are not eligible to participate. CenturyLink followed suit freezing their current non- represented employees and disallowing future non- represented new-hires from participation the following year.

6 Changes to Non-represented Plans
You cannot change a Plan and then retroactively change the rules. This is one of the major protections of the Employee Retirement Income Security Act (ERISA). Legally, while the door could be closed going forward, what is earned to date can't be changed to take it away.

7 Changes to Non-represented Plans
Employers can end a pension plan through a process called “plan termination.” There are two ways an employer can terminate its pension plan: The employer can end the plan in a “standard termination” but only after showing the Pension Benefit Guaranty Corporation (PBGC) that the plan has enough money to pay all benefits owed to participants. If a plan is in a termination process and is not fully funded, the employer may apply for a “distress termination” if the employer is in financial distress. To do so, the employer must prove to a bankruptcy court or to the PBGC that the employer cannot remain in business unless the plan is terminated.

8 Pension Benefit Guaranty Corporation
Security of benefit Pension Benefit Guaranty Corporation PBGC guarantees maximum benefit amount Benefit is indexed annually Additional information –

9 Could the Company unilaterally buy out all pensions and end any pension coverage?
If they didn’t have to bargain with us and decided to just dump their pension Plan, they could if they followed the process required under law. They would first have to show the PBGC that the plan has enough money to pay all The Pension benefits owed to participants. The Plan would then be required to either (a) purchase an annuity from an insurance company which would provide the participants with lifetime benefits when they retire; or, (b) if the Plan Allows ump sum payments, to issue one lump sum payment to each of the participants that covers their entire benefit.

10 Pension buy out – continued
Before purchasing an annuity, the plan administrator must give participants advance notice that identifies the insurance company (or companies) that the employer may select to provide the annuity. The PBGC’s guarantee ends when the plan either purchases annuities for or gives participants lump sum payments.

11 Do the other Represented CenturyLink units have pensions?
CenturyLink has 2 pension plans. The CenturyTel legacy Plan (which is now ‘frozen’) covering the non-represented CenturyLink employees and a second Plan which is compromised of the Pension assets of those units that were acquired that had pension plans. Those Plans are still in effect. Eliminating or freezing those plans is a mandatory subject of bargaining.

12 Is the Qwest Pension Plan “safe”?
On page 105 of Qwest’s current annual 10-K Report, it is reported that: "The accounting unfunded status of our pension plan was $585 million at December 31, During 2012 we expect to begin making required contributions to the plan and we estimate that these 2012 contributions could be between $300 million and $350 million." The Qwest Plan was underfunded by $790 million as of December 31, Continuing on page 110 of this Report, the "Fair value of [pension] plan assets at end of year" 2010 was $7.66 billion. And, on page 120, Qwest reports the total pension plan "benefit obligation" at end of year 2010 was $8.245 billion. Current Plan assets are at 93% of liabilities. By law they are required to make contributions to bring it to 100% but also gives them time in which to make those contributions.

13 How does the Qwest Pension Plan work?

14 Who is covered by the Qwest Pension Plan?
Employees with one or more years of service Participation is automatic – don’t have to enroll Occupational employees hired or rehired before 12/31/08 are vested after 5 years (traditional Pension Plan) Occupational employees hired or rehired after 12/31/08 are vested after 3 years (Cash Balance Formula) Eligible to take benefit at termination (if vested), do not have to wait until age 65

15 Who pays for the cost of the Plan?
Pension benefit is provided at no cost to employee Employees do not make contributions – they are not allowed Qwest pays for entire cost and bears the investment risk

16 Plan Requirements The Plan must meet certain criteria established by the IRS and the Department of Labor (DoL). This criteria requires that the funds be set aside in a Trust. At Qwest, there is $8.245 Billion owed with current assets of $7.66 billion. Assets can only be used for the benefit of plan participants.

17 Term of Employment* (TOE) * Qwest employees only
Length of service used to determine eligibility for a Service Pension or a Disability Pension TOE is also used to determine all seniority-based benefits such as vacation, schedule of shifts, Short Term Disability and tuition assistance TOE is measured in terms of completed years, months, and days of employment with a Participating Company Bridging of service rules apply to TOE

18 Pension Calculation Service (PCS)
PCS is the service used to determine the pension benefit. It is similar to TOE, but not identical. PCS is prorated for any part-time employment. PCS is maintained for Pension Plan purposes only – no other benefits are based on it.

19 Negotiated Occupational Formulas
Pension Band based on job title X Pension Calculation Service (PCS) + Supplemental Benefit (.001 X annual average of supplemental earnings* X PCS) = Age 65 monthly annuity *Supplemental earnings include differentials, performance bonus payments, In-charge allowance

20 Negotiated Occupational Formulas
Sales Consultants – Pension Factor using average monthly compensation* X PCS resulting in a monthly age 65 benefit Average monthly compensation is based on highest 60 consecutive months of eligible earnings out of last 120 consecutive months of eligible earnings * Compensation includes base pay, sales incentives, overtime, and STD pay

21 Negotiated Occupational Formulas
Occupational Benefits are expressed as a Normal Retirement Age monthly annuity (age 65) At termination of employment or retirement, the age 65 monthly annuity is converted to an immediate annuity and an immediate lump sum

22 Account Balance Formula (ABF)
Account Balance Formula (ABF) * * Employees Hired or Rehired After December 31, 2008 Each active Occupational Employee hired or rehired after December 31, 2008 will earn a benefit under the Account Balance Formula (ABF). Compensation Credits equal to three percent (3%) of the employee’s eligible compensation (as defined by the Plan document) will be calculated annually in accordance with the ABF. Employees will become vested in the benefit upon the completion of three (3) years of employment. Upon separation from employment, if the three (3) year vesting period is satisfied, an employee is eligible to receive their account balance as prescribed by the Plan document, including a lump sum.

23 Service Pension Eligible (SPE)
Modified Rule of 75 AGE Years of Service Any Age 30 years of service years of service years of service years of service years of service Modified Rule of 75 applies to Occupational Formulas – provides a subsidy to the annuity payment option between ages 55 & 65

24 What Does “Service Pension Eligibility” SPE Mean?
Determines early retirement reduction for receiving monthly payments prior to age 65 If under age 55 and SPE, a 6% annual reduction is applied for each year under 55 If 30 or more years of service and under age 55, no reduction is applied If not SPE, the reduction for receiving benefit prior to age 65 is greater. Benefit is treated as a deferred benefit paid at present age

25 Other Retirement Benefits
Currently, if employee is SPE, Retiree Benefits include the following: The medical benefits in effect at retirement Life insurance and dental benefits Telephone Discount Retirement Gift These are subject to change – e.g., bargaining – Plan provisions govern

26 Benefit Conversions Factors that include mortality and interest rates are used to convert annuities to lump sums The interest rate is based on the average of the 30-Year Treasury rate for the 5 months prior to the month of termination. Estimates for future dated terminations are based on a 6% interest rate The lower the interest rate used in the conversion of the occupational age 65 monthly annuity, the larger the lump sum. Conversely, the higher the interest rate, the lower the lump sum.

27 Pension Protection Act 2006 (PPA)
Legislation did not change the basic calculation of benefits under the negotiated occupational formulas Most changes were effective 1/1/2008 Changes the interest rate/mortality table used to convert age 65 monthly annuity to a lump sum under the occupational formulas

28 PPA 2006 and Beyond New interest rates will be phased in over 5 years starting in 2008 Corporate bond rate ( segmented yield curve) will replace the 30-year treasury rate Currently, the corporate bond rate is higher than the treasury rate Mortality will be based on the RP 2000 table adjusted for increased longevity

29 Payment Options Single Life Annuity
Monthly benefit paid to you for rest of life 50% and 100% Joint and Survivor Annuity Reduced benefit paid to you for life with either 50% or 100% continuing to spouse Life Annuity with Ten Years Certain Monthly benefit paid to you for rest of life with 120 months of payments guaranteed Lump Sum Total value of benefit paid Combination Payment Option Lump sum and monthly annuity

30 Survivor Options 50% and 100% Joint and Survivor Annuity – Reduced benefit paid to you for life with either 50% or 100% continuing to spouse Pension Survivor Benefit

31 Pension Survivor Benefit
Effective January 1, 2009 the Qwest Pension Plan was changed to pay a pre-retirement benefit in all cases when a vested employee dies prior to receiving the pension benefit. The benefit will be paid to a surviving spouse, a named beneficiary or trust or the employee’s estate.

32 Pension Survivor Benefit - cont
All employees (married and single) have the opportunity to request and complete a beneficiary designation form at any time prior to benefit commencement that will allow the employee to name any person, trust or the employees estate as the beneficiary for the pension plan benefit if they die as an active employee or before they start receiving their pension benefit. The beneficiary designation will follow requirements of Federal law regarding the required Joint and Survivor benefit and spousal consent rules.

33 Pension Survivor Benefit - cont
The provisions in the Plan pertaining to Spousal benefits are unchanged. The Plan would provide a benefit to a non- spouse beneficiary, trust or estate based on a 50% Joint and Survivor annuity calculated as if the participant had started receiving the benefit the day before his/her death. The benefit can be paid as a lump sum if elected within the required time frame.

34 Pension Survivor Benefit - cont
The surviving spouse will receive the greater of: (a) the amount the surviving spouse would have received if the Participant had commenced receiving benefits under a 50% qualified joint and survivor annuity on the day before his/her death; or (b) an amount equal to 45% of the benefit that would have been paid had the participant terminated employment, survived until age 65 and started to receive payments at age 65.

35 When can I receive my pension?
Upon termination (if vested) - do not have to wait until age 65 Lump sum option available only if election made within 180 days after termination Election for annuity must be made within 180 days or no retroactive payments will be made Spousal consent required for election of option other than a 50% or 100% Joint and Survivor annuity.

36 Retirement If participant requests a pension kit at least 30 days in advance of termination date, retirement date is the day following term. If participant request pension kit less than 30 days in advance of termination date, the pension effective date is 30 days after termination. Termination must be posted in HR data base by 5th of month, and Pension forms must be received by 5th of month to paid on the 1st of the following month

37 Tax Implications Lump sum is taxable as ordinary income
Lump sum payments are subject to an additional 10% excise tax if under age 55 at termination If rolled over to IRA, not taxed until withdrawn Annuity payments are taxed as ordinary income – you make election on withholding

38 Qwest Pension Plan Resources
Pension Plan web site: https://qwestpension.com Can access from home Run pension estimates Request pension kits Summary Plan Description Current and historical interest rates Need four digit PIN (separate from 401(k)) Qwest Service Center PLAN (7526) – Option 1, 3 Questions? Talk to a service representative Links through HRxpress

39 How does Qwest Retiree Healthcare work?

40 Company Retiree Health Care Annual Cost Cap
The Company shall determine before the start of each year the total expected cost for each Coverage Category for eligible former Union represented employees retiring on or after January 1, 1991 (except employees who retired under the 1992 ERO). The cost to the Company for each eligible former Union represented employee retiring on or after January 1, 1991 (except employees who retired under the 1992 ERO) and their eligible dependents (commonly referred to as “Occupational Post- 1990 Retirees”) shall not exceed the Company Retiree Health Care Annual Cost Cap detailed below for each Coverage Category. Eligible Occupational Post-1990 Retirees will be responsible to pay premiums (commonly referred to as “Retiree Premiums”) equal to the amount by which the total expected annual health care costs for each Coverage Category exceed the Company Retiree Health Care Annual Cost Cap. The Company Retiree Health Care Annual Cost Cap is outlined in the table below

41 Company Retiree Health Care Annual Cost Cap
Coverage Category Company Retiree Health (Eligible as defined Annual Cost Cap* by the Plan) Eligible Non-Medicare $6,250 per retiree Adult excluding dependent $6,250 per spouse child(ren) Eligible Child(ren) (incl. student and handicapped)** $2,070 maximum Eligible Medicare-eligible $2,570 per retiree Adult excluding dependent $2,570 per spouse Waived Coverage $0

42 Company Retiree Health Care Annual Cost Cap
Coverage Category Company Retiree Health (Eligible as defined Annual Cost Cap* by the Plan) * Company Retiree Health Care Annual Cost Cap includes medical and dental costs Eligible Child(ren) (incl. student and handicapped)** ** Eligible Child(ren) (incl. student and handicapped) Company Retiree Health Care Annual Cost. Cap is based on a child(ren) unit. The unit may include one or multiple eligible children but the maximum cap amount applied is $2,070 regardless of the number of children covered.

43 Company Retiree Health Care Annual Cost Cap
The Company will pay expected annual health care costs up to the Company Retiree Health Care Annual Cost Caps by direct payment and/or payments and/or reimbursements made from the Company sponsored trust funds or other Company sources. Retiree Premiums for the expected costs that exceed the Company Retiree Health Care Annual Cost Cap will apply for eligible Occupational Post- 1990 Retirees beginning January 1, 2009 in order to maintain health care coverage under the Qwest Health Care Plan.

44 Company Retiree Health Care Annual Cost Cap - 2009
PPO Non- Medicare High Deductible Retiree $75 $5 $0 Retiree + 1 Medicare $80 $9 Retiree + 1 non-medicare $150 $81 Retiree + 1 non-medicare Family $324 $207 $44 Family non- $408 $330 $173 $138

45 Company Retiree Health Care Annual Cost Cap - 2010
PPO HDHP Qwest Cost Information – Annual Single Family Single/ Retiree Portion: Non-Medicare $102.00 $427.00 $102/$427 $11.00 $189.00 Retiree Portion: Medicare $13.00 $246.00 $13/$246 $0.00 $68.00

46 Company Retiree Health Care Annual Cost Cap – 2011 - < 65
PPO Non- Medicare High Deductible Retiree $127.36 $32.36 Retiree + 1 Spouse $254.76 $64.77 Retiree + Child(ren) $171.55 $45.10 Retiree + Family $298.91 $77.46 Spouse only Spouse + child(ren) $170.80 $44.34 Child(ren) $44.15 $12.69

47 Qwest Retiree Health Care Annual Cost Cap – 2011 – > 65
PPO High Deductible Retiree only $127.36 $32.36 Retiree + Spouse $254.76 $64.77 Retiree + 1 Child $171.55 Retiree + 1 Child $45.10 Retiree + 2 children $298.91 $77.46 Retiree + spouse + 1 child $170.80 $44.34 Retiree + spouse + 2 children $44.15 $12.69

48 QwestRetiree Health Care Annual Cost Cap – 2011 – > 65 continued
PPO High Deductible Spouse only $13.98 $0 Spouse + 1 child $34.59 Spouse + 2 children $45.42 Child $20.61 2 or more child(ren) $31.38

49 Retiree Health Care Annual Cost Cap - Premiums
How are the premiums determined? The Company shall determine before the start of each year the total expected cost for each Coverage Category for eligible former Union represented employees retiring on or after January 1, 1991 (except employees who retired under the 1992 ERO). The cost to the Company for each eligible former Union represented employee retiring on or after January 1, 1991 (except employees who retired under the 1992 ERO) and their eligible dependents (commonly referred to as “Occupational Post-1990 Retirees”) shall not exceed the Company Retiree Health Care Annual Cost Cap detailed below for each Coverage Category. Eligible Occupational Post-1990 Retirees will be responsible to pay premiums (commonly referred to as “Retiree Premiums”) equal to the amount by which the total expected annual health care costs for each Coverage Category exceed the Company Retiree Health Care Annual Cost Cap.

50 Plan Documents Govern This presentation is intended to provide general guidance about the benefits currently available under the Qwest Communications International, Inc. employee benefit plans presently sponsored by CenturyLink as the successor employer. If there is any difference between this guidance and the terms of the official plan documents, the terms of the plan documents will govern.


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