1. Copyright © 2014 by The Segal Group, Inc. All rights reserved. The Case for Pension Relief Presented by: Joseph A. LoCicero Harold S. Cooper July 16, 2014

2. 2  Main Multiemployer PPA Provisions of Pension Protection Act of 2006  Provided for zone status  More rapid funding (15 years)  Scheduled sunset – end of 2014 plan year  Effect of Sunset  Plans in Yellow and Red Zones continue with funding improvement and rehabilitation plans  Plans in Green Zone – lose options if funding deteriorates  Funding rules continue Background

3. 3  Solutions not Bailouts  Assumed no government bailout  Considered financial challenges of PBGC multiemployer fund  Designed to preserve the multiemployer system with regular and reliable lifetime retirement income  Reduce the financial risks to employers in order to keep them in the plans and in order to attract new employers  Employer Concerns  Ability to borrow  FASB exposure  Withdrawal liability  Last man standing Background

4. 4 NCCMP Benefit Suspension Proposal  Plan has taken all reasonable measures to improve funding  Plan is expected to become insolvent within:  20 years if ratio of inactive participants to active participants exceeds 2 to 1  15 years otherwise  Insolvency can be avoided if benefits are reduced but not below 110% of PBGC guarantee  Central States example — Can pay out $72 billion in benefits over next 50 years with suspension, compared to $28 billion before insolvency without 4

5. 5  Based on participant’s benefit and years of service  Determine participant’s average benefit per year of service  Guarantee per year of service is: –100% of first $11 of benefit –75% of next $33 of benefit –Benefits in excess of $44 are not covered –Maximum benefit is $35.75 per year of service  Sample maximum guaranteed benefits: –20 years: $715/month –30 years: $1,072/month –40 years: $1,430/month PBGC Guaranteed Benefits

6. 6  Midwest area construction plan  Expected to become insolvent in 2028  Insolvency date has been delayed due to favorable investment performance  Contribution level of $10 per hour  Limited increases in contribution rate (was $9 in 2006)  Benefit accrual rate of $50 per year of service, reduced from $100 several years ago  Many other cutbacks made as part of Rehabilitation Plan Case Study 6

7. 7  Average benefit (not including beneficiaries) of $1,700 per month  For service pensions, average benefit is $2,900  25% of pensioners have benefits in excess of $2,500  PBGC guaranteed benefit maximum is $1,430 or less  Total benefits paid are $40 million  Total contributions are $20 million  Net outflows of $20 million per year  Market value of assets is $164 million  Expected asset decline of $8 million per year and accelerating Retiree and Cash Flow Statistics

8. 8 Projected Plan Assets with no Changes

9. 9  Trustees asked: What is minimum reduction required across the board (actives, inactive vesteds and retirees) that would keep the plan from insolvency?  Approximately 10%  A few beneficiaries were affected by the 100% of PBGC guarantee requirement, so the average reduction was 9.8%  Other issues not considered, such as limited reductions to older or low benefit participants Potential Benefit Suspension 9  PBGC Guarantee would result in average benefit cut of nearly 50%, once the plan is insolvent  After suspension, benefits much better than PBGC guarantee  Example: Service pension about $2,600 vs $1,100 guarantee  Average benefit with suspension is 80% higher than Guarantee

10. 10 Projected Plan Assets After Suspension

11. 11  65% of plans are in Green Zone 1  There are “Shades of Green”  Almost 10% of Green Zone plans are expected to migrate into the Yellow and Red Zone in the absence of actuarial gains or corrective actions by the Trustees, assuming continuation of PPA rules  Although favorable experience would decrease the percentage, unfavorable investment results and/or employment declines could increase the percentage significantly  Face significant increase in PBGC premiums.  These plans need the current tools, along with the other tools proposed in Solutions not Bailouts Green Zone Plans 1 Segal Consulting’s Survey of Calendar Year Plans’ 2014 Zone Status, Spring 2014