1 NECA LABOR RELATIONS CONFERENCE SAN ANTONIO, TX OCTOBER 12-14, 2009 Presented by: Paul Heylman Saul Ewing LLP Defined Benefit Issues (PPA, Funding, Rehabilitation)

2 Overview of Pension Protection Act of 2006 The Pension Protection Act of 2006 created a temporary set of rules, effective for plan years beginning in 2008 and ending in 2014, addressing the funding of multiemployer plans that are in “endangered” or “critical” status. Endangered plans are required to adopt and implement a funding improvement plan, plans in critical status must adopt a rehabilitation plan. Determination by the enrolled actuary for a multiemployer plan as to whether the plan is in endangered or critical status for a plan year

3 Green Zone: A plan that has a funded ratio of 80 percent or more and no projected funding deficiency in the next six plan years. Yellow Zone: A plan that is “endangered” or “seriously endangered.” A plan is endangered if it is less than 80 percent funded, or has, or is projected to have an accumulated funding deficiency within the next six plan years. Orange Zone: A plan is seriously endangered if it has both these conditions. Different Zones- ERISA 305

4 Different Zones- Cont’d Red Zone: A plan that is in critical status. A plan enters critical status if, at the beginning of the plan year: –the plan is less than 65 percent underfunded, and the market value of assets plus the present value of reasonably anticipated employer contributions for the current and next six plan years is less than the present value of non-forfeitable benefits payable over that time period (plus administrative expenses); or

5 Different Zones- Cont’d –an accumulated funding deficiency exists for the current plan year or is projected for any of the next three years (four plan years if the funded percentage of the plan is 65 percent or less), not taking into account extension of amortization periods; or

6 Different Zones- Cont’d –(1) the normal cost for the current plan year plus interest on unfunded liabilities exceeds the present value of reasonably anticipated employer and employee contributions for the current plan year, (2) the present value of nonforfeitable benefits of inactive participants is greater than the present value of nonforfeitable benefits of active participants, and (3) the plan has an accumulated funding deficiency for the current plan year, or is projected to have one for any of the next four years, not taking into account amortization periods; or

7 Different Zones- Cont’d –the fair market value of assets plus the present value of reasonably anticipated employer contributions for the current plan year and each of the next four years is less than the present value of benefits projected to be payable during the current plan year and each of the succeeding four years (including administrative expenses).

8 Consequences of Being in the Yellow Zone If Plan is in the Yellow Zone: –Endangered plans are required by the PPA to adopt and implement a funding improvement plan designed to increase its funding percentage over ten years (over 15 years for seriously endangered plans).

9 Consequences of Being in the Red Zone If Plan is in the Red Zone: –Must adopt within 240 days of actuarial certification of the plan a rehabilitation plan that will enable the plan to emerge from critical status after ten years.

10 More Red Zone Each year during the funding improvement or rehabilitation period, the plan's actuary must certify whether the plan's funding is progressing according to schedule, and penalties, such as excise taxes, may be imposed for actions that impede the attainment of the funding goals.

11 Worker, Retiree, and Employer Recovery Act of 2008 (WRERA)  One year breather: For determining endangered or critical status, a multiemployer plan sponsor may elect to treat the plan's funding status the same as that of the preceding year for the first plan year beginning during the period beginning on Oct. 1, 2008, and ending on Sept. 30, 2009.

12 Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) Under §205 of WRERA, a plan can elect to extend its funding improvement period or rehabilitation period if in endangered or critical status for a plan year beginning in 2008 or –10-year funding improvement period or rehabilitation periods are extended to 13 years. –15-year funding improvement periods are extended to 18 years.

13 CONTACT INFORMATION Paul Heylman, Esquire 2600 Virginia Avenue, N.W. Suite 1000 – The Watergate Washington, DC Phone: Fax:

14 Saul Ewing’s Office Locations Baltimore, Maryland Lockwood Place 500 East Pratt Street, Suite 900 Baltimore, MD fax: Chesterbrook, Pennsylvania 1200 Liberty Ridge Drive, Suite 200 Wayne, PA fax: Harrisburg, Pennsylvania Penn National Insurance Tower Two North Second Street, 7th Floor Harrisburg, PA fax: Newark, New Jersey One Riverfront Plaza Newark, NJ fax: New York, New York 245 Park Avenue, 24th Floor New York, NY Fax: Philadelphia, Pennsylvania Centre Square West 1500 Market Street, 38th Floor Philadelphia, PA fax: Princeton, New Jersey 750 College Road East Princeton, NJ fax: Wilmington, Delaware 222 Delaware Avenue, Suite 1200 Wilmington, DE fax: Washington, D.C Virginia Avenue, N.W. Suite 1000 | The Watergate Washington, D.C fax: