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 Termsand conditions of this Collective Bargaining Agreementbetween Qwest Corporation, Qwest BusinessResources, Inc. and CWA, and shall assume all otherduties and responsibilities of a successor (as thatterm is construed under the National Labor RelationsAct).”
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 proposechanges "provided, however, that no change shall be madewithout the consent of the Union in the Plans which wouldreduce or diminish the benefits or privileges thereunder forthe employees within the bargaining unit."
4 Can the Plan be changed for the already retired? You cannot change the Plan and then retroactively changethe rules. Changes to Pension Plans must conform tocertain rules established under the law. To illustrate howthat works, we can look to how both Qwest andCenturyLink ended their Plans for all non-representedemployees.
5 Qwest In November 2009, Qwest amended the Pension Plan freezing those non-represented employees wherethey currently were in the plan. While they could “freeze”those employees, those employees retained what they hadup to that point. Additionally, non-represented employeeshired 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 changethe rules. This is one of the major protections of theEmployee Retirement Income Security Act (ERISA).Legally, while the door could be closed going forward, whatis 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 processcalled “plan termination.” There are two ways anemployer 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 benefitPension Benefit Guaranty CorporationPBGC guarantees maximum benefit amountBenefit is indexed annuallyAdditional 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 justdump their pension Plan, they could if they followed theprocess required under law. They would first have to showthe PBGC that the plan has enough money to pay allThe Pension benefits owed to participants. The Plan wouldthen be required to either (a) purchase an annuity from aninsurance company which would provide the participantswith lifetime benefits when they retire; or, (b) if the PlanAllows ump sum payments, to issue one lump sumpayment to each of the participants that covers their entirebenefit.
10 Pension buy out – continued Before purchasing an annuity, the plan administrator mustgive participants advance notice that identifies theinsurance company (or companies) that the employer mayselect to provide the annuity. The PBGC’s guarantee endswhen the plan either purchases annuities for or givesparticipants lump sum payments.
11 Do the other Represented CenturyLink units have pensions? CenturyLink has 2 pension plans. The CenturyTel legacyPlan (which is now ‘frozen’) covering the non-representedCenturyLink employees and a second Plan which iscompromised of the Pension assets of those units thatwere acquired that had pension plans.Those Plans are still in effect. Eliminating or freezing thoseplans 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 millionat December 31, During 2012 we expect to begin makingrequired contributions to the plan and we estimate that these 2012contributions 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] planassets at end of year" 2010 was $7.66 billion. And, on page 120,Qwest reports the total pension plan "benefit obligation" at end of year2010 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% butalso gives them time in which to make those contributions.
14 Who is covered by the Qwest Pension Plan? Employees with one or more years of serviceParticipation is automatic – don’t have to enrollOccupational 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 employeeEmployees do not make contributions – they are not allowedQwest pays for entire cost and bears the investment risk
16 Plan RequirementsThe Plan must meet certain criteria established by theIRS and the Department of Labor (DoL). This criteriarequires that the funds be set aside in a Trust. AtQwest, there is $8.245 Billion owed with current assetsof $7.66 billion. Assets can only be used for thebenefit of plan participants.
17 Term of Employment* (TOE) * Qwest employees only Length of service used to determine eligibility for aService Pension or a Disability PensionTOE is also used to determine all seniority-basedbenefits such as vacation, schedule of shifts, Short TermDisability and tuition assistanceTOE is measured in terms of completed years, months,and days of employment with a Participating CompanyBridging 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 forany part-time employment.PCS is maintained for Pension Plan purposes only – noother benefits are based on it.
19 Negotiated Occupational Formulas Pension Band based on job title X PensionCalculation Service (PCS)+Supplemental Benefit(.001 X annual average of supplemental earnings* XPCS)=Age 65 monthly annuity*Supplemental earnings include differentials,performance bonus payments, In-charge allowance
20 Negotiated Occupational Formulas Sales Consultants – Pension Factor using average monthlycompensation* X PCS resulting in a monthly age 65 benefitAverage 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 NormalRetirement Age monthly annuity (age 65)At termination of employment or retirement, the age 65monthly annuity is converted to an immediate annuityand an immediate lump sum
22 Account Balance Formula (ABF) Account Balance Formula (ABF) * * Employees Hired or Rehired After December 31, 2008Each active Occupational Employee hired or rehired afterDecember 31, 2008 will earn a benefit under the AccountBalance Formula (ABF). Compensation Credits equal tothree percent (3%) of the employee’s eligible compensation(as defined by the Plan document) will be calculatedannually in accordance with the ABF. Employees willbecome vested in the benefit upon the completion of three(3) years of employment. Upon separation fromemployment, if the three (3) year vesting period is satisfied,an employee is eligible to receive their account balance asprescribed by the Plan document, including a lump sum.
23 Service Pension Eligible (SPE) Modified Rule of 75AGE Years of ServiceAny Age 30 years of serviceyears of serviceyears of serviceyears of serviceyears of serviceModified Rule of 75 applies to Occupational Formulas –provides a subsidy to the annuity payment option betweenages 55 & 65
24 What Does “Service Pension Eligibility” SPE Mean? Determines early retirement reduction for receiving monthly payments prior to age 65If under age 55 and SPE, a 6% annual reduction is applied for each year under 55If 30 or more years of service and under age 55, no reduction is appliedIf 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 retirementLife insurance and dental benefitsTelephone DiscountRetirement GiftThese are subject to change – e.g., bargaining – Plan provisions govern
26 Benefit ConversionsFactors that include mortality and interest rates are used to convert annuities to lump sumsThe 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 rateThe 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 formulasMost changes were effective 1/1/2008Changes the interest rate/mortality table used to convert age 65 monthly annuity to a lump sum under the occupational formulas
28 PPA 2006 and BeyondNew interest rates will be phased in over 5 years starting in 2008Corporate bond rate ( segmented yield curve) will replace the 30-year treasury rateCurrently, the corporate bond rate is higher than the treasury rateMortality 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 life50% and 100% Joint and Survivor AnnuityReduced benefit paid to you for life with either 50% or 100% continuing to spouseLife Annuity with Ten Years CertainMonthly benefit paid to you for rest of life with 120 months of payments guaranteedLump SumTotal value of benefit paidCombination Payment OptionLump sum and monthly annuity
30 Survivor Options50% and 100% Joint and Survivor Annuity – Reduced benefit paid to you for life with either 50% or 100% continuing to spousePension Survivor Benefit
31 Pension Survivor Benefit Effective January 1, 2009 the Qwest Pension Plan waschanged to pay a pre-retirement benefit in all cases when avested employee dies prior to receiving the pensionbenefit. The benefit will be paid to a surviving spouse, anamed beneficiary or trust or the employee’s estate.
32 Pension Survivor Benefit - cont All employees (married and single) have the opportunity torequest and complete a beneficiary designation form at anytime prior to benefit commencement that will allow theemployee to name any person, trust or the employeesestate as the beneficiary for the pension plan benefit if theydie as an active employee or before they start receiving theirpension benefit. The beneficiary designation will followrequirements of Federal law regarding the required Joint andSurvivor benefit and spousal consent rules.
33 Pension Survivor Benefit - cont The provisions in the Plan pertaining to Spousal benefitsare unchanged. The Plan would provide a benefit to a non-spouse beneficiary, trust or estate based on a 50% Jointand Survivor annuity calculated as if the participant hadstarted receiving the benefit the day before his/her death.The benefit can be paid as a lump sum if elected within therequired time frame.
34 Pension Survivor Benefit - cont The surviving spouse will receive the greater of:(a) the amount the surviving spouse would havereceived 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 65Lump sum option available only if election made within 180 days after terminationElection for annuity must be made within 180 days or no retroactive payments will be madeSpousal consent required for election of option other than a 50% or 100% Joint and Survivor annuity.
36 RetirementIf 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, andPension 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 terminationIf rolled over to IRA, not taxed until withdrawnAnnuity payments are taxed as ordinary income – you make election on withholding
38 Qwest Pension Plan Resources Pension Plan web site:Can access from homeRun pension estimatesRequest pension kitsSummary Plan DescriptionCurrent and historical interest ratesNeed four digit PIN (separate from 401(k))Qwest Service CenterPLAN (7526) – Option 1, 3Questions? Talk to a service representativeLinks through HRxpress
40 Company Retiree Health Care Annual Cost Cap The Company shall determine before the start of each year the totalexpected cost for each Coverage Category for eligible former Unionrepresented employees retiring on or after January 1, 1991 (exceptemployees who retired under the 1992 ERO). The cost to the Companyfor each eligible former Union represented employee retiring on or afterJanuary 1, 1991 (except employees who retired under the 1992 ERO) andtheir eligible dependents (commonly referred to as “Occupational Post-1990 Retirees”) shall not exceed the Company Retiree Health Care AnnualCost Cap detailed below for each Coverage Category. EligibleOccupational Post-1990 Retirees will be responsible to pay premiums(commonly referred to as “Retiree Premiums”) equal to the amount bywhich the total expected annual health care costs for each CoverageCategory exceed the Company Retiree Health Care Annual Cost Cap. TheCompany Retiree Health Care Annual Cost Cap is outlined in the tablebelow
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 retireeAdult excluding dependent $6,250 per spousechild(ren)Eligible Child(ren) (incl.student and handicapped)** $2,070 maximumEligible Medicare-eligible $2,570 per retireeAdult excluding dependent $2,570 per spouseWaived 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 costsEligible 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 costsup to the Company Retiree Health Care Annual Cost Capsby direct payment and/or payments and/or reimbursementsmade from the Company sponsored trust funds or otherCompany sources. Retiree Premiums for the expectedcosts that exceed the Company Retiree Health CareAnnual Cost Cap will apply for eligible Occupational Post-1990 Retirees beginning January 1, 2009 in order tomaintain health care coverage under the Qwest HealthCare Plan.
44 Company Retiree Health Care Annual Cost Cap - 2009 PPONon-MedicareHighDeductibleRetiree$75$5$0Retiree + 1 Medicare$80$9Retiree + 1 non-medicare$150$81Retiree + 1non-medicareFamily$324$207$44Family non-$408$330$173$138
45 Company Retiree Health Care Annual Cost Cap - 2010 PPOHDHPQwestCost Information – AnnualSingleFamilySingle/Retiree Portion:Non-Medicare$102.00$427.00$102/$427$11.00$189.00Retiree Portion: Medicare$13.00$246.00$13/$246$0.00$68.00
46 Company Retiree Health Care Annual Cost Cap – 2011 - < 65 PPONon-MedicareHighDeductibleRetiree$127.36$32.36Retiree + 1 Spouse$254.76$64.77Retiree + Child(ren)$171.55$45.10Retiree + Family$298.91$77.46Spouse onlySpouse + child(ren)$170.80$44.34Child(ren)$44.15$12.69
48 QwestRetiree Health Care Annual Cost Cap – 2011 – > 65 continued PPOHighDeductibleSpouse only$13.98$0Spouse + 1 child$34.59Spouse + 2 children$45.42Child$20.612 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 expectedcost for each Coverage Category for eligible former Union representedemployees retiring on or after January 1, 1991 (except employees who retiredunder the 1992 ERO). The cost to the Company for each eligible former Unionrepresented employee retiring on or after January 1, 1991 (except employeeswho retired under the 1992 ERO) and their eligible dependents (commonlyreferred to as “Occupational Post-1990 Retirees”) shall not exceed theCompany Retiree Health Care Annual Cost Cap detailed below for eachCoverage Category. Eligible Occupational Post-1990 Retirees will beresponsible to pay premiums (commonly referred to as “Retiree Premiums”)equal to the amount by which the total expected annual health care costs foreach Coverage Category exceed the Company Retiree Health Care AnnualCost Cap.
50 Plan Documents GovernThis 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.