Variable DB Plan
The proposed Northern Nevada Plumbers & Pipefitters Variable DB Plan is a multiemployer, collectively bargained pension plan. This plan provides lifetime retirement income for participants who meet the Plan’s eligibility requirements and who work for Employers that contribute to the Plan.
Plan Administrator:
Benefit Plan Administrators
Suite 109
445 Apple St
Reno NV 89502
Phone: (775) 826-7200
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Frequently Asked Questions
Will this plan replace my current retirement plans?
No. You will continue to earn benefits through the Plumbers & Pipefitters National Pension Fund and the U.A. Local 350 Retirement Plan. If approved, the new Variable DB Plan will provide you with an additional layer of lifetime retirement benefits.
When does the plan go into effect?
Subject to member approval, the plan is scheduled to go into effect on Aug. 1, 2019. You would start to earn benefits in this new plan for hours worked on and after that date. Once approved, no action is needed on your part to take advantage of this plan.
How is this plan different from the National Pension Fund and the U.A. Local 350 Retirement Plan?
The National Pension Fund is a traditional pension plan that provides lifetime retirement benefits to participants. Upon retirement, you will receive a level annuity payment that does not change in your retirement years. This can result in reduced purchasing power during your later years of retirement. In addition, a traditional pension plan can become significantly underfunded, which can require corrective action resulting in higher contributions and/or lower benefits in future years.
The U.A. Local 350 Retirement Plan is a defined contribution plan that allows you to build up an account balance during your working years, then allows you to take a lump sum upon retirement. When participants take their lump sum, they become responsible for managing the distributions from their account balance during retirement. As average life spans continue to increase, managing an account balance to last a lifetime becomes increasingly more difficult.
In contrast, the Variable DB Plan is a defined benefit plan where the benefits you have earned adjust annually, up or down, based on the plan’s investment performance compared to a target rate of return called a hurdle rate. We have set the hurdle rate at a conservative level, 5%, and we expect that the investment return on the plan’s assets will exceed this target return over time. This allows for the benefits you earn under this plan to keep pace with inflation, during your working years and also in retirement; maintaining your purchasing power. In addition, the plan includes a “Save and Restore” feature that, while not guaranteed, is designed to protect benefits from decreasing during a market downturn.
What do I need to do to earn a benefit in the plan?
You will earn a benefit every year you work at least 75 hours or more of covered employment, though the more hours you work, the bigger the benefit you will earn. The benefit you earn each year is based on the number of hours worked during that year and the hourly contribution rate contributed to the plan on your behalf. The total benefit you earn is adjusted each year to reflect the plan’s investment performance compared to the 5% hurdle rate. The benefit you receive is payable as a monthly annuity throughout your retirement years (and the life of your beneficiary should you elect a joint & survivor payment form) and the benefit will continue to adjust during your retirement years based on the plan’s annual investment returns. In order to receive a benefit at the time of your retirement, you must also be vested.
When do I become 100% vested in my benefit?
Similar to the National Pension Fund, you need 5 years of vesting service to be 100% vested in your benefit. You will earn a year of vesting service for any plan year during which you work at least 750 hours. In addition, your years of past service with U.A. Local 350 as of August 1, 2019 will count towards vesting service in the Variable DB Plan.
Is there a minimum number of hours I need to work each year to earn a benefit?
Yes. You need to work at least 75 hours of covered employment to earn a benefit each year. This is lower than the 150 hour requirement under the National Pension Fund. The more hours you work during the year, the more benefits you will earn.
How many hours do I need to work in a year to earn a full benefit?
The amount of benefit you earn each year will depend on the number of covered hours of employment you work during the year and the hourly contribution rate made to the plan on your behalf.
Each year, you need to work 1,500 hours of covered employment to earn a full benefit credit for that year. You will earn more than one benefit credit for years you work more than 1,500 hours, and less than one benefit credit for years you work less than 1,500 hours. Fractional years will be credited based on 75 hour increments.
Is there a cap on the number of hours used to calculate my benefit each year?
No. Unlike the National Pension Fund, the Variable DB Plan does not have an annual cap on the number of covered hours of employment used to calculate the benefit you earn each year.
How are benefits earned in the plan?
The amount of benefit you earn each year will depend on the number of covered hours of employment you work during the year and the hourly contribution rate made to the plan on your behalf.
You will earn a full benefit credit each year that you work 1,500 hours of covered employment. You will earn more than one benefit credit for years you work more than 1,500 hours, and less than one benefit credit for years you work less than 1,500 hours. Fractional years will be credited based on 75 hour increments.
In addition, benefits are earned in proportion to the hourly contribution rate made to the plan on your behalf. Higher hourly contribution rates will result in larger benefits earned each year, while lower hourly contribution rates will result in smaller benefits earned each year.
The dollar amount of the benefit you earn each year will be converted into Variable DB Units based on that year’s Unit value. As you continue to work in covered employment, you will continue to earn more Variable DB Units. Each year, the Unit value will go up and down based on the Plan’s investment performance compared to the plan’s Hurdle rate of 5%. Therefore, the benefit you have earned will fluctuate up and down based on the plan’s investment performance.
When you are ready to retire, your monthly benefit will equal your total number of DB Variable Units multiplied by the Unit value as of your retirement date. As the Unit value changes during your retirement years, your monthly benefit will continue to be adjusted annually.
This annual adjustment allows the benefits you have earned under this plan to keep pace with inflation, even in retirement, and maintain your purchasing power. In addition, the “Save and Restore” feature described below, while not guaranteed, is designed to protect benefits from decreasing during a market downturn.
What is the Hurdle Rate and how does it affect my benefit?
The hurdle rate is a target investment return of 5%. The benefits you earn are fully funded by contributions assuming the plan will achieve this conservative target return. The plan’s assets will be invested with the expectation of achieving an average return that exceeds 5%. Each year, the plan’s Unit value, and therefore the monthly benefit amounts will be adjusted based on the plan’s investment performance vs. the hurdle rate. Benefits will increase in years when the plan’s investment performance exceeds the 5% hurdle rate and decrease in years when the return on plan assets is below the hurdle rate.
For example, suppose the plan’s investment return for a year is 8%. Because this return is better than the 5% hurdle rate, your monthly benefit will be adjusted upward. In this case, the increase will be about 3%; the amount by which the plan’s return exceeded the hurdle rate.
On the other hand, suppose the plan’s investment return for a year is 1%. Because this return is less than the 5% hurdle rate, your monthly benefit will be adjusted downward. In this case, the decrease will be about 4%. Note, however, that the plan will be operated with a Save and Restore feature. The Save and Restore feature described below, while not guaranteed, is designed to protect benefits from decreasing during a market downturn.
What is the Save and Restore feature?
The plan aims to protect benefits from decreasing during a market downturn by using a rainy-day fund to secure benefits. The rainy-day fund will come from two primary sources. First, from a small portion of the hourly contributions paid into the Plan, and second, by capping the annual increase to monthly benefits at 8% in years when the investment return is unusually high. As long as the rainy-day fund has sufficient assets, it will be used to temporarily restore benefits, preventing the monthly benefit payable to participants from going down.
Is there a limit on how much my benefit can increase due to investment performance?
Each year, the plan’s Unit value, and therefore the monthly benefit amounts will be adjusted based on the plan’s investment performance vs. the hurdle rate. As a result, benefits will increase in years when the plan’s investment performance exceeds the 5% hurdle rate.
In order to help fund the rainy-day fund and have monies available for the Save and Restore feature, the maximum annual increase to monthly benefits due to investment performance has been capped at 8%. What this means is that in years when the plan’s investment return is well in excess of the 5% hurdle rate, a portion of the return is diverted to the rainy day fund in order to help create a funding source that can be used to temporarily restore benefits during a market downturn.
Will there be a temporary transition that provides higher benefits for older members with longer service?
Older workers will have fewer years to earn a benefit under this plan compared to younger workers.
Therefore, a transition formula has been added to provide higher benefit accruals to members who are at least 50 years old and have 10 or more years of service as of August 1, 2019. This transition period will last for 10 years, meaning the higher benefit accruals will apply to benefits earned each year starting August 1, 2019 through July 31, 2029. During this 10-year period, members who do not meet the age and service requirements will receive lower benefit accruals.
What is the difference in benefits between members eligible for the transition formula, compared to members not eligible for the transition formula?
All members will fall into one of 3 Tiers based on their age and service on August 1, 2019. Members who are at least 55 years old with 10 or more years of service will be in Tier 1. Members who are at least 50 years old with 10 or more years of service will be in Tier 2. All other members will be in Tier 3.
For 10 years starting August 1, 2019, the benefits earned by members in Tier 1 and Tier 2 will be higher than benefits they would have earned without the transition rules. During this same period, benefits earned by members in Tier 3 will be lower than benefits they would have earned without the transition rules. Starting August 1, 2029, the 10-year transition period will be over and all participants will earn benefits at the same rate for covered hours worked on and after August 1, 2029.
What happens after the 10-year transition period is over?
The transition period ends July 31, 2029. Starting August 1, 2029, the transition adjustments will end for all members, therefore, all members will accrue benefits at the same rate for covered hours worked on and after August 1, 2029. In other words, beginning with covered hours worked on and after August 1, 2029, members working the same number of hours with the same hourly contribution rate will earn the same benefit for that year.
When can I start taking my Variable DB Pension benefits?
The normal retirement age has been set at age 65. If you are vested, you can receive your benefit without any reduction for early retirement at age 65. You may start your benefit as early as age 55, but starting before age 65 will generally mean the benefit you receive will be reduced to reflect your earlier starting date.
Are there any special early retirement provisions?
The plan will have 2 alternative early retirement provisions for participants that are vested and retire soon after they work in covered active employment. If you are working in covered employment and have at least 750 hours in three of the four plan years preceding your retirement date, you can start your benefit at age 62 without any reduction for early retirement. If you meet this “recent work” criteria and start your benefit between age 55 and 62, your benefit will be reduced from age 62.
Additionally, the plan will recognize a special “Rule of 85” early retirement. If you satisfy the recent work criteria described above, and your Age + Years of Vesting Service as of your retirement date equals or exceeds 85, then you can start your benefit at age 60 without any reduction for early retirement. If you satisfy the Rule of 85 criteria and start your benefit between age 55 and 60, your benefit will be reduced from age 60.
What will the plan mean to me personally?
In June, you will receive a personalized benefit statement in the mail with projected benefit estimates that will give you more detail about the projected level of benefits you may receive from the plan when you retire.
