Summer 2009 - International Union of Operating Engineers

C entral P ension F und
In Economic Crisis Defined Benefit Plans Still Shine
In response to the worst economic crisis since the Great
Depression, defined benefit plans across the globe have
reduced the rate of future benefit accruals to adjust their
liabilities to their assets. In spite of these unprecedented
adjustments, defined benefit pension plans continue to
be the gold standard of retirement security.
Benefits Protected
As demonstrated by the Central Pension Fund’s recent reduction
in the rate of future benefit accrual, no matter how severe the
economic crisis, defined benefit plans have the ability to absorb losses
without endangering a penny of the benefits that have been earned
by participants, or are being paid to retirees and their beneficiaries.
Benefits Definitely Determinable
While the rate of future benefit accruals may be adjusted
(up or down) in defined benefit plans, the benefit earned to date
and payable at retirement is always definitely determinable. This
means that on any day during a participant’s working career, he or
she is always able to determine exactly the amount of retirement
benefit they will be entitled to at retirement.
Benefits for Life
The most enviable feature of defined benefit plans, that distinguish
them from all others, is that they provide a monthly benefit
for life. It is this feature that provides the greatest peace of
mind to retirees and their beneficiaries.
No matter how large or small the benefit, participants know
that they can count on receiving it every month for their lifetime,
and that of their spouse if they so choose. This provides one certain
source of income that, together with a monthly Social Security
benefit, can be critical to budgeting a dignified retirement.
For instance, the Central Pension Fund requires 5 years of
service to qualify for a Normal Retirement benefit at age 65; 10
years for an Early Retirement benefit as early as age 55; 15 years
for a Disability benefit at any age; and 25 years for an unreduced
Normal Retirement benefit at age 62.
Accordingly, regardless of the rate of benefit accrual in effect
in any given year, continued participation adds important years
of service to qualify for the range of benefits offered by defined
benefit plans.
Conclusion
To paraphrase a Winston Churchill comment on democracy:
defined benefit pension plans may not be perfect, but they are
better than all the others that have been tried.
The only current alternative to defined benefit plans are 401(k)
plans, which offer none of the features of defined benefit plans:
• 401(k) benefits are never protected.
• 401(k) benefits are never definitely determinable.
• 401(k) benefits are not payable for life.
• 401(k) years of service don’t qualify participants for either
normal retirement, or ancillary benefits.
The current economic crisis has demonstrated the ability of
defined benefit plans to adjust to even the greatest adversity. As
the United States, Canada and the world economies recover ---
as they will --- so will defined benefit plans recover lost assets,
restore benefit accrual rates, and continue to provide the most
secure form of retirement income ever created.
It is impossible to put a value on the peace of mind that is
provided when retirees do not have to worry about whether the
stock market is devouring their retirement savings, or whether
they will outlive the savings they have accumulated.
Years of Service Add Up
Entirely separate from the rate at which benefits accrue in any
particular year, in defined benefit plans each additional year of
participation has additional benefit significance. This is because
the number of years of participation determines eligibility for
both the retirement and ancillary benefits typically provided by
defined benefit plans.
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i n t e r n at i o n a l operating e n g i n e e r