Posted:
December 11, 2009
By Tom Bethel
National President
I’ve been aboard scores of vessels on the East, West and Gulf Coasts in recent weeks, meeting with members of American Maritime Officers to discuss an increasingly important issue — pension security for all AMO members in a time when too many men and women in too many industries doubt that they’ll ever have what they need to live comfortably in retirement.
Along with AMO National Vice President at Large Mike Murphy and AMO Plans Executive Director Steve Nickerson, I addressed the “rehabilitation” plan to stabilize the defined benefit AMO Pension Plan, the decision to phase the Plan out while meeting all of its obligations to participants at the earliest opportunity and in the most practical way, and the development of a responsible alternative.
These sessions were as instructive to me and to Mike and Steve as they were to the seagoing AMO members, who provided valuable insight, personal perspective and, in some cases, constructive criticism. We took their comments and recommendations back to the trustees and hammered out a new retirement plan we believe is fair and reasonable.
The immediate difficulty …
The immediate difficulty is the state of the AMO Pension Plan, a defined benefit plan under which participants earn monthly retirement benefits (annuities) based on income and length of covered employment. Battered by a strong and stubborn worldwide economic recession, the collapse of investment markets in 2008 and the unreasonable funding requirements of the federal Pension Protection Act of 2006, the AMO Pension Plan in October 2009 slumped into “critical” status as defined by the 2006 law.
The rehabilitation strategy adopted by the joint union-employer trustees of the AMO Pension Plan as required by the 2006 statute provides for a wrenching but necessary combination of benefit reductions for new pensioners (beginning in January 2011) and increased employer contributions to the AMO Pension Plan already provided for in our union’s collective bargaining agreements — including future increases called for under various contracts. The rehabilitation plan is explained in detail elsewhere in this edition of American Maritime Officer.
… and defined benefit reality
The longer-term problem is the nature of the defined benefit pension plan itself. The defined benefit plan — referred to more commonly as a “traditional” pension plan —is on its way out nationwide because it is no longer reliable as a safe source of retirement income. The defined benefit plan is no longer reliable because it no longer reflects reality.
A single or multiemployer defined benefit pension plan today is vulnerable to job and asset loss in a weak economy. When a defined benefit pension plan is in financial decline because of a diminished employment base that results in fewer employer contributions or because of an investment market freefall like the one that occurred in 2008, there is no corresponding decline in the plan’s liabilities.
“Over the past half century, employer-sponsored defined benefit pensions have been crucial sources of retirement income and security,” the Center for Retirement Research at Boston College noted in October 2009. “However, the popularity of defined benefit pensions in the private sector has dwindled, and competitive pressures may drive defined benefit plans from the private sector altogether.”
A better way
Under all of these circumstances, the trustees of the AMO Pension Plan had only two choices — to restore full strength to the defined benefit AMO Pension Plan at great and lasting expense and let it stand, hoping that the fund would never again have to confront such dire economic conditions and a rewrite of the federal rules that govern pension plans, or pursue a sound alternative. To their credit, the trustees opted for the better way.
In January 2011, the American Maritime Officers Pension Plan will be replaced by a defined contribution plan that will provide all deep-sea, Great Lakes and inland waters AMO members and applicants for AMO membership with individual personalized retirement savings accounts funded initially at a 40-percent level at no cost to participants. Once the defined benefit AMO Pension Plan is fully funded and able to meet all of its remaining financial obligations to participants, employer contributions to the new defined contribution retirement accounts will rise to the 100-percent level.
The individual accounts established in January 2011 will be in addition to the AMO 401(k) Plan and the AMO Pension Plan Money Purchase Benefit, or MPB, and they will include individuals who received in-service lump-sum pension benefit distributions before the AMO Pension Plan was forced by law to eliminate this popular option in October 2009.
Here is the new AMO defined contribution retirement savings plan at a glance:
On that note — and on behalf of the national executive board of AMO and all AMO representatives and employees — I wish each and every AMO family a joyous holiday season and a happy new year.
A practical, realistic response to retirement crisis
By Tom Bethel
National President
I’ve been aboard scores of vessels on the East, West and Gulf Coasts in recent weeks, meeting with members of American Maritime Officers to discuss an increasingly important issue — pension security for all AMO members in a time when too many men and women in too many industries doubt that they’ll ever have what they need to live comfortably in retirement.
Along with AMO National Vice President at Large Mike Murphy and AMO Plans Executive Director Steve Nickerson, I addressed the “rehabilitation” plan to stabilize the defined benefit AMO Pension Plan, the decision to phase the Plan out while meeting all of its obligations to participants at the earliest opportunity and in the most practical way, and the development of a responsible alternative.
These sessions were as instructive to me and to Mike and Steve as they were to the seagoing AMO members, who provided valuable insight, personal perspective and, in some cases, constructive criticism. We took their comments and recommendations back to the trustees and hammered out a new retirement plan we believe is fair and reasonable.
The immediate difficulty …
The immediate difficulty is the state of the AMO Pension Plan, a defined benefit plan under which participants earn monthly retirement benefits (annuities) based on income and length of covered employment. Battered by a strong and stubborn worldwide economic recession, the collapse of investment markets in 2008 and the unreasonable funding requirements of the federal Pension Protection Act of 2006, the AMO Pension Plan in October 2009 slumped into “critical” status as defined by the 2006 law.
The rehabilitation strategy adopted by the joint union-employer trustees of the AMO Pension Plan as required by the 2006 statute provides for a wrenching but necessary combination of benefit reductions for new pensioners (beginning in January 2011) and increased employer contributions to the AMO Pension Plan already provided for in our union’s collective bargaining agreements — including future increases called for under various contracts. The rehabilitation plan is explained in detail elsewhere in this edition of American Maritime Officer.
… and defined benefit reality
The longer-term problem is the nature of the defined benefit pension plan itself. The defined benefit plan — referred to more commonly as a “traditional” pension plan —is on its way out nationwide because it is no longer reliable as a safe source of retirement income. The defined benefit plan is no longer reliable because it no longer reflects reality.
A single or multiemployer defined benefit pension plan today is vulnerable to job and asset loss in a weak economy. When a defined benefit pension plan is in financial decline because of a diminished employment base that results in fewer employer contributions or because of an investment market freefall like the one that occurred in 2008, there is no corresponding decline in the plan’s liabilities.
“Over the past half century, employer-sponsored defined benefit pensions have been crucial sources of retirement income and security,” the Center for Retirement Research at Boston College noted in October 2009. “However, the popularity of defined benefit pensions in the private sector has dwindled, and competitive pressures may drive defined benefit plans from the private sector altogether.”
A better way
Under all of these circumstances, the trustees of the AMO Pension Plan had only two choices — to restore full strength to the defined benefit AMO Pension Plan at great and lasting expense and let it stand, hoping that the fund would never again have to confront such dire economic conditions and a rewrite of the federal rules that govern pension plans, or pursue a sound alternative. To their credit, the trustees opted for the better way.
In January 2011, the American Maritime Officers Pension Plan will be replaced by a defined contribution plan that will provide all deep-sea, Great Lakes and inland waters AMO members and applicants for AMO membership with individual personalized retirement savings accounts funded initially at a 40-percent level at no cost to participants. Once the defined benefit AMO Pension Plan is fully funded and able to meet all of its remaining financial obligations to participants, employer contributions to the new defined contribution retirement accounts will rise to the 100-percent level.
The individual accounts established in January 2011 will be in addition to the AMO 401(k) Plan and the AMO Pension Plan Money Purchase Benefit, or MPB, and they will include individuals who received in-service lump-sum pension benefit distributions before the AMO Pension Plan was forced by law to eliminate this popular option in October 2009.
Here is the new AMO defined contribution retirement savings plan at a glance:
- Contributions to individual accounts will be based on a formula combining the participants’ age and length of service under AMO contract
- Contributions will be based on individual benefit wages and earned vacation
- Benefit wages will always be current
- Contributions to individual accounts will be made each month as they are received from employers
- Contributions for earned vacation days will be credited to individual accounts at the same time as contributions for days worked aboard vessels
- Participants will not be required to file for benefits from the AMO Vacation Plan in order to receive contributions earned during vacation
- All deep-sea, Great Lakes and inland waters AMO members and applicants for AMO membership will be vested in the plan immediately
- The new plan will be fully portable — participants who leave covered employment under AMO contract at any time for any reason will receive their account balances
- Initial account management will be through a designated fund, but all participants will be able to direct account balances to one of 25 mutual funds or to more than one fund through either of four investment models once the individual accounts are active
- Participants will be able to track their accounts on line
- No loans will be available from individual accounts, and distributions will be permitted only when participants actually retire or leave employment under AMO contract
- Once the defined benefit AMO Pension Plan is funded sufficiently under the rehabilitation plan, the values of individual benefits due from the defined benefit plan will be determined by an actuary, and AMO members and applicants will be able to transfer these defined benefit balances to their individual defined contribution retirement savings accounts.
- The new defined contribution retirement plan schedules (100 percent and 40 percent) will be posted online on Currents and the official AMO Web site and published in this newspaper after January 1, 2010.
On that note — and on behalf of the national executive board of AMO and all AMO representatives and employees — I wish each and every AMO family a joyous holiday season and a happy new year.