Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
June 7 — Verizon Communications Inc. employees returning to work under a tentative contract can take comfort that innovative bargaining has likely preserved their right to generous pension lump-sum payouts.
As part of the recent collective bargaining pact between Verizon and the Communications Workers of America, the company agreed to retain a lump-sum payment calculation that uses generous discount interest rate assumptions in exchange for the union's agreement to lock in 2016 mortality tables.
Verizon made the deal knowing that long-awaited Internal Revenue Service mortality table updates are coming and will carry a hefty price tag, Robert Patrician, with the CWA's research department in Washington, told Bloomberg BNA June 3 ( 52 PBD, 3/17/16 ).
Mortality tables project plan participants' life expectancies and are used in calculating lump-sum pension distributions designed to match lifetime annuity pensions.
When Verizon proposed scrapping the lump-sum option altogether during bargaining, the union responded by agreeing to an innovative freeze of the plan's mortality table assumptions for the life of the 38-month contract, Patrician said.
This was a concession the union was willing to make because its members value the lump-sum option and because the deal permitted the union to retain a plan provision giving participants the most favorable discount rate from among a choice of three rates, he said. This provision assures that participants will get to use the lowest interest rate and thus receive the highest possible payments, he said.
The union particularly wanted to retain under the agreement the choice of using the 30-year Treasury bond yield, he said. For a number of years, this rate has been significantly lower than the other two plan choices—the Pension Benefit Guaranty Corporation rates and the Internal Revenue Service segment rates under the Pension Protection Act of 2006.
Overall, the lump-sum payouts that Verizon will offer plan participants under the new contract represent a “small windfall” for retirees, John Lowell, pension consultant for October Three in Atlanta, told Bloomberg BNA June 1.
The contract's freezing of the mortality tables would keep lump-sum payments “slightly lower” than what would be anticipated from the longer life expectancies that future IRS mortality tables are expected to incorporate, Lowell said. However, that contract feature is more than made up for by the agreement's use of the lower 30-year Treasury bond yield, he said.
For example, using current mortality tables and current discount rates, Lowell calculated that a 65-year-old Verizon plan participant retiring on June 1 would receive a lump-sum benefit about 13 percent higher under the new contractual provisions than he or she would receive if the agreement used the segment-rate approach that is the minimum under the PPA.
This is a “no lose” situation for the union and plan participants, Lowell said. For the plan to remain qualified under the tax code, the new contractual provision governing lump-sum payouts must provide a lump sum to participants that is at least equal to the payout participants would receive under the PPA, he explained.
A representative from Verizon told Bloomberg BNA June 6 that the company won't comment on any of the contract's provisions, given that the agreement remains tentative and requires union member ratification. Voting is expected to be completed by about June 20.
To contact the reporter on this story: David B. Brandolph in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
The tentative agreement is at http://www.cwa-union.org/sites/default/files/2016-vz-cwa-tentative-agreement-summary-d213-and-nj.pdf.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)