ILGWU NATIONAL RETIREMENT FUND. Report of Fifteen Year Cash Flow Projections

Transcription

1 ILGWU NATIONAL RETIREMENT FUND Report of Fifteen Year Cash Flow Projections

2 MARTIN E. SEGAL COMPANY CONSULTANTS AND ACTUARIES v»y:v.v : FIFTH AVENUE NEW YORK, NEW YORK (212) May 21, 1984 Mr. Ted Bernstein ILGWU National Retirement Fund 218 West 40th Street New York, New York Dear Ted: We are pleased to submit our report on the fifteen-year cash flow projections. V;:::: For convenience, the report has been divided into the following sections: I. Actuarial Assumptions Underlying Cash Flow Projections II. Results of Cash Flow Projections Sincerely,.- Michael H. Kaplan /rw Senior Vice President ATLANTA / BOSTON / CHICAGO / CLEVELAND / DENVER / HARTFORD / HOUSTON / LOS ANGELES NEW ORLEANS / NEW YORK / PHOENIX / SAN FRANCISCO / WASHINGTON, D.C. / TORONTO

3 I. ACTUARIAL ASSUMPTIONS UNDERLYING CASH FLOW PROJECTIONS The cash flow projections were performed on the basis of the Plan's funding assumptions as to mortality, retirement age, interest, administra tive expense, and increase in wage rates. The assumption as to number of active participants varies from projection to projection as described below. The fixed assumptions used in performing these projections are as follows: 1. Mortality - Group Annuity Table for Retirement Age - Age 67 for males, 66 for females 3. Interest Rate - 6% percent 4. Administrative Expense - $9,100,000 per year 5. Wage Rate - Wage rate will increase at the rate of 5 percent per annum As noted above, these are the same assumptions we have used in calculating the statutory minimum funding requirements for this Plan. As discussed below, we believe that these assumptions are reasonable in the aggreate, and are consistent with the Plan's actual experience. Mortality As noted, mortality is assumed to comport with the Group Annuity Table for This standard is the one in predominent use by plan actuaries, and is, in our view, reasonable here. Retirement Age The retirement assumption is based on the actual average age of retire ment by participants in this Plan. We have seen no trend that suggest a change in this average

4 Investment Earnings The interest assumption of 6% percent is well within the range of rates of return assumed by pension plan actuaries. Over the past few years, the Plan's rate of return has exceeded this assumption. For 1983, for example, the 6*5 percent assumption projected a return of $27.4 million, whereas the Plan actually earned more than $50 million. We believe that rates of return will continue materially to exceed 6% percent for the near future. Administrative Expense Administrative expense has been assumed to remain constant over the fifteen-year projection period. However, the Plan has recently been burdened with the expense of nonrecurring work associated with the development of MPPAA compliance procedures and the application for approval of special withdrawal liability rules. As this work is concluded, administrative expense could well drop. (Even if administratrive expense were to increase,. & > at 5 percent per year, the Fund would remain viable. In Table 3, for example, such an assumption would result in an annual expense by 1997 of $18.1 million, but assets would nonetheless have grown to $810 million, and the "automatic triggers" proposed by the Plan for cancellation of any special withdrawal rules would not have been activated.) Wage Rates Since some Plan benefits are salary-related, wage rate assumptions are necessary. (For purposes of this projection, the salary assumption is used in projecting contributions as well as benefit payment levels.) The Plan's assumption of a five percent annual increase is consistent with actual experience in this industry. Over the period covered by f the last two collective bargaining agreements, in fact, the average annual increase has been approximately six percent

5 Other Observations We further note that contributions for the first three months of 1984 totalled $35.1 million, for an increase of seven percent over the same period in If contributions continued at this rate, total 1984 contributions would be $151.7 million, and would exceed from approximately $3 million to $14 million the levels projected in the accompanying tables. Similarly, benefit payments during the first four months of 1984 were at an annualized rate of $135.9 million, which is consistent with the $135.2 million level projected in the accompanying tables. On the basis of the foregoing, we conclude that the assumptions used in these projections are conservative and reasonable, and that actual experience should fall within the range of projections set forth in the accompanying tables.! Under any reasonable assumptions, we believe that assets will ultimately increase to the extent necessary to amortize all liabilities, and that the Plan will remain viable

6 II. RESULTS IN CASH FLOW PROJECTIONS Table 1 Table 1 assumes that the number of active participants will remain constant at 227,000. Under this assumption, assets would grow each year, reaching more than $2.1 billion by the end of 1997, at which point annual contributions would exceed $280 million, and annual investment income would be in excess of $128 million. Investment income alone at that point (even on conservative assumption of 6% percent) would nearly cover benefit payments, while contributions would be at nearly twice the annual level of benefit payments - 4 -

7 Year Beginning 1/1/83 1/1/84 1/1/85 1/1/86 1/1/87 ; 1/1/88 1/1/89 1/1/90 1/1/91, 1/1/ /1/93 1/1/94, 1/1/95 1/1/96 1/1/97 Number Actives Benefit Contributions Payments^ $ $ Table 1 ($ in millions) Cumulative Excess of Administrative Investment Assets Expenses Beginning $ $ $ , , , , , ,906.2 Assets End $ , , , , , , ,162.3 Contributions over Benefit Payments $ Assumes individual salary increase of 5% per annum and a constant number of active employees.

8 Table 2 Table 2 assumes that the number of active participants will decline at an annual rate of 2% percent. Under this assumption, the assets would increase annually, attaining $1.4 billion by As in Table 1, contributions would materially exceed benefit payments, and investment income would be quite Substantial

9 Year Beginning 1/1/83 1/1/84 1/1/85 1/1/86 1/1/87 1/1/88 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 1/1/97 Number Actives % 221, , , , , , , , , , , , , ,200 Benefit Contributions Payments $ $ Table 2 ($ in millions) Cumulative Administrative Investment Assets Expenses > Beginning $ $27.4 $ , , ,302.1 Excess of Contributions Assets over Benefit End Payments $ , , , ,432.8 $ Assumes individual salary Increases of 5% per annum and a decline in the number of active employees at a rate of 2%% per year.

10 Table 3 Table 3 assumes that the number of active participants will decrease by 5 percent per year. Under this assumption, (because of the assumed 5 percent annual increase in wages) level annual contributions of $ million would be expected. Level annual contributions will, as in Tables 1 and 2, produce an annual increase in assets. Indeed, assets would be more than double by the end of the period. There would be a cumulative excess of contributions over benefit payments throughout the entire projection period. In each year, 1989 through 1997, however, benefit payments would exceed contributions. In 1997 the cumulative excess would be $4.1- million. Beginning with 1998, contributions would again exceed benefit payments

11 Year Beginning Number Actives Benefit Contributions Payments 1/1/83 1/1/84 1/1/85 1/1/86 1/1/87 1/1/88 1/1/89 1/1/90 1/1/91 1/1/92 Io l/l/ 93 ' 1/1/94 1/1/95 1/1/96 1/1/97 215, , , , , , , , , , , , , ,800 $ $ Table 3 ($ in millions) Cumulative Excess of Administrative Investment Assets Expenses Income < 6*$% Beginning Assets End $ $ $ $ Contributions over Benefit Payments $ Assumes individual salary increases of 5% per annumand a decline in the number of active employees at a rate of 5% per year through 1997.

12 Table 4 Table 4 assumes a 7% percent per year decline in the number of active participants, stabilizing at 112,600 by Even under this hypothetical assumption, (and assuming a conservative 6% percent return), assets would increase to $522.2 million by the end of 1989, then decline through 1994 to $482.3 million, and finally begin climbing again as projected contributions increased and benefit payments continued to fall from their 1994 v peak. As can be seen in Table 4, aggregate benefit payments over aggregate contributions would exceed $50 million by the end of Under the "automatic trigger" that has been proposed to the Pension Benefit Guaranty Corporation, this fact would result in cancellation of the special withdrawal liability rules. mi

13 Cumulative Excess of Contributions over Benefit Payments $ r^ TT- ^, Table 4 ($ in millions) Year Beginning Number Actives Contributions Benefit Payments Administrative Investment Expenses Assets Beginning Assets End 1/1/83 1/1/84 1/1/85 1/1/86 1/1/87 1/1/88 1/1/89 1/1/90 1/1/91 1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 1/1/97 210, , , , , , , , , , , , , ,600 $ $ $ $ $ $ Assumes individual salary increases of 5% per annum and a decline in active employees of 7*5% per year through 1992 and a constant number of actives thereafter.