Caring For Those Who Serve Protected Annuity Rate Balances (PARBs)
Why Change? Assets supporting PARBs have appreciated +50% since July 1, 2003 Market interest rates (though below 8%) have rebounded from low levels 2
Who is Impacted? Individuals who: have an active PARB account converted all or a portion of their PARB account to an annuity on or after 12/1/04 (if eligible) took a withdrawal from PARB on or after 8/1/03 3
Active PARB Account Option to relinquish or retain PARB from 5/1/07 to 10/31/07 Relinquish credit market return from 8/1/03 and convert to LifeStage or Participant-Directed Account (PDA) (market return of 56% as of April) Retain no action (not eligible for credit, annuity adjustment, make-up payment or lump sum) Elections accepted via form or over the phone (handled by the Call Center) Elections processed once per month, once processed election is irrevocable 4
Active PARB Account Cont. Ernst & Young available at no cost to assist with PARB decision Individuals who annuitize during window will not need to make an election, PARB will be relinquished or retained depending on market conditions Individuals who fail to make election will have PARB relinquished by default 5
Example Participant with active PARB balance of $200,000 and no PDA. Market return of $112,000 credited to participant s account (based on 56% return) New balance of $312,000 invested in LifeStage. 6
Annuity on or after 12/1/04 If an individual has an active PARB, he or she must relinquish active PARB to be eligible for additional benefits Potential annuity adjustment going forward If eligible for annuity increase, make-up payment issued equal to difference in new benefit and original benefit multiplied by number of payments received plus earnings Make-up payment issued as distribution (default), external rollover or rollover to UMPIP 7
Example Annuity effective 1/1/06 of $1,000 Original account balance used to setup annuity was $156,600 51% Market return would bring balance to $236,466 Annuity based on 6.1% annuity conversion rate is $1,252.44 Make-up payment is $3,878.91 (252.44 x 15 months x Compounded Interest) 8
Withdrawal on or after 8/1/03 If an individual has an active PARB, he or she must relinquish active PARB to be eligible for additional benefits Lump sum payment issued equal to earnings on investment supporting PARB account at time of distribution plus earnings Lump sum payment issued as distribution (default), external rollover or rollover to UMPIP 9
Example Withdrawal of $50,000 on 7/1/05 PARB reserve had market return of 37.76% on 7/1/05 Lump sum payment is $20,464.67 ($50,000 x.3776 x Compounded Interest) 10
Timeline of Events April Letters to individuals with active PARB May Window opens Letters to individuals with no active PARB May October Elections received by Call Center and processed three business days before end of month. Calculations done by Actuarial Services and transactions uploaded in Omni Confirmation letters mailed 11
Timeline Cont. August/September Annuity adjustments, make-up payments and lump sums processed for individuals with no active PARB Confirmation letters mailed September Reminder letter to individuals with active PARB who have not made an election October Window closes Relinquish PARB for individuals who did not make an election Confirmation letters mailed 12
Participant Letters Population Purpose Active Only Active/ Annuity Active/ Withdrawal Option to relinquish or retain PARB Amount of market return Annuity amount assuming PARB relinquished Option to relinquish or retain PARB Amount of market return Annuity amount assuming PARB relinquished Amount of annuity increase Amount of make-up payment and distribution options Option to relinquish or retain PARB Amount of market return Annuity amount assuming PARB relinquished Amount of lump sum payment and distribution options 13
Participant Letters Cont. Population Annuity/ Withdrawal Annuity Only Withdrawal Only Purpose Amount of annuity increase Amount of make-up and lump sum payment and distribution options Amount of annuity increase Amount of make-up payment and distribution options Amount of lump sum payment and distribution options CBO s and E&Y will receive list of impacted participants along with sample letters prior to mailing. 14
Questions? 15