Senator Alexander
Lynn Edd Story, an ETTP retiree, says:
In Senator Alexander’s response to the letter Dave Reichle, President of CORRE, presented to him at the meeting in Farragut, Senator Alexander said:
“that the principal problem is that there is a difference in opinion over whether there is sufficient surplus to grant the requests of CORRE on behalf of retirees.”
In the letter, CORRE estimates that the surplus for the multi-employer pension plan is now approximately $800 million, about 135% of actuarial requirement. CORRE also estimates the benefits we are requesting would cost about $200 million. To me, it seems like the two sides are working from two different sets of information.
Is there information available that shows how CORRE got their information? Do the people, that we are requesting the funds from, have the same information available to them? If not already done, would it be helpful to share this information with Senator Alexander, and others?
October 29th, 2007 at 8:48 am
I beg to differ with Senator Alexander but the principal problem is not the size of the surplus relative to the cost of the CORRE proposal. DOE can make additions to the trust fund any time congress budgets the funds. The difference of opinion lies in whether a federal agency should permit a retiree’s pension to decrease in buying power as the years go by. I never recall anyone promising me a pension which would decrease in value with inflation.
It is not reasonable for DOE to assume they must never add funding to the pension trust fund; changing times require corresponding actions. Nor should one assume they have discharged a responsibility by neglecting to meet it.
If a one payment trust fund were possible, I could have stopped paying into my “old age benefits” fund after the first penny in 1936.
Al Brooks
October 29th, 2007 at 11:42 am
CORRE gets its information on the MEPP fund, including how much the surplus is, from BWXT, the company that is contracted by DOE to manage the multi-employer pension plan (MEPP). BWXT hires an actuarial firm to actually perform the accounting. So, CORRE’s number comes from actuary for the fund, and the information is solid—no question about that.
Where the difference arises, probably, is in whether there is sufficient surplus to grant adjustments. CORRE and DOE have very different points of view about that. So, undoubtedly, when the Senator asks DOE whether there is sufficient surplus, DOE and the contractors say “No!). They are wrong, of course.
DOE is simply following a policy of never granting adjustments and always attempts to justify that position—whatever it takes. And, that is why they tell Congressman the surplus is insufficient. The fund is managed in such a way that the surplus is always too big for them to have to put any money into the plan (none since 1984) and too small (in DOE view) to allow adjustments. Of course, CORRE does all it can to expose this dissembling by DOE. It is in the interest of the contractors to follow DOE lead on this- they cannot easily do otherwise, as they are beholden to DOE for their fee and contract.
October 30th, 2007 at 11:34 am
Some of the confusion regarding:
“that the principal problem is that there is a difference in opinion over whether there is sufficient surplus to grant the requests of CORRE on behalf of retirees.”
probably stems from the Pension Protection Act that becomes effective 1/1/2008 and the Cost Accounting Standards “harmonization” and resulting implications. The gist of the issue is covered in this news item from AIA:
Pension Protection Act Impacting Cash Flow
Many AIA members will face a sharp increase in the cost of financing defined benefit pension plans as early as January 2008 as a result of the Pension Protection Act (PPA) signed by President Bush in August 2006.
The PPA reduces interest rate assumptions in computing present value of benefits, shortens periods for amortizing unfunded liabilities, and establishes a funding target of 100 percent of liabilities. The changes are effective January 1, 2008, for all but a limited number of eligible contractors who were granted exemptions until 201l.
In addition, contractors required to comply with the government’s Cost Accounting Standards (CAS) will face a cash flow burden that other U.S. companies will not. The aggressive pension funding required by the PPA will create a major cash flow imbalance due to a gap between when contractors must begin increased pension contributions and when the contributions can be recognized as pension costs under the current CAS regulations.
The increased funding associated with meeting the PPA requirements won’t be recognized immediately as costs under government contracts because the current CAS mandates higher interest rate assumptions and longer amortization periods. Initial estimates conclude that the difference between current CAS and PPA pension measurements for all government contractors will be measured in billions of dollars of increased net contractor cash outflow.
With the PPA, Congress attempted to address the cash flow problem by requiring the harmonization of CAS 412 and 413, the pension standards, with the minimum funding requirements of PPA. The target date for harmonization, however, is January 2010, two years after the date most contractors must begin meeting the PPA funding requirements.
Options for correcting the cash flow inequity before harmonization are limited. One is to request that DoD and GSA ask the CAS Board to grant a temporary waiver to CAS 412 to allow contractors to include in their forward pricing rates a factor for the estimated impact of the differences in the PPA and CAS requirements. The amount included in contract prices could be identified precisely and be subjected to adjustment after the actual impact to contract prices is known.
The other option is to request the congressional sponsors of the PPA to amend the act to delay the date for compliance with the funding requirement for all government contractors until January 1, 2011, consistent with the date that the CAS Board must complete harmonization of the PPA and CAS.
A decision on the best approach was expected in early September.
AIA Source: dick.powers@aia-aerospace.org
This link also provides some useful information:
http://www.ifebp.org/Resources/News/Regulatory+Updates/CASB.htm
Some very interesting public comments on harmonizing CAS 412 & 413 with the PPA:
http://www.whitehouse.gov/omb/procurement/casb/public_comments_case_20 07-02s.pdf
It appears that pension funding, whether there’s an apparent surplus or not - is a very hot topic. This may be part of the confusion and another challenge for CORRE.
October 30th, 2007 at 1:24 pm
Check out DOE’s accured FY 06 unfunded pension & medical liability of $11.9B (slide 5) and decide for yourself if you think DOE has a problem:
http://www.management.energy.gov/PENSIONMEDICALBENEFITSMARCH2007.pdf
This is the “guidance” DOE has issued:
http://management.energy.gov/policy_guidance/1348.htm
October 30th, 2007 at 4:59 pm
DOE has a problem, but it is problem of its own creation. Regarding unfunded liability, most of it is medical costs– not pensions that are unfunded. DOE has not contributed to the MEPP fund in 24 years, thus the surplus has been managed to avoid paying into the fund. The funding requirements does represent more of a challenge to CORRE, but even more for DOE. DOE practice of adding the medical and pension costs together to talk about unfunded liabilities leads to great confusion and allows misrepresentation of the obligations that DOE has. It has an obligation to fund medical costs every year. The out years they are counting as unfunded obligations. How is that so?
For more on DOE misinformation, including this issue, go to the CORRE website at this page:
http://www.corre.info/Features/rebuttal_disinfo.htm
October 30th, 2007 at 6:29 pm
Check out Goal 3 to see how DOE plans to eliminate Pinellas & Fluor Fernald pension liabilities - what are the implications for the K-25 Site?
http://www.gjo.doe.gov/documents/message/lmgoals.pdf
October 30th, 2007 at 6:54 pm
According to the DOE Office of Legacy Managment’s 2007 Strategic Plan, they are responsible for:
Legacy Management -
An office of DOE that was
created in 2003 to manage the long-term responsibilities
of closed sites, especially the sites selected
for Accelerated Cleanup. The long-term responsibilities
include long-term surveillance and maintenance as
well as physical management of the site. Conditions
sometimes permit compatible reuse of the site. Longterm
responsibilities also include managing site records
and electronic information, overseeing the pension and
benefit programs for retired contractor personnel, and
responding to stakeholder inquiries.
Are they responding to stakeholder inquiries??
Another quote from their Strategic Plan that I found interesting is:
The liability for unfunded post-closure benefits
(for Fernald, Grand Junction, Mound, Pinellas,
Rocky Flats, and the gaseous diffusion plants
in Ohio and Kentucky) includes payments for
unfunded pension benefits and retiree health
and life insurance. The liability will probably not
be fully settled for decades. Legacy Management
will develop a plan to facilitate the consistent
and comprehensive payout of medical and
pension benefits at all closure facilities. Legacy
Management will create sound policy and guidance
to adequately and efficiently fulfill the Department’s
obligations to its contractor work force.
I’d say they’ve got their work cut out for them, but it looks like they’ve got some plans for eliminating Pinellas and Fernald pension liabilities.
http://www.gjo.doe.gov/documents/3_pro_doc/1_strategic_plan/strat_plan 200705.pdf