Masonry Magazine October 1963 Page. 9
Once the formalities of establishing the plan are completed, the attorney for the fund files a request with the Treasury Department for a letter of determination. This will establish that the program in fact qualifies for preferred tax treatment.
The attorney for the fund also will inform the trustees of the requirements of Federal Law as to reporting to the Office of Welfare and Pension Plans of the Department of Labor, and bonding of the trustees.
Finally, the attorney will be called on periodically to advise the trustees with regard to interpreting the agreement and declaration of trust and the pension plan. Questions as to the general legal responsibilities of trustees, and requirements of state and Federal laws and regulations will be referred to the attorney.
Consultant
Trustees often look for help from an actuarial consultant firm in the establishment and operation of a pension plan. Many boards of trustees prefer to have independent help in selecting the method of financing the plan and choosing other decisions in the establishment and operation of the plan.
Establishing the benefits to be provided is one of the key areas in which the actuarial consulting firm serves the trustees.
Establishing the benefits should not merely be the accepting of an already designed plan varied only to conform to the particular contribution, ages, and seniority rules of the group. The following are a few of the many difficult questions which trustees should look into:
How much, if any, recognition should be given for service before the inception of the plan?
Should the objective of the plan be to provide retirement benefits only?
Should any or all of the secondary benefits be included:
-Death?
-Disability?
-Termination?
-Retiree Medical?
What standards should be applied to determine what is an adequate retirement benefit?
If past service benefits are provided, how and over what period of time should this initial liability be retired?
How should the retirement benefit be stated:
-As a direct relationship to contribution hours for each employee?
-As a flat sum for each year of service without regard to contribution hours?
-As a combination of the two?
Unless these and other significant basic questions are determined closely by the trustees, a plan is not likely to emerge this is related to the needs and objectives of the group. The actuarial consultant should provide the necessary background so that the trustees are aware of these issues, and also should develop alternative benefit specifications for the trustees to examine.
Using mathematical techniques, the alternatives are computed by an actuary, based on such factors as:
Ages of covered employees
Expected mortality
Assumed retirement ages
Assumed rate of return on invested funds
Assumed expenses of the fund
Assumed turnover
Rate of funding of past service benefits
Many of the pension plans in this country are those that are established by a single employer. The benefits are fixed and the actuary projects anticipated costs. If these costs vary from those anticipated, the plan usually continues with the employer making greater or lesser contributions.
The joint labor-management plan is almost universally a fixed contribution plan. Therefore the job of the actuary becomes even more critical. Factors such as the possible reduction or increase in the participating work force become more vital. The trustees should be informed, by those providing consulting services, of the possible difficulties that might arise if assumptions are not fulfilled. There is no magic in actuarial assumptions, methods, and calculations. Those providing consulting services can make these concepts understandable. The trustees then will know the possible range of reasonableness in establishing benefits that are dependent on a fixed contribution. They can participate in establishing those benefits that are consistent with the trustees' objectives as to soundness and safety.
The benefits finally selected are set out in specifications to be used by legal counsel for the fund in drawing up the pension plan.
Periodically, in years after the establishment of the plan, the actuarial consulting firm is called on by the trustees to perform an "actuarial valuation."
Such a valuation usually includes the following:
a. Determination of liabilities of the plan and comparison with existing assets and future contributions
b. Necessary calculations for continuing tax qualification of the plan
c. Analysis of experience of plan in regard to actuarial assumptions
d. Recommendations with regard to actuarial assumptions and actuarial method
e. Necessary schedules to be filled with the Office of Welfare and Pension Plans, U. S. Department of Labor
Some actuarial consulting firms, in addition to services in the actuarial area, provide a broad range of services to help trustees in all areas of responsibility.
One area in which a consulting firm might provide valuable help is that of communicating the program.
Federal tax regulations require that the pension plan be communicated in writing to participants. This can be done in a very rudimentary way through the use of a simplified booklet or even notices on employers' bulletin boards.
Employers have reason to want the plan communicated effectively, however. Benefit plans may be of considerable help to an industry in such areas as reducing turnover, improving morale, and retaining skilled workers. Unions also want participants to know about and appreciate the way a negotiated benefit plan helps provide economic security.
Devices such as the following may be used:
Booklets and folders
Letters
Articles in union and employer publications
Presentations at meetings of the union and employer groups, which may include use of charts or slides