Thursday, May 19, 2005

The RFP Is out


(a) Modified work week. The Laboratory Director may designate a work week of less than five days within a pay week for selected employees, or groups of employees, when warranted. What more of a business case is required, it's in the RFP
RFP seems quite reasonable as far as giving current employees options. We'll see if there is a delay by some of the people scheduled to retire based on the info in there.
I would probably lean toward the option where I can become an inactive UCRP member, transfer my sick and vacation acrual rate but start clean with the new contractors pension plan. The only question is that of a medical plan when I finally retire. With UC as it is now you only receive medical if you retire not it you become inactive and receive retirement at a later date. I am sure with the new contract the medical benefits will be graduated as they are now for new employees. 5 years/retire the present system only pays for 40% of the premium, at 10 its only 60%, I am guessing at the figures but its something like that. I think the NNSA really listened and tried to accomodate employees concerns. I say kudos to Tyler of the NNSA.
Much detail needs to be filled in. For instance, will the new contractor allow a sick leave balance to be added to the number of accrued years.

However, I am most worried that in future there will be two tiers of employees - those with a "good" pension, and those with a "standard" pension. There is already some friction due to the different vacation policies depending on hire dates, and this will add to it.
After an initial scan of the RFP, I see two major traps for the bidder, who must form an LLC to run the lab. (1) Pension Plan 1 is the DBP for Transferring Employees, with the approximately the same terms as the existing UCRP plan. Where does the initial money come for this plan? One can reasonably assume that UCRP will be approached to transfer over the funds for these active employees, but UCRP has a fiduciary responsibility to protect their remaining participant base and will therefore provide as few dollars as possible. The negotiations between UCRP and the new LLC for the transfer dollar amount could take years (didn't the firemen take 15 years to finally get the right dollars in their transfer from LANL to Los Alamos County?). During this time, which could be the lifetime of the LLC, Pension Plan 1 will be severely underfunded. The RFP calls for any excess of the Pension plan to be returned to NNSA in the event of a plan termination, but makes no guarantees to the LLC for an underfunded plan, even if underfunding is not the fault of the LLC. We are too highly paid on average to make the PGBC a viable insurance option, witness the United Airlines problem for the pilots.

Pension Plan II would most likely be a DCP, which is effectively "pay as you go" with no effective future liability. So the smart bidders will work their hardest to make it attractive for employees to take the "Inactive Vested Transfering Employee" option, which leaves the current unexact liability for future pensions with the UCRP, and lets the bidder begin afresh with Pension Plan II being funded out of operating funds.

In short, Problem 1 is a massively underfunded Pension Plan 1 with a protracted legal fight with UCRP to get it properly funded, and no guarantee that DOE will back it.

(2) New overhead funds for (a) the fee, (b) the gross receipts tax, and (c) pension contributions are not adequately identified. Indeed, the fee is specifically stated to come from the President's budget item. If we presume the other items are also to come from the fixed budget, then we are looking at roughly $200M in new overhead funds: $60M fee, $60M in new GRT (in addition to what is already paid out now), and $100M in pension contributions (according to what UCRP claims it currently saves DOE annually in the overfunded pension plan). These numbers are wild first-principle guesses, but whatever these real numbers are, we are looking at a substantial new overhead cost to come from a fixed budget. Unless the fixed budget is dramatically increased overnight, we are looking at RIFs of the overhead personnel and/or a complete loss of any non-labor overhead costs in the first years of the contract, until Congress gets new budget line items to match. But we are in an austere budget time, with the President's proposed budget loaded with cuts of a few $100M everywhere, so identifying an additional few $100M for this new contract could be impossible.

So Problem 2, in short, is a large shortfall in identified overhead funds to pay the new costs of the RFP, so RIFs may be necessary.
6:21, I see nothing about transferring your accrual rates as inactive vested. I see transferring your balances.

This RFP definitely exceeded my expectations.
Regarding the two-tier pension plan, the new Pension Plan II for the New Employees (and the Inactive Vested and the UCRP Retired Employees) could actually be a good thing. Bring in a new graduate today and try to explain to him that we have a DBP that will not give him benefits until decades from now. Compare that to the common and rapidly expanding DCP at many of our competitors that matches your salary today for some percent and puts it into a 401(k) or 403(b). My wife and I had such plans at our former defense contractors, and after 15 years we came here with several $100K in rollover accounts. We effectively have our retirement cash in hand from them (plus a DBP from them that is substantially lower payout than the UCRP).

If the new LLC has an attractive DCP that gives new hires retirement cash upfront for each year they work, we may actually be more attractive than trying to sell them our current DBP plan of "wait several decades" for a pension plan that may or may not be adequately funded.
A few items regarding Plan 1. There is no specific mention of anything other than using UCRP age factors for the benefit calculation. Not mentioned are things like: 1) a Lump Sum option, 2) Employee contributions, 3) Contingent annuitants, 4) Sick leave conversion, 5) COLA.

Perhaps the intent is to make it essentially the same as the UCRP and these details will be spelled out later.
At one of the early talks about the RFP, where I believe Domenici was, I recall a statement that it was just a *proposal*, and the final contract terms as awarded could be different!

If this is indeed true, then one can only suppose the terms of the RFP are merely suggestions by DOE/NNSA as to what they are looking for.
From the recent UCRS annual recollection...

Year-end 2004 balance, ~$42billion.

Annualized ten year average outlay to annuitants,~$860 million/yr.

Year 2004 UCRS fund earnings 11.65%.

UCRS investors had a good year in 2004, so the funds earned ~$4billion while paying out something around $1billion...well-funded system.

Now the big questions:
(1) What is the Los Alamos share of the $42billion UCRS balance?
(2)Will the obvious surplusses in the UCRS balance be split equitably with the new Los Alamos LLC?
(3) Will the Los Alamos share of the UCRS funds once peeled away from the mainstream UCRS be invested as successfully as UCRS has done?
(4) Will the Los Alamos share of the UCRS balance, once severed from the mainstream, be subject to corporate raiding such as in Enron or United Airlines?
(5) If one were to transfer over to the new LLC lock-stock-and-barrel, will the future pension of the LLC match the present charting of retirement values as presented for future years by UCRS? ...will lump sum cashouts in the future LLC match the present charting presented by UCRS?
(6) If one were to freeze the UCRS plan as of the date of transfer to the LLC, what risk is there that Gov. Schwartzenegger will pluck the UCRS surplus "plum" and leave future UCRS annuitants with less than they could have taken now.
...I'm lost...
I was generally pleased with what I saw. I'll likely stay and roll over into the new retirement plan. Actually, it might end up being an improvement since medical is guaranteed and the separate retirement fund will likely keep Arnold from raiding the cookie jar. I will still be interested to see what they do with the COLAs and the sick time.
UC would be crazy to hand over anything more than the minimum required by law, which is based on the employees covered and insurance actuarial tables. Actuarial tables are problematic as people live longer today.

Even if UC did hand over the 'extra' money- would it stay in a dedicated account? Might it tempt the contractor or DOE?

It is your money- so do your best to watch this process.
I read the RFP today-
NNSA clearly wants you to 'transfer'.

You keep your leaves, your salary, and a mirror of UCRP. What was not clear- how much of a mirror of UCRP?
Can you cash out?
Does your spouse get 50% after your untimely demise?
Does your sick leave still count as time worked?
Note: If UCRP gets raided and lowers benefits, then your future benefits drop also.

For those who choose to become an 'inactive transfer' you won a few and lost a few.
You are NOT promised a job or your current salary.
You get to keep your leave balances.
You are under the new 105% pension system but you are instantly vested. ( maybe 401s ++)
I suspect you are instantly on new vacation and sickleave schedules.
I may be wrong, but if later RIFed you may not have any years of service.

All in all, with all the tugs in different directions, NNSA did a good job.
There are a lot of questions here, and unfortunately, most of them won't
be answered until 60 days after the new contractor comes on board on
June 1, 2006. Drats! For now, I'm left with "trust us" words from
the DOE, but I have little trust in DOE.
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