Monday, January 16, 2006

Timely UCRP Pension Concern Voiced by UPTE

[Note: Good luck on getting anybody to intervene on this. The UC special committee on compensation is meeting to decide on this Wednesday. This Wednesday. --Doug]

From: J. Binstock
Date: Jan 16, 2006 2:32 PM
Subject: Timely UCRP Pension Concern Voiced by UPTE

Senator Jeff Bingaman,
Senator Domenici,
Representative Tom Udall,
CA Senator Denise Ducheny,
Manuel Trujillo
Chuck Montano
Jelger Kjalmijn
Steve Czuchlewski (CLE (Coalition for LANL Excellence), member of Executive Committee>,
President Dynes
Douglas Roberts <>

Attachment 1
Attachment 2

Manuel Trujillo, president of the Los Alamos chapter of UPTE (Union of Professional and Technical Employees), has authorized me to send you this email on his behalf. Manuel expects to visit the Santa Fe offices of Senator Bingaman and Representative Udall to discuss this issue, on the afternoon of Tuesday, January 17. Since the subject of our concern is the proposal that University of California (UC) President Dynes will present at 10:50 PT on the morning of Wednesday, January 18, the issue is a timely one.

Our Concern
We would like your help in forestalling what appears to be an imminent massive (in the billion dollar range) raid on the pension fund assets of Los Alamos National Laboratory (LANL) University of California Retirement Plan (UCRP) retirees and inactive members. The actuarily-derived "surplus" that is at stake is a phantom surplus, that becomes a shortfall if ERISA-required life-expectancy tables are used, instead of the arbitrary Regents-sanctioned incorrect tables specified in the UCRP source document (see the discussion we present in ref. 1 below). It is in the interests of the LANL UCRP retirees and inactive members for the following proposal to be delayed until the California Legislature has a chance to evaluate the consequences. It is entirely possible that the California Legislature is unaware that UC has a Regents-provided exemption from Federal ERISA requirements, and that all UCRP members (most of whom vote in California) lack the basic protection provided by ERISA.

The attached UCRPDoc.pdf (accessed from the LANL home page Friday January 13, 2006) contains the proposal by UC President Dynes to create a separate UCRP-LANL pension plan, to be discussed at the 1/18/06 Regents' meeting described in the attached comp.pdf. This proposal contains the statement

"To facilitate compliance with the current UC-DOE LANL contract close-out obligations and to provide for administration of a site-specific plan, consistent with the objectives of the National Nuclear Security Administration, President Robert C. Dynes is recommending that the UC Board of Regents consider at their January meeting a proposal to place the University of California Retirement Plan (UCRP) assets and liabilities of the LANL employees, retirees and inactive members in a separate UCsponsored pension plan, the UCRP-LANL Plan, subject to DOE approval."

However, a separate UCsponsored pension plan is not required by the UC-DOE LANL prime contract W-7405-ENG-36, which can be found at
(See p. 20, H.008 for UCRP pension requirements).
Only site-specific bookkeeping is required, and that is already a part of the current annual process. What this new Plan will facilitate, for LANL UCRP retirees and inactive members, is (from a reading of the UC-DOE LANL prime contract)
(a) a skimming of their "surplus" pension assets
(b) different treatment from those in the main UCRP Plan, up to and including their transfer out of UCRP altogether and into the new as-yet-to be-determined stand-alone pension plan associated with the new LANL contractor. Another possibility is that their pension plan membership will be terminated and private annuities will be bought with their actuarily-determined liability amount. The annuity that this actuarily-determined liability amount will buy on the open market is substantially less than the associated UCRP monthly payment, again due to the UCRP determination of liability using the incorrect life-expectancy tables discussed below in ref. 1.

As UCRP members who vote in California would vote against anyone who permitted these attacks on their pension assets, the Regents would want to exclude Californians from these actions, hence LANL UCRP members have to be separated out.

However, if the UCRP pension money of LANL retirees and inactive members can be isolated and skimmed off in this manner, Livermore could be next, so Livermore should be as concerned as we are about the proposal to be presented 1/18/06.

Below find a more detailed discussion of these issues.

* * * * * * * * *

Five points of concern follow, although much more can be said:

(1) UC uses understated (non-ERISA) life expectancies (ref. 1), and

(2) the current contract specifies that the entire (overstated) pension surplus goes to the new stand-alone pension plan (or reverts to DOE) (ref. 2).

The fact that the surplus is overstated (point 2) follows from the use of the understated life expectancies (point 1). Point (1) also results in understated lump sums for those who choose that option.

If the UC pension plan were required to comply with ERISA regulations, the current "surplus" would change sign.

(3) The new, intermediate, pension plan proposed by President Dynes in UCRPDoc.pdf will not only have its "surplus" skimmed off for the newer stand-alone plan (or for DOE), it will also have no active employees after the transition to the new stand-alone pension plan called for in the RFP. All members in the intermediate UCRP-LANL pension plan will be either retired or inactive. This means that should the assumed 7.5% return on assets not materialize, or should the UCRP-LANL plan members turn out to have the life expectancies represented by the ERISA tables, they will find their pension funds run out of money before the pensioners run out of years. There will be no new source of money from active employees, as there will be no active employees. This would not be the case if UCRP-LANL pensioners remained in the main UCRP plan.

(4) The current formula for the UCRP annual cost-of-living adjustment (COLA) underrepresents the Consumer Price Index (CPI) adjustment. For example, if the the CPI growth for a given year is 4%, the UCRP cola is 2%. The UCRP source document cited in Ref. 1 specifies that a CPI growth rate of 4% is assumed, so a COLA of 2% is assumed for the liability calculation. Currently, UCRP supplements its annual COLA's with occasional additional ad hoc cost-of-living adjustments intended to keep a floor under pension buying power. Separating out the UCRP-LANL plan will permit UC to reserve its ad hoc COLA's for the main plan. This would be justified by the fact that the "surplus" has been skimmed from the UCRP-LANL plan, and funding for ad hoc COLA's has to come out of this "surplus", because it isn't included in the liabilities.

(5) What state law will govern the separate UCRP-LANL pension plan proposed by President Dynes - California's or New Mexico's? How interested will the California Legislature be in overseeing a separate pension plan for people who live and vote in another state? What checks and balances are there for pensioners who can't vote the pension plan overseers out of office?

In addition to requesting that there be no split-off UCRP-LANL pension plan, we suggest that ERISA rules be applied to both the main UCRP pension plan (it is currently exempt), and to any stand-alone successor pension plan. The application of Sarbanes-Oxley-like rules to require language clarity in DOE contracts governing the treatment of thousands of employees would also be desirable.

* * * * * * * * *

See below for the relevant citations from the UCRP source document and Section H.008 of the current contract.

Reference (1): Article 2.06(c), page 15 of University of California Retirement Plan source document dated September 2004. Note that the ERISA-mandated tables are unisex, with no age age setback, so that UC is twice-over reducing the assumed life-expectancy, for a drastically understated UC-assumed liability.
Actuarially Equivalent means benefits and payment options the actuarial
present values of which are equal. Actuarial present values shall be
determined using the Actuarial Assumptions from time to time approved
by The Regents and incorporated into this Section. The current
assumptions are:
(a) assumed rate of investment earnings: 7.5% per year;

(b) assumed rate of Consumer Price Index movement: 4.0% per year;
(c) assumed rates of mortality used to determine benefits and payment
(i) Effective July 1, 2004, the 1994 Group Annuity Reserving Table
for Males with ages set back three years for the Member and
ages set back five years for the Eligible Survivor or Contingent
(ii) Prior to July 1, 2004, 1983 Group Annuity Table with age set
back four years for the Member and set back six years for the
Eligible Survivor or Contingent Annuitant;


Reference (2): Section H.008 (f) pp. 27-30 of the current UC Contract No. W-7405-ENG-36, Modification No. M579. Note that it is the A-B formula that results in the entire (overstated) surplus being transferred either to the successor pension plan or to the DOE.

(f) Contract termination and selection of a successor contractor. Should another contractor
replace the Contractor, the following become requirements:
(1) Liabilities for present and future benefits of Contract employees in the event there
is a successor plan. The liabilities as of the effective date of disaffiliation for
members to be covered by a successor pension plan shall be calculated by using

the UCRP Plan provisions, actuarial assumptions, and actuarial cost methods as
then in effect. Active members not retained by the Contractor are the only
members to be covered by a successor pension plan.
(2) (i) Contract service assets in the event there is a successor pension plan.
Contract service assets shall be determined by a formula to be negotiated
between the Parties, subject to an IRS ruling and in compliance with the
laws of the State of California as to permitted agreements that may be
contained in the aforementioned formula. If permitted, contract service
assets for a successor contractor shall be determined generally in

accordance with the following formula:

A - B, where
A = Market value of assets assigned to the DOE Laboratories as
determined from subparagraph (b)(5), as of the last business day of the
calendar quarter which ends coincident with, or next preceding, the
effective date of disaffiliation. From the effective date of spin-off to the
date of transfer of the assets, interest will be credited at the rate
established for a one year Treasury bill as published by the Federal
B = Liabilities associated with pensioners, survivors, terminated vested
and nonvested inactive members, members receiving disability income
under the UCRP and active members (contract employees) who are
retained by the Contractor as determined pursuant to subparagraph (f)(1)
If, for technical, administrative, or regulatory reasons, the preceding
formula proves inapplicable, the Contractor and DOE shall bargain in good
faith to produce a result which would be as equitable to both parties as the
preceding formula and in compliance with applicable law.
(ii) In no event, however, shall the UCRP retain an amount less than the
liabilities for benefits of members whose liabilities are retained by the
Notwithstanding the provisions of this paragraph (f), the Parties
further agree to consider the desirability of covering pensioners, survivors,
UCRP disability recipients, and terminated vested and nonvested members
under a successor plan.

(3) Disposition of contract service assets and liabilities. The Parties agree that any
disposition of contract service assets or transfer of liabilities upon Contract

termination shall be consistent with the then applicable federal and state laws
relating to qualified defined benefit pension plans and shall be subject to obtaining
such rulings and/or approvals from cognizant Federal and State agencies as may be
required by law or deemed prudent by the Contractor or DOE.

(i) Retention of assets and liabilities. When a successor pension plan has
been established by a successor contractor, UCRP shall retain the liabilities
associated with pensioners, survivors, UCRP disability recipients, and
terminated vested and nonvested members and active members who are
retained by the Contractor as determined in subparagraph (f)(1) above. In
the event that there is no successor plan, UCRP shall retain the liabilities
associated with all members (contract employees).
(ii) Transfer of assets and liabilities to successor pension plan. Under a
successor pension plan acceptable to the DOE and which fulfills all of the
Contractor's fiduciary responsibilities under UCRP, and which further
assumes UCRP liabilities for transferred Contract employees, the
Contractor agrees to transfer to the trustees of such successor plan an
amount equal to the contract service assets as determined in subparagraph
(f)(2) above. Such amount shall be transferred as investment holdings of
the UCRP, plus any necessary United States Currency, or, by mutual
agreement of the Parties, the total amount may be transferred as United
States Currency. Agreement by the DOE and Contractor will not be
unreasonably withheld.
(A) If the asset transfer to the successor contractor's trust is made in
the form of investment holdings, such holdings shall include cash,
equity securities and fixed income securities, but shall exclude
investment holdings (and earnings thereon) acquired after the
effective date of disaffiliation. Such assets shall be allocated on a
pro-rated basis, with proration for fixed income assets based on
rating and classification. The pro-rata allocation shall be the ratio
of (A) and (B) where, (A) is the contract service assets referred to
in subparagraph (f)(2) above and (B) is the total assets of the
Retirement Fund of UCRP at market value as of the effective date
of disaffiliation. Such assets shall be transferred within 36 months
of the effective date of disaffiliation, and shall include actual
investment earnings(gains or losses) of such assets less expenses
and benefit disbursements from the effective date of disaffiliation
to the date of transfer.
(B) The Contractor will transfer assets at a rate at least sufficient to
meet the cashflow requirement of transferred employees who go
into benefit status under the successor plan.
(C) If the transfer is made as United States Currency, the transfer shall
be increased to include interest on the amount at the rate

established for a one year Treasury bill as published by the Federal

Reserve, from the first day following the effective date of
disaffiliation through the day of payment.
(4) DOE agrees to require that, in the event of termination of work under the contract,
a successor contractor shall permanently maintain the benefit accrual terms and
conditions of UCRP for the Contractor employees transferred to the successor
contractor insofar as UCRP is consistent with the provisions of applicable law.
(5) In the event that there is no successor plan, a reconciliation of funding obligations
shall be done. A separate accounting of assets and liabilities for contract
employees shall be maintained by the Contractor. The Contractor shall assure
that accrued obligations to contract employees are met and that the fund is being
prudently managed. If, pursuant to approval by the Regents of the University of
California, all UCRP obligations to contract employees are fulfilled through a plan
spin-off and termination under the process outlined in subparagraphs (e)(3) above
and (g)(2) below, as applicable, the Contractor shall return any net excess assets
attributable to contract employees to DOE, if approved by the Internal Revenue
Service. If a funding shortfall arises as a result of economic conditions beyond the

Contractor's direct control, the DOE agrees to contribute funds necessary to fully
fund liabilities to cover obligations to contract employees, not including active
employees who continue to be permanently employed by the Contractor.
(g) UCRP plan termination.
(1) In the unlikely event of plan termination, the Contractor shall not terminate any

pension plan (commingled or site-specific) without notifying the Department at
least 60 days prior to the scheduled date of plan termination, or if earlier, 60 days
before plan members are notified of the plan termination.
(2) The Contractor may satisfy plan liabilities to plan members by the purchase of
annuities through competitive bidding on the open annuity market or through the

Hell, might as well go big. If you are going to talk about UCRP not following ERISA, you might as well request the CA legislature look at all the Federal, State and Local plans for workers/voters in CA. Would not be surprising to find out none of them follows ERISA.

It would also appear that this change is beneficial to those UCRP members who are voters in CA, no?

The following is from:

The U.S. Department of Labor enforces Title I of the Employee Retirement Income Security Act (ERISA), which, in part, establishes participants' rights and fiduciaries' duties. However, certain plans are not covered by the protections of Title I. They are:

Federal, state, or local government plans, ...
Likewise a lack of PBGC backup.
How do we get this letter distributed to all employees at both LANL and LLNL so that they to can join in on this? We need power in numbers? This is official business as far as I am concerned.

Just went to to ask for distribution help.
A few more contacts:

Director Public Affairs
(925) 422-9919
(best person to get the news out at Livermore if you want their help )
Can't help myself. Thank God for the union--at least someone is TRYING to herd the butterflies!

OK, now you Neo/theo/cons can come out bashing, if you want, but what we really need to do right now is a little more rebelling against the Power Elite, I'd say.

Rally 'round The Pond!
Lesson learned: don't put all of your retirement nest eggs in the same basket. Diversify.
Nothing to bash here. Action not whining is what is being proposed, and I commend and join that effort. I've sent letters to all of the "relevant" folks, too. The change in the retirement plan seems only a convenience to UC and to DOE, but not to the members.
Anything emailed to

will be included in the Secretary's report of communications to the Board at its next regularly scheduled meeting.
One thing I realized this morning is that if the retirement of past, present and future retirees are lumped together, then in about 4-7 years, if the contract is taken from LANS.. all those retirees would also go with them.

This might be considered a poison pill in face of future contract changes.. or could be considered by UC as a good-riddance pill. It is also a poison pill for people who were considering to retire from the lab and try to rehire on. Unless they are old enough to do the lump-sum payout now.. they are probably not any more screwed just staying on.

At this point, I would suggest people go do the following:

Find a reputable retirement agent who can give solid advice.

If you can, retire with the lump sum before March 15th (if your retirement agents says that is a good idea.)
With what they are doing, it appears they are trying to make it next to impossible to do anything except totally leave or else roll over to the LLC. Can't lump out unless you can be self sufficient until 59 1/2 (or willing to pay 20% tax)

I'm trying to figure all this out... 55 with over 28 yrs service. Never planned on this in my career planning.

Gruntled - What significance is 15 March?
Butthead, I feel your pain. You are at the worst possible exposure
in this UCRP pension mess with employment stats like 55/28.

Question: Can't someone who is under 59 1/2 simply take the UCRP
lump sum and roll it over into an IRA to avoid special tax penalties?

Of course, you would need to find another job to provide some earnings
until you reached the IRA withdrawal age of 59 1/2. And if you took
the UCRP pension at age 55, no similar IRS special penalties would be
in effect.
If you take a lump sum distribution, I don't believe that accumulated sick leave counts towards service credit. Nor do I believe that you are eligible for the current medical insurance (such as it is).
Travis, you are correct. It's a matter of taking the retirement at 55 and learn how to live on those funds. I'd say in the next five years or less we will see medical go away to. So we are really screwed.

Remember, according to the way the UC just gave your retirement ways, you are just a contractors anyway. Non of us were ever UC employees or you'd have a case I would think to request to be retained on UCRP.

I am leaving at lesss then 55 and calling it good. I am finding it very hard to stay motivated when being treated like dirt and thrown to the wolves as they have just done.
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