In last month’s report on the arbitrator’s decision on modifications to the AFM-EP Fund’s pre- and post-retirement benefits, I noted that implementation of these changes was to be discussed at the Feb. 19 and 20 trustee meetings.

These meetings have now taken place and the changes will be effective July 1, 2002. A full explanation prepared by legal counsel to the Fund, principally Anne Mayerson of the firm Bredhoff and Kaiser, appears below. The text was originally written for inclusion in the AFM-EP Fund’s newsletter Pension Notes, and is reprinted here with the Fund’s permission.

As the article states, please read carefully. Any of you who may have relied on the pre- or post-retirement benefit to provide a form of life insurance should be aware that an individual’s benefit may be significantly impacted by these changes. If possible, using the examples given and your own latest pension statement, you might attempt to calculate the approximate effect of these changes for you personally. If you have questions, please call me.

An Explanation Of Pension Fund Changes

Please read this article carefully because it discusses changes to the Fund’s death benefits that could be significant.

As a result of an arbitration decision issued to the Fund on Jan. 21, 2002, changes are being made to the death benefits provided by the Fund effective July 1, 2002. (The full text of the arbitrator’s decision is available on the AFM’s web site at www.afm.org). Specifically, the Plan document is being amended to make changes in both the pre-retirement and the post-retirement death benefit, as described below.

PRE-RETIREMENT DEATH BENEFITS

Current death benefit:

Currently, if you are vested, die before your pension begins, and are age 60 or older, your designated beneficiary will be entitled to a pre-retirement death benefit equal to 100 times the monthly pension to which you would have been entitled if you had been age 65 on your date of death (your “age 65 pension”). If you die at or after age 55 but before age 60, the death benefit is 90 times your age 65 pension. If you die before age 55, the death benefit is 65 times your age 65 pension. For a more detailed explanation of the current pre-retirement death benefit, see pages 30-32 of the Summary Plan Description.

New death benefit, effective July 1, 2002:

If you are vested and age 55 or older, and die on or after July 1, 2002, the pre-retirement death benefit will be equal to 100 times the monthly pension to which you would have been entitled if your pension began on your date of death. If you die on or after July 1, 2002, and you are younger than age 55, the pre-retirement death benefit will be equal to 100 times the monthly pension to which you would have been entitled if you had been age 55 on your date of death.

As a result of the change, the pre-retirement death benefit for participants who die before reaching 65 will be smaller on and after July 1, 2002, based on the same amount of contributions.

The available payment forms will remain the same: a single lump sum, installment payments, or an annuity for the life of the beneficiary.

There will be no change in the pre-retirement death benefit for non-vested participants ($2,000 or $4,000 in the case of accidental death).

• Example 1: Matthew is age 62, vested, and dies on July 15, 2002. Contributions on his behalf total $40,000. If he had started to receive his pension on his date of death, his monthly pension payable as a Life Annuity with a Guarantee would have been $1,636 ($40,000 ÷ 100 x $4.09). Matthew’s beneficiary is entitled to 100 times $1,636, or $163,600.
• Example 2: Rae is age 50, vested, and dies on Nov. 18, 2002. Contributions on her behalf total $35,000. Had she lived to age 55, her monthly pension at age 55 payable as a Life Annuity with a Guarantee would have been $815.50 ($35,000 ÷ 100 x $2.33). Rae’s beneficiary is entitled to 100 times $815.50, or $81,550.

POST-RETIREMENT DEATH BENEFITS

Current Death Benefit:

If you elect to receive your pension in the form of a Life Annuity with a Guarantee, you will receive monthly payments for the rest of your life. When you die, if you had not received the total guaranteed amount, the unpaid portion of the guaranteed amount will be paid to your designated beneficiary as a death benefit. The guaranteed amount is currently equal to 100 times the monthly benefit that would be payable if you were at age 65 when you began to receive your pension, no matter at what age your pension actually began. For a more detailed explanation of the current post-retirement death benefit, see page 18 of the Summary Plan Description.

New death benefit, effective July 1, 2002:

The guarantee will be calculated differently if you apply for a pension on or after July 1, 2002. Under the new rule, the guaranteed amount will be 100 times the monthly benefit you receive on the date your pension commences, but no less than the amount that would have been guaranteed under the old rule based on your age 65 pension benefit as of July 1, 2002.

You can calculate the minimum guaranteed amount that will be available to you if you choose the Life Annuity with a Guarantee when you retire by multiplying your accumulated vested contributions total as of July 1, 2002, by $4.65. (For example, if you have total vested contributions of $10,000 on July 1, 2002, your minimum guaranteed amount is $46,500.) That minimum amount will be guaranteed to you if you choose the Life Annuity with a Guarantee upon retirement. Your actual guarantee could be higher than the minimum guaranteed amount, depending on your age at retirement and the additional contributions you accumulate between July 1, 2002, and your retirement date.

Please note that the application form must be completed within certain time limits noted on the form. The entire application process (e.g., providing the Fund with election forms) also must be completed within specified time limits. If you do not comply with these time limits, your application will become void, you will be required to file a new application, and the Fund’s calculation of the guaranteed amount under the Life Annuity with a Guarantee will be made under the new rules for applications filed on and after July 1, 2002.

The new rule will only affect the amount of death benefit payable under the Life Annuity with a Guarantee. The survivor benefit under the Joint and Survivor Annuity form will stay the same. So will the available payment forms of the unpaid balance of the guarantee: a single lump or a series of installment payments.

• Example 1: On July 1, 2002, Cathy is age 63 with $22,000 in vested contributions. If her pension had started on that day, the guaranteed amount would be $102,300 (100 x ($22,000 ÷ 100 x $4.65)). On May 11, 2003, Cathy retires at the age of 64 and applies for a pension. Contributions on her behalf now total $25,000. Assuming that the dollar rate has not increased ($4.46 for pensions starting at age 64), Cathy is eligible for a monthly pension of $1,115, payable as a Life Annuity with a Guarantee ($25,000 ÷ 100 x $4.46).

The guaranteed amount is $111,500, because this amount (100 times her monthly pension on the date her pension starts) is greater than $102,300 (100 times her age 65 monthly pension on July 1, 2002).

• Example 2: On July 1, 2002, Don is age 55 with $40,000 in vested contributions. If his pension started on July 1, the guaranteed amount would be $186,000 (100 x ($40,000 ÷ 100 x $4.65)). Approximately five years later, on August 23, 2007, Don retires and applies for a pension at age 60. Contributions on his behalf now total $45,000. Assuming that the dollar rate has not increased ($3.72 for pensions starting at age 60), Don is eligible for a monthly pension of $1,674, payable as a Life Annuity with a Guarantee ($45,000 ÷ 100 x $3.72).

The guaranteed amount is $186,000 (100 times his age 65 monthly pension on July 1, 2002), because this amount is greater than $167,400 (100 times his monthly pension on the date his pension starts).

If you have any questions about the changes to the death benefits, please contact the AFM-EPF Pension Department at 1-800-833-8065.