Carpenters Retirement Plan
Sustainable Income Benefits
Sustainable income benefits refer to benefits earned from January 1, 2017 forward. With sustainable income benefits, the starting point for your monthly benefit is calculated by multiplying the employer contributions earned in a calendar year by the appropriate benefit factor. The sustainable income benefit is earned in units. Once you are vested, your sustainable income benefit units are guaranteed.
The value of your sustainable income benefit units adjusts each year with the plan's investment returns. Your underlying benefit at any given point in time is the product of your total sustainable income benefit units multiplied by the then current unit value.
Sustainable Income Benefit Units and Investment Returns
Each year on January 1, the value of your sustainable income benefit units are subject to the investment performance of the plan for the second calendar year preceding the current year as expressed in the formula below:
If the plan earned more than 4% (the plan's "hurdle rate"), your underlying benefit increases with a maximum increase of 6% (the plan's "cap rate"), consistent with the adjustment to the unit value.
If the plan earns less than the hurdle rate, the value of your sustainable income benefit units decreases. This would also result in a reduction of your underlying benefit. However, the Board of Trustees established a benefit stabilization reserve fund to allow the Board to "shore-up" sustainable income benefits at participants' high water mark benefit. If a "shore-up" is needed, it must be approved by the Board of Trustees.
The sustainable income benefit units you earn each year are added with those earned in previous years to give you your total sustainable monthly benefit. This amount can be reduced for early retirement and a joint and survivor benefit. Your sustainable income benefit payable at retirement continues to be subject to the investment performance of the plan as described above.
- For additional information about sustainable income benefits and investment performance, please see Article 6.1.3.
Current Unit Value x 1 + Plan's Investment Return (not to exceed 10.24%) = New Unit Value 1 + Hurdle Rate
If you accrue a monthly benefit of 6.0000 units for each year of work from 2017–2036, your underlying sustainable income benefit would be 120.0000 units. Assuming a $10.0000 unit value, your monthly benefit would be $1,200 for the calendar year.
20 years x 6.0000 units/year x $10.0000 = $1,200
Sustainable Income Benefit Definitions
The following definitions apply to sustainable income benefits:
- Annual accrual – The sustainable income benefit you earn for each year you work in covered service, based on the benefit factor and contributions due or made on your behalf, denominated as units based on the then current unit value.
- Underlying benefit – The sustainable income benefit, expressed as units at the then current unit value, accrued without regard to any shore up that may be provided by the stabilization reserve.
- High water mark benefit – This is the highest sustainable income benefit paid or payable to date.
- Hurdle rate – The investment return threshold of 4% that must be reached to increase the unit value of your underlying sustainable income benefit.
- Cap rate – The plan's unit value will not be increased by more than 6% even when investment returns are greater than 10.24%.
- Stabilization reserve and surcharge – The money the plan holds in reserve that is intended to be used to "shore up" your sustainable income benefit following years with investment returns of less than 4%.
Benefit Adjustment Date
On January 1 every year, your accrued sustainable income benefit will be adjusted based on the investment returns from two years ago. For example, the January 1, 2019 adjustment will be based on 2017 investment returns. Retirees will receive advance notice before their benefit changes on January 1. The first adjustment was on January 1, 2018.
- For additional information about the sustainable income benefit adjustment date, please see Article 6.1.3.
You have an underlying benefit of 100.0000 sustainable income benefit units. Valued at $10.0000/unit, this is an underlying benefit of $1,000/month. If the plan's investments for the second calendar year preceding the current calendar year earn 7.12%, your underlying benefit will increase to $1,030/month beginning with your upcoming January 1 monthly benefit:
$1,000 x (1+0.0712) = $1,030 (1 + 0.04)
Where $1,000 is the current monthly underlying benefit
Where 0.0712 is the 7.12% investment return
Where 0.04 is the 4% hurdle rate
Where $1,030 is the new monthly sustainable income benefit
If the plan's investments for the next calendar year earn 4%, no adjustment is made to your underlying benefit beginning January 1 of the following year:
$1,030 x (1+0.04) = $1,030 (1 + 0.04)
Finally, if the plan's investments for the year after that earn 0.97%, your underlying benefit will decrease to $1,000 per month beginning January 1 of the following year:
$1,030 x (1+0.0097) = $1,000 (1 + 0.04)
However, $30/month from the stabilization reserve (please see below) may be used to "shore up" to your high water mark benefit so you will continue to receive $1,030/month. The stabilization reserve would be used until your underlying benefit equals or exceeds your high water mark benefit.
In no case will this annual adjustment increase the benefit by more than 6%. When plan investment returns are greater than 10.24% (1.1024/1.04 – 1 = 6%), the benefit increase will be 6% and the returns in excess of 10.24% will be used to build the stabilization reserves to be used in the future, at the discretion of the Board of Trustees.
Each year, the benefit adjusts with investment returns. That means your retirement benefit has the potential to grow throughout your career and retirement.
To reduce the impact of investment downturns on participants' sustainable income benefits, the Board of Trustees has established a stabilization reserve that can be used to prevent sustainable income benefits from decreasing whenever the unit value declines (leading to the underlying benefit being less than the high water mark). In years when investment returns are particularly high (above 10.24%), benefit increases will be limited to the cap rate of 6%. The excess returns will help build the stabilization reserve. That reserve money is intended to be used to shore up benefits in years when investment returns are less than 4%. If a shore-up is required, it must be approved by the Board of Trustees.
Although it is unlikely, if the stabilization reserve is not sufficient, the underlying benefit would be paid.
- For additional information about the stabilization reserve, please see Article 6.1.3.
During the 2017 plan year, you accrued a sustainable income benefit of $55.00. On January 1, 2018, your sustainable income benefit was adjusted for the plan's investment returns in 2016 relative to the plan's 4% hurdle rate. The plan's 2016 audited financials reflect a 5.13% return. Accordingly, your sustainable income benefit is adjusted January 1, 2018 as follows:
|$55 x (1+5.13%)||= $55.60|
|(1 + 4%)|
Your 2017 sustainable income benefit will next be adjusted on January 1, 2019, along with the sustainable income benefit you earned in 2018.
Last Updated: 01/09/2018