By Nick Thornton
has formally approved the application for a hybrid defined benefit/defined contribution plan requested by the New York Times and their employees in the Newspaper Guild.
Previous comments from regulators suggested the chances for approval were strong.
But that did not guarantee anything. The IRS had until the end of July to approve the hybrid, adjustable plan. Had they not met the deadline, Times employees would have been converted into a defined contribution trust, which they had successfully bargained against.
Regulatory entanglements resulting from the Patient Protection and Affordable Care Act (PPACA)
have resulted in bureaucratic inertia that threatened to push the application to the backburner.
The hybrid pension plan, which will cover 1,000 employees at the New York Times, was designed by Cheiron Inc., an actuarial and financial consultancy. It intends to draw on the best of defined benefit plans and the best of the defined contribution plans.
Beneficiaries will continue to receive a guaranteed stream of pension income into retirement, just as they would under a defined benefit plan. But the hybrid plan shares investment risk, much as employees bear risk in self-directed, defined contribution plans.
The plan provides a career average pay formula for employees. Each year, the costs of the plan, which determine how much the Times will contribute to the fund, and how much employees will contribute, is determined by a conservative estimation of the risk components that affect funding levels.
Once the formula is established for the year, both the employer and employees will know how much they are expected to contribute. The plan’s funding and liabilities will be re-examined each year going forward, allowing for adjustments in contribution rates to assure adequate funding for the guaranteed benefits.
“From the employer’s point of view, it looks like a defined contribution plan,” said Newspaper Guild president Bill O’Meara, in previous reporting by BenefitsPro.com.
“Each year they know what they need to pay into the plan. If it is $7 million one year, it won’t jump to $10 million because the stock market tanked or interest rates dropped.
“Employers like it because their expenses are predictable and they are still providing retirement benefits for their employees,” added O’Meara.
And employees like the hybrid plan
because it continues to promise the security of a monthly check for life upon retirement.
Increased employee contribution rates are often the sticking point in union negotiations that threaten pension-funding levels and call into question the security of future benefits.
It remains to be seen whether or not the hybrid, adjustable model will find further traction in private and public retirement plans. Consumer Reports, whose employees are also members of the Newspaper Guild, also had their plan approved.
In Maine, a legislative task force recommended a move to a hybrid model in 2012, but lawmakers have yet to bring the matter to a vote.
Originally published on BenefitsPro.com