Pension Plan for Hospital and Health Care Employees – Philadelphia and Vicinity

1. Pension Plan for Hospital and Health Care Employees – Philadelphia and Vicinity Outline of the Pension Protection Act of 2006 James J. McKeogh, FSA June 12, 2007

2. TOPICS • General Provisions • Endangered Plans (Yellow Zone) • Critical Plans (Red Zone)

3. General Provisions • Fast track 412(e) and shortfall method applications • Amortize all future charge/credit bases over 15 years (benefit and assumption changes as well as gains/losses) • Section 412(e) interest rate = plan rate • Greater transparency to participants/ employers • Maximum deductible increased to 140% CL • 25% Pay Combined DB/DC limit gone

4. Endangered Plans – Triggers • Plans whose funded percentage is less than 80%, OR • Plans with projected funding deficiency in next seven years (after taking into account any 412(e) extensions) • If both, then considered Seriously Endangered (Orange Zone?)

5. Endangered Plans – Consequences • Must establish funding improvement plan(s) to meet certain benchmarks and present to bargaining parties • Benchmarks are 1/3 improvement in “unfunded” percentage and no funding deficiency projected over funding improvement period (10 years) • Funding improvement period begins after expiration of CBAs or in two years after entering endangered status, if earlier

6. Example – Unfunded Percentage • Say plan is 76% funded at beginning of period – then it is 24% unfunded • 1/3 of 24% = 8% • Unfunded percentage must drop 8% to 16% • Target funded percentage is 84% (100% less 16%)

7. Endangered Status – Other Rules • Special rules for plans less than 70% funded • Funding improvement plan status reported on Form 5500 and to participants & employers • Plan cannot accept CBA with reduction in contributions • No benefit increases pending adoption of funding improvement plan and some restrictions after adoption

8. Critical Plans – Triggers • Funded % < 65% AND cash flow problem in 7 years, or • Cash flow problem in 5 years, or • Funded percentage < 65% and projected funding deficiency in 5 years, or • Funded % > 65% and funding deficiency in 4 years, or • Contributions not covering NC + interest on UAL AND inactive participant liability > vested liability for actives AND projected funding deficiency in 5 years, or

9. Critical Plans – Consequences • Employer surcharge of 5% first year and 10% thereafter (in lieu of excise tax) • Expanded ability to cut non-core benefits (e.g. early retirement subsidies and recently adopted benefit increases not guaranteed by PBGC) • Trustees must develop and adopt rehabilitation plan to improve funding

10. Critical Plans – Other Rules • Section 412(e) extensions not taken into account in red zone determinations • Employer surcharge ceases upon execution of CBA implementing rehabilitation plan • Plan can reject employer CBA not consistent with rehabilitation plan and create deemed withdrawal

11. Timing • Plan Actuary must certify as to funding status within 90 days from beginning of year • Can use liabilities projected from prior year • Use best guess as to assets – (need help from inv. consultant, auditor, custodian, etc.) • After certification due, 240 days to develop funding improvement / rehabilitation plan.