From our Chairman Joseph Sellers, Jr.
Chairman’s Message – December 2017
Dear Brothers, Sisters and Industry Leaders:
In March, we were again certified in the “yellow zone” (endangered status) for 2017. Long term projections continue to show that the funded percentage of the Plan will increase over the next several years. Just recently, the January 1, 2017 actuarial valuation was issued and showed that our funded percentage has increased to 60.6%. The actuaries have also certified that we are making scheduled progress in our Funding Improvement Plan.
In 2015, we saw a loss in our investments but returns for 2016 were 8.08%. Our actuarial assumed rate of return is 7.5% - the minimum number we shoot for every year to not take an actuarial loss. So far in 2017, we are looking like we will exceed our assumed rate of return.
We are seeing an increase in the overall hours across the industry, however, hours are not increasing as much as last year. The first eight months of 2017, January through August, showed hours reported to the Fund at 2.43% higher than the same period in 2016. When we did this measurement last year and compared the first 7 months of 2016 to 2015, we saw an increase of 3.75% in hours reported. The year before that, comparing 2015 to 2014 we saw an increase of 5.8% in hours reported.
We just announced the NPF’s Variable Benefit Accrual Rate (VBAR) would be 0.50% for 2018 hours. VBAR is determined based on the average investment returns of the previous three years as stated in the prior year’s actuarial valuation. For 2018, we used the average of the returns for 2014 (6.12%), 2015 (-0.42%), and 2016 (8.08%) which is 4.59%. Based on the formula detailed in the Plan, when the average of the three year exceeds 0% but is lower than 6.5%, then the VBAR is 0.50%. For previous Plan years, the VBAR was 1% in 2017, 1.25% in 2016 and 2015 and it was 0.75% for 2014. An average over 5 years of 0.95%. This plan feature was designed to adjust benefits in reaction to the market. When returns are good, the VBAR is at the top of the scale. Likewise, lower returns will move the VBAR lower on the scale.
The Fund realized a positive Cash Flow in 2016. Our audited financial statements show that the Fund had a surplus in 2016 equal to $15.39 million when comparing contribution income to benefits paid plus administrative costs. This is the first time since 1988 that there has been a Cash Flow surplus in the National Pension Fund. While this is a significant milestone for the Fund, with no mandated increases over the next two years, participants and hours would have to increase to cover increasing benefits expense and maintain this surplus in future years.
The Trustees of the NPF are always looking for ways to grow the Fund and to leverage the assets of our participants. Recently, assets of the Fund were moved into Legal and General Funds. Legal and General is offering Index Funds that will allow us to use the collective Sheet Metal assets to realize industry wide cost savings. These funds will reduce fees and are less stringent regarding minimum investments allowing access for smaller Funds to realize these savings. The access to the Legal and General Funds represents the next step in driving down investment management fees by being diligent on finding high quality low cost providers.
In recognition of the financial position that new owners feel in their early years of starting a business, in 2016, we added language to the Plan that would allow a new employer to exclude contributions to the National Pension Fund for their first year. Six new employers have taken advantage of this provision.
We also just extended the Free Look provision for 2018. This provision allows a new employer to participate in the Fund without incurring withdrawal liability should the obligation to contribute cease within the first 48 months of participation. We have had almost 30 new employers approved for this provision since its inception in 2015.
Recognizing that retirement security is an important issue to you and your family, we will continue to do our part as Trustees, to be diligent stewards of your National Pension Fund assets.
Joseph Sellers, Jr.
Chairman, NPF Board of Trustees