Recent events regarding the pension plan.

This next message is from Phoenix Transit's Actuarial, Dennis Monaghan sent to Ron Norton, General Manager of Phoenix Transit on July 19, 2001.

Hi Ron - we did a quick check on Fidelity's performance for the first quarter of the 2001/02-plan year for the Retirement Plan. We estimated that they earned about 4.3% on the Retirement Plans assets. This estimated return reflects the actual cash flow of the Plans assets (contributions, benefit payments, etc.).
If Fidelity can continue to earn at that same quarterly rate for the entire 2001/02-plan year, then we estimate that the net annual return on the Retirement Plans assets will be slightly over 18%.

I will count the additional contribution of $274,654 as part of the 2000/01 Plan Year contributions so I can accrue it as part of the assets in our April 1, 2001 actuarial valuation. That contribution, plus the asset smoothing, gives the plan a current liability funded percentage of 75.5%. Also, we are projected to be safely above the special funded percentage of 80% as of April 1, 2002.
Therefore, we will meet our minimum funding requirements for the 2001/02 Plan Year.
----Dennis Monaghan

Put in a nut shell this means we are on track with projected earnings and we are looking forward to November's meeting of Fidelity and AON to look at this year's plan results.

Pension Meeting May 18, 2001

A pension meeting was called at 9AM to bring forward a spokesman from AON, the pension investment advisory company, and Fidelity Investment Group. The pension committee included members from PTS (salaried), ATU (operators) and OE (mechanics).
If we could say there is a silver lining on a dark cloud it would be that according to the recent snap-shot of the stock market, our pension plan has recovered by as much as 60 to 65%.
The unfortunate problem we face is that we must go on the snap-shot as of 3/31/01 and the IRS is forcing us to place a vehicle in placeeither come up with an immediate infusion of $5 Million to bring us back to 80% funded or go to a 5-year smoothing mechanism to stabilize and satisfy the IRS regulations as to the under funding of our plan as it now stands.
Fidelity had two representatives present their dog-and-pony show with a follow-up from the AON representative.
The main purpose of this pension meeting was to determine if our investment company had adhered to the plan investment guidelines. With everything presented the investment company had followed the guidelines and provided evidence to substantiate that they had also out-performed the leading index in all areas except one.
In further discussion it was decided that any change in investment strategy would take place at the November meeting when more information can be collected to make a better decision.
At one point in the meeting someone made the comment that there were probably only three people in the room that fully understands what was being said and he wasnt one of them!
These are complex investment figures that if you are not a college educated accountant or above, it becomes a very difficult task to weed through the graphs and charts and make heads-or-tails of the information presented.
The local will be forwarding all the information presented at the meeting to the ATU International actuarial and legal team for further review and comment.
We hope to be able to bring you more news as we receive it in our office.
-----Joe Mickelson

On April 27th the Pension committee met which consisted of members from the company, mechanics (Operating Engineers), and operators (ATU Local 1433).
The company's actuary presentation illustrated how the market drop just after the first of the year had dropped our pension from 87% to 69%--requiring a $5 Million infusion to keep the plan afloat.
This news was quite troubling to us because we had been fighting hard to push for an 80 point system whereby our members would not have to work until they literally drop dead in order to get a decent retirement.
The ATU International had the union's actuarial working with the company's personnel to come up with a better pension plan, be it a public plan or a Taft-Hartley plan which would have taken us out of the severe restrictions of a private plan which we have now.
Unfortunately all efforts have been placed on the immediate problem and with each and every week the pension is losing more and more of our funds.
The company wanted the two unions to sign off on a "five year fix" that would reduce our current year benefit by 73% and if projected earnings return, the pension would then return the funding level for this current year deficit.
The ATU could not sign off on this proposal without taking it before the membership.
Not only that, we wanted some assurances that the company would genuinely work with the ATU International in finding and implementing a public or Taft-Hartley pension plan.
In last minute discussions with ATU International officials it was learned that a plan does exist and on the meeting that was held on May 3rd I proposed to the company that we would take the pension reduction to the membership for a vote provided they would sign an agreement to work with our international in getting a better plan. The company refused to sign before they could look at the plan and have a better perspective of its worth.
At this same meeting the mechanics informed us and the company that they could not even get enough signatures on a petition to bring the issue to their membership.
This stopped all discussion as I told the company with the mechanics refusal to take it to their membership there was absolutely no way I could bring it to our membership for a vote.
With the company refusing to sign on with looking at another plan and the mechanics refusal to take it to their membership we suggested that we wait until after the May 18th meeting to see where the stock market was at and it would give the company time to look at what our international people had developed as to another plan. We stated that this would be about the best alternative since our next regular membership meeting would be on May 20th.
The company flatly refused this offer and stated that a fix had to be implemented within the week.
At that, the company notified us that they were going forward with the implementation of the five year fix and would reduce our individual multiplier which in effect reduces this benefit year to restore the pension plan and satisfy the government requirement of the plan.
I along with R. V. Young voiced our objections that our collective bargaining agreement requires that our members agree to any changes.
The company was up front and stated that they knew they were in violation of the agreement and openly stated that they were going to implement the reductions anyway and would simply wait to see what the unions would do.
On May 18th we will be meeting with the company, Aion, and Fidelity to take a look at the investment strategy and also they will be presenting a "snap shot" of how well the stock market has rebounded in relation to our pension plan.
-----Joe Mickelson