The Qwest Pension Plan

Post-Merger, what happens to the Plan?

Does anything change? Can CenturyLink change
the Plan?

How does the Qwest Pension Plan work?

How does the Qwest Retiree Healthcare Plan work?
1
Post-Merger, what happens to the
Qwest Pension Plan?
CenturyLink is bound by the provisions of Section 1.3
“Successorship” of our contract.
As such, CenturyLink “. . . shall be bound by the Terms
and conditions of this Collective Bargaining Agreement
between Qwest Corporation, Qwest Business
Resources, Inc. and CWA, and shall assume all other
duties and responsibilities of a successor (as that
term is construed under the National Labor Relations
Act).”
2
Successorship
Any change to any of the negotiated benefit plans is
subject to the provisions of Addendum 10.
Section A.10.4 states that the employer can propose
changes "provided, however, that no change shall be made
without the consent of the Union in the Plans which would
reduce or diminish the benefits or privileges thereunder for
the employees within the bargaining unit."
3
Can the Plan be changed for the
already retired?
You cannot change the Plan and then retroactively change
the rules. Changes to Pension Plans must conform to
certain rules established under the law. To illustrate how
that works, we can look to how both Qwest and
CenturyLink ended their Plans for all non-represented
employees.
4
Qwest
In November 2009, Qwest amended the Pension Plan
freezing those non-represented employees where
they currently were in the plan. While they could “freeze”
those employees, those employees retained what they had
up to that point. Additionally, non-represented employees
hired after January 1, 2009 are not eligible to participate.
CenturyLink followed suit freezing their current nonrepresented employees and disallowing future nonrepresented new-hires from participation the following year.
5
Changes to Non-represented
Plans
You cannot change a Plan and then retroactively change
the rules. This is one of the major protections of the
Employee Retirement Income Security Act (ERISA).
Legally, while the door could be closed going forward, what
is earned to date can't be changed to take it away.
6
Changes to Non-represented
Plans
Employers can end a pension plan through a process
called “plan termination.” There are two ways an
employer can terminate its pension plan:
1.
2.
The employer can end the plan in a “standard termination” but only
after showing the Pension Benefit Guaranty Corporation (PBGC)
that the plan has enough money to pay all benefits owed to
participants.
If a plan is in a termination process and is not fully funded, the
employer may apply for a “distress termination” if the employer is in
financial distress. To do so, the employer must prove to a
bankruptcy court or to the PBGC that the employer cannot remain
in business unless the plan is terminated.
7
Pension Benefit Guaranty Corporation
Security of benefit
Pension Benefit Guaranty Corporation
PBGC guarantees maximum benefit amount
Benefit is indexed annually
Additional information – www.pbgc.gov
8
Could the Company unilaterally buy out all
pensions and end any pension coverage?
If they didn’t have to bargain with us and decided to just
dump their pension Plan, they could if they followed the
process required under law. They would first have to show
the PBGC that the plan has enough money to pay all
The Pension benefits owed to participants. The Plan would
then be required to either (a) purchase an annuity from an
insurance company which would provide the participants
with lifetime benefits when they retire; or, (b) if the Plan
Allows ump sum payments, to issue one lump sum
payment to each of the participants that covers their entire
benefit.
9
Pension buy out – continued
Before purchasing an annuity, the plan administrator must
give participants advance notice that identifies the
insurance company (or companies) that the employer may
select to provide the annuity. The PBGC’s guarantee ends
when the plan either purchases annuities for or gives
participants lump sum payments.
10
Do the other Represented
CenturyLink units have pensions?
CenturyLink has 2 pension plans. The CenturyTel legacy
Plan (which is now ‘frozen’) covering the non-represented
CenturyLink employees and a second Plan which is
compromised of the Pension assets of those units that
were acquired that had pension plans.
Those Plans are still in effect. Eliminating or freezing those
plans is a mandatory subject of bargaining.
11
Is the Qwest Pension Plan
“safe”?
On page 105 of Qwest’s current annual 10-K Report, it is reported that:
"The accounting unfunded status of our pension plan was $585 million
at December 31, 2010. During 2012 we expect to begin making
required contributions to the plan and we estimate that these 2012
contributions could be between $300 million and $350 million."
The Qwest Plan was underfunded by $790 million as of December 31,
Continuing on page 110 of this Report, the "Fair value of [pension] plan
assets at end of year" 2010 was $7.66 billion. And, on page 120,
Qwest reports the total pension plan "benefit obligation" at end of year
2010 was $8.245 billion. Current Plan assets are at 93% of liabilities.
By law they are required to make contributions to bring it to 100% but
also gives them time in which to make those contributions.
12
How does the
Qwest Pension Plan work?
13
Who is covered by the Qwest
Pension Plan?





Employees with one or more years of service
Participation is automatic – don’t have to enroll
Occupational employees hired or rehired before
12/31/08 are vested after 5 years (traditional Pension
Plan)
Occupational employees hired or rehired after
12/31/08 are vested after 3 years (Cash Balance
Formula)
Eligible to take benefit at termination (if vested), do not
have to wait until age 65
14
Who pays for the cost of the Plan?



Pension benefit is provided at no cost to
employee
Employees do not make contributions – they are
not allowed
Qwest pays for entire cost and bears the
investment risk
15
Plan Requirements
The Plan must meet certain criteria established by the
IRS and the Department of Labor (DoL). This criteria
requires that the funds be set aside in a Trust. At
Qwest, there is $8.245 Billion owed with current assets
of $7.66 billion. Assets can only be used for the
benefit of plan participants.
16
Term of Employment* (TOE)
* Qwest employees only
Length of service used to determine eligibility for a
Service Pension or a Disability Pension
TOE is also used to determine all seniority-based
benefits such as vacation, schedule of shifts, Short Term
Disability and tuition assistance
TOE is measured in terms of completed years, months,
and days of employment with a Participating Company
Bridging of service rules apply to TOE
17
Pension Calculation Service (PCS)
PCS is the service used to determine the pension benefit.
It is similar to TOE, but not identical. PCS is prorated for
any part-time employment.
PCS is maintained for Pension Plan purposes only – no
other benefits are based on it.
18
Negotiated Occupational Formulas
Pension Band based on job title X Pension
Calculation Service (PCS)
+
Supplemental Benefit
(.001 X annual average of supplemental earnings* X
PCS)
=
Age 65 monthly annuity
*Supplemental earnings include differentials,
performance bonus payments, In-charge allowance
19
Negotiated Occupational Formulas
Sales Consultants – Pension Factor using average monthly
compensation* X PCS resulting in a monthly age 65 benefit
 Average monthly compensation is based on highest
60 consecutive months of eligible earnings out of last
120 consecutive months of eligible earnings
* Compensation includes base pay, sales incentives,
overtime, and STD pay
20
Negotiated Occupational Formulas
Occupational Benefits are expressed as a Normal
Retirement Age monthly annuity (age 65)
At termination of employment or retirement, the age 65
monthly annuity is converted to an immediate annuity
and an immediate lump sum
21
Account Balance Formula (ABF) *
* Employees Hired or Rehired After December 31, 2008
Each active Occupational Employee hired or rehired after
December 31, 2008 will earn a benefit under the Account
Balance Formula (ABF). Compensation Credits equal to
three percent (3%) of the employee’s eligible compensation
(as defined by the Plan document) will be calculated
annually in accordance with the ABF. Employees will
become vested in the benefit upon the completion of three
(3) years of employment. Upon separation from
employment, if the three (3) year vesting period is satisfied,
an employee is eligible to receive their account balance as
prescribed by the Plan document, including a lump sum.
22
Service Pension Eligible (SPE)

Modified Rule of 75
AGE
Any Age
50 - 54
55 - 59
60 - 64
65+
Years of Service
30 years of service
25 years of service
20 years of service
15 years of service
10 years of service
Modified Rule of 75 applies to Occupational Formulas –
provides a subsidy to the annuity payment option between
ages 55 & 65
23
What Does “Service Pension
Eligibility” SPE Mean?




Determines early retirement reduction for receiving
monthly payments prior to age 65
If under age 55 and SPE, a 6% annual reduction is
applied for each year under 55
If 30 or more years of service and under age 55, no
reduction is applied
If not SPE, the reduction for receiving benefit prior to
age 65 is greater. Benefit is treated as a deferred
benefit paid at present age
24
Other Retirement Benefits

Currently, if employee is SPE, Retiree Benefits include
the following:





The medical benefits in effect at retirement
Life insurance and dental benefits
Telephone Discount
Retirement Gift
These are subject to change – e.g., bargaining – Plan
provisions govern
25
Benefit Conversions

Factors that include mortality and interest rates are
used to convert annuities to lump sums

The interest rate is based on the average of the 30Year Treasury rate for the 5 months prior to the
month of termination.

Estimates for future dated terminations are based on
a 6% interest rate

The lower the interest rate used in the conversion of
the occupational age 65 monthly annuity, the larger
the lump sum. Conversely, the higher the interest
rate, the lower the lump sum.
26
Pension Protection Act 2006 (PPA)

Legislation did not change the basic calculation of
benefits under the negotiated occupational formulas

Most changes were effective 1/1/2008

Changes the interest rate/mortality table used to
convert age 65 monthly annuity to a lump sum under
the occupational formulas
27
PPA 2006 and Beyond

New interest rates will be phased in over 5 years
starting in 2008

Corporate bond rate ( segmented yield curve) will
replace the 30-year treasury rate

Currently, the corporate bond rate is higher than the
treasury rate

Mortality will be based on the RP 2000 table adjusted
for increased longevity
28
Payment Options
Single Life Annuity
Monthly benefit paid to you for rest of life
50% and 100% Joint and Survivor Annuity
Reduced benefit paid to you for life with either 50% or
100% continuing to spouse
Life Annuity with Ten Years Certain
Monthly benefit paid to you for rest of life with 120
months of payments guaranteed
Lump Sum
Total value of benefit paid
Combination Payment Option
Lump sum and monthly annuity
29
Survivor Options

50% and 100% Joint and Survivor Annuity – Reduced
benefit paid to you for life with either 50% or 100%
continuing to spouse

Pension Survivor Benefit
30
Pension Survivor Benefit
Effective January 1, 2009 the Qwest Pension Plan was
changed to pay a pre-retirement benefit in all cases when a
vested employee dies prior to receiving the pension
benefit. The benefit will be paid to a surviving spouse, a
named beneficiary or trust or the employee’s estate.
31
Pension Survivor Benefit - cont
All employees (married and single) have the opportunity to
request and complete a beneficiary designation form at any
time prior to benefit commencement that will allow the
employee to name any person, trust or the employees
estate as the beneficiary for the pension plan benefit if they
die as an active employee or before they start receiving their
pension benefit. The beneficiary designation will follow
requirements of Federal law regarding the required Joint and
Survivor benefit and spousal consent rules.
32
Pension Survivor Benefit - cont
The provisions in the Plan pertaining to Spousal benefits
are unchanged. The Plan would provide a benefit to a nonspouse beneficiary, trust or estate based on a 50% Joint
and Survivor annuity calculated as if the participant had
started receiving the benefit the day before his/her death.
The benefit can be paid as a lump sum if elected within the
required time frame.
33
Pension Survivor Benefit - cont
The surviving spouse will receive the greater of:
(a) the amount the surviving spouse would have
received if the Participant had commenced receiving
benefits under a 50% qualified joint and survivor annuity
on the day before his/her death; or
(b) an amount equal to 45% of the benefit that would have
been paid had the participant terminated employment,
survived until age 65 and started to receive payments at
age 65.
34
When can I receive my pension?

Upon termination (if vested) - do not have to wait until
age 65

Lump sum option available only if election made within
180 days after termination

Election for annuity must be made within 180 days or
no retroactive payments will be made

Spousal consent required for election of option other
than a 50% or 100% Joint and Survivor annuity.
35
Retirement

If participant requests a pension kit at least 30 days in
advance of termination date, retirement date is the day
following term.

If participant request pension kit less than 30 days in
advance of termination date, the pension effective
date is 30 days after termination.

Termination must be posted in HR data base by 5th of
month, and

Pension forms must be received by 5th of month to
paid on the 1st of the following month
36
Tax Implications

Lump sum is taxable as ordinary income

Lump sum payments are subject to an additional 10%
excise tax if under age 55 at termination

If rolled over to IRA, not taxed until withdrawn

Annuity payments are taxed as ordinary income – you
make election on withholding
37
Qwest Pension Plan Resources

Pension Plan web site: https://qwestpension.com
 Can access from home
 Run pension estimates
 Request pension kits
 Summary Plan Description
 Current and historical interest rates
 Need four digit PIN (separate from 401(k))

Qwest Service Center
1-800-729-PLAN (7526) – Option 1, 3

Questions? Talk to a service representative

Links through HRxpress
38
How does Qwest Retiree
Healthcare work?
39
Company Retiree Health Care
Annual Cost Cap
The Company shall determine before the start of each year the total
expected cost for each Coverage Category for eligible former Union
represented employees retiring on or after January 1, 1991 (except
employees who retired under the 1992 ERO). The cost to the Company
for each eligible former Union represented employee retiring on or after
January 1, 1991 (except employees who retired under the 1992 ERO) and
their eligible dependents (commonly referred to as “Occupational Post1990 Retirees”) shall not exceed the Company Retiree Health Care Annual
Cost Cap detailed below for each Coverage Category. Eligible
Occupational Post-1990 Retirees will be responsible to pay premiums
(commonly referred to as “Retiree Premiums”) equal to the amount by
which the total expected annual health care costs for each Coverage
Category exceed the Company Retiree Health Care Annual Cost Cap. The
Company Retiree Health Care Annual Cost Cap is outlined in the table
below
40
Company Retiree Health Care
Annual Cost Cap
Coverage Category
(Eligible as defined
by the Plan)
 Eligible Non-Medicare
Adult excluding dependent
child(ren)
 Eligible Child(ren) (incl.
student and handicapped)**
 Eligible Medicare-eligible
Adult excluding dependent
child(ren)
 Waived Coverage
Company Retiree Health
Annual Cost Cap*
$6,250 per retiree
$6,250 per spouse
$2,070 maximum
$2,570 per retiree
$2,570 per spouse
$0
41
Company Retiree Health Care
Annual Cost Cap
Coverage Category
Company Retiree Health
(Eligible as defined
Annual Cost Cap*
by the Plan)
* Company Retiree Health Care Annual Cost Cap includes
medical and dental costs
Eligible Child(ren) (incl. student and handicapped)**
** Eligible Child(ren) (incl. student and handicapped)
Company Retiree Health Care Annual Cost. Cap is
based on a child(ren) unit. The unit may include one or
multiple eligible children but the maximum cap amount
applied is $2,070 regardless of the number of children
covered.
42
Company Retiree Health Care
Annual Cost Cap
The Company will pay expected annual health care costs
up to the Company Retiree Health Care Annual Cost Caps
by direct payment and/or payments and/or reimbursements
made from the Company sponsored trust funds or other
Company sources. Retiree Premiums for the expected
costs that exceed the Company Retiree Health Care
Annual Cost Cap will apply for eligible Occupational Post1990 Retirees beginning January 1, 2009 in order to
maintain health care coverage under the Qwest Health
Care Plan.
43
Company Retiree Health Care
Annual Cost Cap - 2009
NonMedicare
Medicare
Retiree
$75
$5
Retiree + 1
Medicare
$80
$9
Retiree + 1
non-medicare
$150
$81
PPO
Family
Medicare
Family nonMedicare
$324
$408
High
Deductible
NonMedicare
Medicare
Retiree
$0
$0
Retiree + 1
Medicare
$0
$0
Retiree + 1
non-medicare
$0
$0
$0
$44
$173
$138
$207
Family
Medicare
$330
Family nonMedicare
44
Company Retiree Health Care
Annual Cost Cap - 2010
PPO
HDHP
Qwest
Cost Information –
Annual
Single Family
Single/
Family
Single
Family
Retiree Portion:
Non-Medicare
$102.00
$427.00
$102/$427
$11.00
$189.00
Retiree Portion:
Medicare
$13.00
$246.00
$13/$246
$0.00
$68.00
45
Company Retiree Health Care
Annual Cost Cap – 2011 - < 65
NonMedicare
High
Deductible
Retiree
$127.36
Retiree
$32.36
Retiree + 1
Spouse
$254.76
Retiree + 1
Spouse
$64.77
Retiree +
Child(ren)
$171.55
Retiree +
Child(ren)
$45.10
PPO
Retiree +
Family
Spouse only
NonMedicare
$298.91
Retiree +
Family
$77.46
$127.36
Spouse only
$32.36
Spouse +
child(ren)
$170.80
Spouse +
child(ren)
$44.34
Child(ren)
$44.15
Child(ren)
$12.69
46
Qwest Retiree Health Care
Annual Cost Cap – 2011 – > 65
High
Deductible
PPO
Retiree only
Retiree + Spouse
Retiree + 1 Child
Retiree + 2 children
Retiree + spouse + 1
child
Retiree + spouse + 1
child
Retiree + spouse + 2
children
$127.36
Retiree only
$32.36
$254.76
Retiree + Spouse
$64.77
$171.55
Retiree + 1 Child
$45.10
$298.91
Retiree + 2 children
$77.46
$127.36
Retiree + spouse + 1
child
$32.36
$170.80
Retiree + spouse + 1
child
$44.34
$44.15
Retiree + spouse + 2
children
$12.69
47
QwestRetiree Health Care
Annual Cost Cap – 2011 – > 65 continued
High
Deductible
PPO
Spouse only
Spouse + 1 child
Spouse + 2 children
$13.98
Spouse only
$34.59
Spouse + 1 child
$45.42
Spouse + 2 children
$0
$0
$0
$0
Child
$20.61
Child
$0
2 or more child(ren)
$31.38
2 or more child(ren)
48
Retiree Health Care Annual
Cost Cap - Premiums
How are the premiums determined?
The Company shall determine before the start of each year the total expected
cost for each Coverage Category for eligible former Union represented
employees retiring on or after January 1, 1991 (except employees who retired
under the 1992 ERO). The cost to the Company for each eligible former Union
represented employee retiring on or after January 1, 1991 (except employees
who retired under the 1992 ERO) and their eligible dependents (commonly
referred to as “Occupational Post-1990 Retirees”) shall not exceed the
Company Retiree Health Care Annual Cost Cap detailed below for each
Coverage Category. Eligible Occupational Post-1990 Retirees will be
responsible to pay premiums (commonly referred to as “Retiree Premiums”)
equal to the amount by which the total expected annual health care costs for
each Coverage Category exceed the Company Retiree Health Care Annual
Cost Cap.
49
Plan Documents Govern
This presentation is intended to provide general guidance
about the benefits currently available under the Qwest
Communications International, Inc. employee benefit
plans presently sponsored by CenturyLink as the
successor employer. If there is any difference between
this guidance and the terms of the official plan
documents, the terms of the plan documents will govern.
50