CHAPTER 1

INTRODUCTION

The Teamsters Local 295 Severance Trust Fund (the Plan) was established to provide benefit payments to eligible members of Teamsters Local 295 upon termination of employment. The basis for determining benefit amounts for which members are eligible was not clearly and consistently described in the Plan's formal documents. Therefore, this report is based on (1) our review of the minutes of the board of trustees meetings, (2) explanation of the Plan by a representative of the former Plan administrator, and (3) formal documents.

The collective bargaining agreements covering members of Local 295 established a severance trust fund in to which employers would pay specified contributions. These agreements contain no details about the benefits to be paid from the trust fund, but use of the word "severance" indicates that the Plan's primary purpose is to make benefit payments upon termination of membership in the Plan. Actually almost half of the contributions were used to purchase individual life insurance policies with high initial expenses.

The discussion of member benefits in the Plan documents includes frequent references to the member's share account and net account. According to Plan rules and regulations, a member's account is to be credited with (1) the contributions made by the employer(s) on behalf of the member and (2) increments representing his share of other earnings of the Plan, as determined by the trustees. A member's account is to be reduced by (1) the premiums for the insurance policy (or policies) on his life, (2) his share of the Plan's administrative expenses, and (3) certain other charges, as determined by the trustees.

According to Plan documents, the balance in a member's account primarily determines the member's benefits.

PAYMENTS UPON TERMINATION OF EMPLOYMENT

FOR REASONS OTHER THAN DEATH

Plan rules and regulations (section 3.06) provided that a member, whose employment was terminated for reasons other than death and who was a member of the Plan on

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December 1, 1970, (inception member),' would be entitled to the amount standing to his share account as of the date of termination.

However, section 4.05 provided that any member

* *who retires or terminates other than by reason of death shall receive as a minimum the benefit provided by the total amount of Employer contributions to the Trust Fund on his behalf."

The phrase, "the benefit provided by the total amount of Employer contributions," was not defined or further explained in the Plan Rules and Regulations.

The severance payments made to inception members between December 1, 1970, and March 31, 1972, were equal to the total contributions made on the members' behalf without any additions or deductions.

According to the minutes of a board of trustees meeting, members who entered the Plan after December 1, 1970 (noninception members), and subsequently terminated with less than 5 years in the Plan, received only a portion of the contributions made on their behalf. Noninception members were to be paid the following percentages of contributions credited to their accounts.

1Certain groups of employees were considered inception members even though they entered the Plan after December 1, 1970.

Benefits payable to persons terminating or retiring at age 65 or more were essentially the same as those payable to other persons terminating for reasons other than death, except that noninception members were apparently not required to forfeit any portion of the contributions made on their behalf.

The termination benefits have not been substantially changed by the revisions to the Plan documents and administrative procedures which have taken place during the first quarter of 1973.

PAYMENTS UPON TERMINATION OF EMPLOYMENT
BECAUSE OF DEATH

The beneficiary of a member whose employment terminated because of death received, in addition to the severance benefit, a death benefit which was funded by the proceeds of life insurance purchased by the Plan on the member's life. Section 3.17 of the rules and regulations prescribed the following basis for determining amounts payable to the beneficiary in such cases:

"Payment of the Member's net account shall be
made in full to the Beneficiary after due proof
of death has been received by the Trustees. The
Member's net account shall be equal to the Em-
ployer contributions credited to such account
plus increment or decrement as of the last evalua-
tion date, less insurance premiums paid on the
Contracts on such Member's life and less his allo-
cated share of charges and expenses of the Trust
Fund. Payment of the proceeds of Contracts issued
on his life as a death benefit shall be made in
equal monthly, quarterly, semiannually or annual
installments, in the sole discretion of the Trust-
ees, over a period of ten (10) years after the
death of a Member who died on or prior to his
fifty-fifth (55th) birthday, or over a period
of five (5) years after the death of a Member who
died after his fifty-fifth (55th) birthday, pro-
vided that the amount of each such payment is at
least Twenty-Five ($25.00) Dollars."

Minutes of the trustees' meetings show, however, that payments were not actually made on the above basis. Although section 3.17 indicated that the benefit, exclusive of the benefit stemming from the insurance contract, was to be based on the member's net account, the Plan actually made such payments during the first 16 months at amounts equal to the contributions made on the member's behalf.

Furthermore, the trustees allowed beneficiaries to elect to receive the death benefits in single-sum payments instead of installment payments. In such cases, the trustees paid only the discounted value of the installments, although the rules and regulations did not specifically authorize this practice. (See p. 18.)

PAYMENTS TO MEMBERS UPON TERMINATION OF PLAN

Section 6.02 of the rules and regulations indicated that, upon termination of the Plan (or complete discontinuance of contributions), the members would receive their share accounts and the insurance policies on their lives. There was no guarantee that the members would receive at least the return of contributions on their behalf if the Plan were terminated.

AMOUNTS OF LIFE INSURANCE PURCHASED BY PLAN

The face amounts of the insurance policies purchased on the life of a member during the first and second Plan years were determined (subject to specified minimums) by multiplying the employer's weekly contribution by 50 and then by the number of years between the member's age and age 65. Under this formula, the following amounts of insurance were purchased for members of the ages indicated who entered the Plan during the second Plan year when the contribution rate was $30 per week.

If insurance were to have been purchased on the same basis during the third Plan year, the insurance amounts for a member entering the Plan then would have been as follows:

The premiums for the insurance purchased during the first 2 Plan years were slightly less than one-half of the contributions made to the Plan by the employers.