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EXHIBIT 10

SHEET METAL WORKERS LOCAL PENSION PLAN

SECTION 6.09 NARRATIVE STATEMENT OF THE REASONS THE PLAN 

 IS IN CRITICAL AND DECLINING STATUS

A. INTRODUCTION. 

 Pared to the essentials, contribution and investment income have simply not been 

adequate, when measured against the Plan’s vested benefit obligations, to permit the Plan 

to avoid the Plan’s descent to insolvency. Significantly reduced work hours and prior 

plan design providing benefit improvements for past service have also played a role in the 

Plan’s financial decline. Finally, the Plan is “mature”. The ratio of active to non-active 

participants is imbalanced and unsustainable. Contributions tied to the hours worked by 

active participants are not adequate to pay for the unfunded benefits of the Plan. In 

combination these historical factors explain the Plan’s recent and current “critical and 

declining status” and the Trustees application for suspension of benefits. 

B. HISTORICAL CONTEXT. 

 From the mid-1980s through 1999 the Plan experienced generally good and 

always positive investment returns. The bursting of the dot-com bubble in the early 2000s 

hurt the Plan’s funding but likely not mortally. In 2005, for example, the Plan’s funded 

ratio was 67% based on the market value of its assets and a funding deficiency (negative 

credit balance) was forecast by the end of Plan Year 2008. In response, the Trustees 

reduced the percentage of contribution accrual rate for future benefits to .36% from 2.2%. 

As a result, the Plan’s funded ratio in 2006 remained at 67%, but the date of the projected 

funding deficiency was pushed out to 2016. Also in 2006 the Plan experienced a 6.3% 

drop in the size of the active participant population, reducing the stream of contribution 

income available to pay down prior unfunded benefits. It is conceivable that with the 

reduced accrual rate and good investment returns the Plan may have improved its funding 

levels, but this did not account for the financial crisis of 2008 and the resulting “Great 

Recession” which damaged the Plan irreparably. 

 On the investment side of the equation during plan years 2000-2016the Plan’s 

minimum funding valuation interest assumption net of investment-related expenses was 

(currently) 8.0% per annum. Unfortunately, the Plan’s investment performance for 2008 

and 2011 was -30.8% and -7.9%, respectively. While in other post-2008 years the Fund 

had positive rates of return, the Fund has only earned back approximately $1 million of 

the $18 million investment loss from the plan year ended April 30, 2009. To put it 

bluntly, the 2008 crisis set the Plan into a financial hole out of which only unprecedented 

positive future returns could possibly save it. This could not reasonably be predicted to 

occur, nor can the existing contribution base make up the shortfall in investment 

performance. As a result of the historic losses of 2008 the Plan’s market value funded 

percentage in 2009 was only 40%. While this ratio fluctuated in the years since 2009 

(reaching a high water mark of 53 in 2011), the Plan has been certified to be in critical 

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status in every year since 2009. The Plan’s most recent market value funded percentage, 

as of May 1, 2017, is 40%, unimproved since 2009. 

 

 Additionally, the Plan’s work hours have fallen from their historic highs as 

foreshadowed in 2006 and are not reasonably projected to return to those levels.Although 

the Trustees expect hours to stabilize in the future, those hours are inadequate to fund 

prior unfunded benefit obligations. From 2001 to 2005, the Plan experienced work hours 

that averaged approximately 1.4 – 1.5 million hours total. From 2008 through 2016 the 

Plan’s reported work hours were a low (2010) of 922,328 and a high (2016) of 1,126,133. 

It is also notable that in some years in which the Plan experienced better work hour totals, 

its investment returns were poor. For example, in 2011 the Plan experienced a total of 

1,034,107 hours but, as referenced above, its investments returned a -7.9%. The loss of 

half a million hours coupled with volatile investment returns has made it impossible for 

the Plan to recover to date. Based on expected future hours and expected future longterm investment returns used in the solvency analysis presented in the application, it is 

projected that there cannot be a recovery without the suspension of benefits. 

 Finally, the “mature” nature of the Plan exacerbates the current funding crisis and, 

most ominously, bodes very ill for the future of the Plan. In 2003 the Plan’s 

demographics were 940 active to 567 inactive participants showing a ratio of 1.6 active 

for every inactive. In 2007, that ratio had moved decisively in the wrong direction, with 

698 active to 776 inactive participants. As of the most recent actuarial valuation, there are 

655 active and 908 inactive participants. 

 The history of the Plan as spelled out in these three data points – investment 

experience, hour loss/contribution reduction, and an increasingly mature demographic 

structure – were observed by the Trustees of the Plan who took many steps, indeed all 

reasonable measures, in an effort to stem the tide of financial decline. Unfortunately, 

these steps have not succeeded. Upon the certification of the Plan as “critical and 

declining” after the amendments to the Code and ERISA in 2014 (Kline-Miller 

Multiemployer Pension Reform Act) the Trustees, who are committed to seeing the Plan 

survive and pay promised benefits, directed their actuary and attorney to file the 

application for suspension of benefits. 

C. DISCUSSION. 

 Upon its initial “critical” certification under the Pension Protection Act of 2006, 

the Trustees adopted a Rehabilitation Plan (July 1, 2009) which amended and was 

incorporated into the Plan document. As noted, the Plan continued in critical status until 

2016 at which time it was certified as “critical and declining” (and was so certified again 

in 2017). Since the initial Rehabilitation Plan adoption the Trustees have eliminated all

adjustable benefits under the Plan, excepting an increase to the Plan’s normal retirement 

age. 

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 The benefit changes under the Rehabilitation Plan demonstrate the consistent 

effort of the Trustees to arrest the financial decline of the Plan while maintaining an 

adequate benefit structure and economically realistic contribution rates, as follows: 

Effective August 1, 2009 – 

 Changed the normal form of benefit payment from a 5-year certain and 

life annuity to life-only annuity. Amounts payable under optional payment forms 

were thereafter to be actuarially adjusted to reflect their value relative to a lifeonly annuity. 

 Increased the early retirement reduction factors from 3% per year prior to 

normal retirement age to actuarially equivalent reductions for the number of years 

prior normal retirement age. 

 Eliminated the fully subsidized pop-up feature on joint & survivor 

payment forms. Participants who wished to elect a pop-up feature as part of a 

joint & survivor payment form were to pay for the feature with an actuarial 

reduction to their benefit. 

 Eliminated the single lump-sum and 60-payment pre-retirement death 

benefits. The only pre-retirement death benefit to be offered would be the 50% 

survivor annuity payable to a surviving spouse of a deceased vested participant 

(payable beginning when the participant would have reached retirement age). 

Effective August 1, 2013 – 

 Benefit accruals for contributions made on or after August 1, 2013, were 

 suspended (0% accruals) subject to annual review by the Trustees. 

Effective September 1, 2013 – 

 Temporary disability benefits were eliminated for applications received on 

or after September 1, 2013. 

 The Rehabilitation Plan also made significant funding changes: 

 There were cumulative annual contribution rate increases of 10% in 2009, 

2010, and 2011. 

 

 There was a 14% contribution rate increase in 2012 

 The Trustees have further concluded that it is not economically feasible to 

increase contribution rates any further. Contribution rates have increased by at least 50% 

from the pre-2009 levels due to the Rehabilitation Plan. These contribution rate increases 

resulted in significant wage deferments to the Plan by its active participants and have 

made it very difficult for signatory contractors to remain competitive in the sheet metal 

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construction market. The Trustees believe that additional contribution rate increases will 

result in a loss of members in the Union and will make it extremely difficult for the 

Union to attract new members. This will result in a decrease in future contributions to the 

Plan and would inevitably cause a net decrease in future funding of the Plan. Further 

contribution rate increases are therefore counterproductive to the goal of avoiding 

insolvency. 

 

 At present, any would-be contributing employer is faced with participation in a 

Plan that is projected to become insolvent and that imposes an almost punitive 

contribution rate, and for which new participants will accrue a 0% future benefit 

notwithstanding the deferral of wages into the Plan as contributions. Additionally, any 

would-be employer who commences participation in the Plan will face substantial 

withdrawal liability. Under these circumstances, it is the belief of the Trustees that no 

rational employer will be interested in signing a CBA that requires contributions to the 

Plan. The financial position of the Plan makes it practically impossible to attract new 

long-term participating employers. 

 The only response to this reality is for the Trustees to seek to retain the 

contribution base that the Plan has. This is reflected in the determination not to seek 

additional contribution rate increases from the existing employers, which would foresee 

ably lead to employer bankruptcies and likely uncollectible withdrawals. 

 Despite these efforts and utilization of every tool available, the market value 

funded percentage of the Plan (as discussed above) has not recovered. It is the same 40%1

as it was at the time of the adoption of the Rehabilitation Plan - 40%. 

D. CONCLUSION. 

 The accrual rate for future benefits is now 0% and has been so for 5 Plan Years. 

The Plan offers nothing to new participants. Even with the re-institution of a modest 

accrual rate, the elimination of adjustable benefits gives the Plan very little to offer. No 

increases in contribution rates can be imposed on the remaining base of contributing 

employers. 

 Based upon a careful and thorough analysis of all of the foregoing, it is the 

Trustees’ prudent determination under Code §432(e)(9)(C)(ii) that the Plan is projected to 

become insolvent unless benefits are suspended as proposed in the application, even after 

all reasonable measures to avoid insolvency have been taken. 

 

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 The current 40% funded percentage is calculated based upon the Plan’s change to a 6.5% liability interest 

rate from the prior rate of 8%. If the current figure were calculated using the 8% rate the current funded 

percentage would be 48%. 

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