Exhibit 17: Page 1

WESTERN STATES OFFICE AND 

PROFESSIONAL EMPLOYEES PENSION FUND

THIRD SUSPENSION APPLICATION

Exhibit 17
WESTERN STATES OFFICE AND PROFESSIONAL

EMPLOYEES PENSION FUND

Page 1

To: Participants, Participating Employers and Local Unions

From: Board of Trustees Labor Trustees Management Trustees

Judith Zenk, Co-Chair Michael Parmelee, Co-Chair

Suzanne Mode Matt Oglesby

Mike Richards Lee Ann Doolittle

Patricia Sanchez Pati Piro-Bosley

Subject: Notice of Revised Rehabilitation Plan

Date: February 5, 2013

This notice advises you of changes made to the Rehabilitation Plan for the Western States Office

and Professional Employees Pension Fund (“Plan”), effective January 1, 2013. The Board of

Trustees has revised the Rehabilitation Plan to cap supplemental employer contributions at 80%.

A. Background and Review.

You were previously advised that in 2008 the events of the stock market and general economy

resulted in the Plan having investment losses which caused the Plan to be in the “Red Zone”

under the Pension Protection Act of 2006 (“PPA”).1The Board of Trustees (“Board”) was

required by PPA to adopt a “Rehabilitation Plan” in order to address the Plan’s critical status.

PPA also requires the Board to review the Rehabilitation Plan annually and to make changes to

reflect the Plan’s experience. Over the past several years the Board has taken the following

actions after considering reasonable alternatives and based on reasonably anticipated investment

and market factors and reasonable actuarial assumptions.:

November 25, 2009 The effective date of the Board’s initial Rehabilitation Plan (“2009 Rehab

Plan”). The 2009 Rehab Plan: (a) reduced Participant benefits and (b)

required employers to make supplemental employer contributions, both as

provided under PPA. The 2009 Rehab Plan was designed to allow the

Plan to emerge from critical status after a 13 year rehabilitation period.

January 1, 2010 The effective date of an updated Rehabilitation Plan (“2010 Rehab Plan”),

adopted by the Board in response to investment returns and market

conditions. The 2010 Rehab Plan was designed to allow the Plan to

emerge from critical status after a 25 year rehabilitation period (often

called a “reasonable measures” plan).

Note: Copies of all Rehabilitation Plans, including contribution schedules, the default

schedule and associated notices, are available at the Plan’s website:

http://www.wsp.aibpa.com

1

“Red Zone” status is based on a certification prepared by the Fund’s actuary as required under PPA.
WESTERN STATES OFFICE AND PROFESSIONAL

EMPLOYEES PENSION FUND

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B. Changes Effective January 1, 2013.

The Board has now capped supplemental employer contributions under the Rehabilitation Plan

(“2013 Rehab Plan”) at 80%, effective January 1, 2013. The Board determined that

supplemental employer contributions under the 2010 Rehab Plan were too high to allow

employers to continue to participate in the Plan. For example, before the 2013 change

supplemental employer contributions increase 15% a year and top-out at 220% in 2024. The

Board determined that there is a substantial risk of employer withdrawals, employers going out

of business and possible mass withdrawal if supplemental employer contributions are not

capped.

In making this decision, the Board reviewed multiple alternatives and factors, including:

investment changes and possible returns; economic conditions; restructuring the Plan and

possible mergers; and possible legislative and/or regulatory changes. In addition, the Board was

briefed by the Plan’s actuary, investment consultant and legal counsel. The Board determined

that keeping the current supplemental employer contribution schedule would result in the likely

withdrawal of most, if not all, participating employers, possible employer bankruptcy filings and

business failures. Thus, the Board determined that if the Board did not act, the 2010 Rehab Plan

would likely increase the risk that the Plan would become insolvent in the near term.

Capping supplemental employer contributions is authorized under PPA, which allows the Board

to base the rehabilitation plan on “forestalling insolvency” rather than emerging from critical

status. After capping supplemental employer contributions at 80% under the 2013 Rehab Plan,

the Plan’s actuary estimates that the Plan will have sufficient assets to pay benefits until

approximately 2040. This estimate is based on all employers adopting the 80% supplemental

contribution schedule with their next bargaining agreement and that all actuarial assumptions are

met, including the Plan investments earning the assumed 7.25% investment return in 2013 and

all future years. The Board will continue to review the rehabilitation plan each year and make

adjustments and changes, as needed. If the economy rebounds and investment returns exceed the

7.25% assumed rate, the Board can go back to a reasonable measures rehabilitation plan where

the Plan emerges from critical status.

Note: The Board did not change the default schedule under the 2013 Rehab Plan.

The default schedule has 20% annual increments and tops-out at 275%.

Note: No employer is currently making supplemental employer contributions in

excess of 80% and no employer is expected to exceed an 80% contribution

percentage until early this coming summer. The Board decided to

implement the 80% cap before any employer started paying more than the

80% cap.

C. What Happens if the Plan Becomes Insolvent?

Plan benefits are insured or guaranteed by the Pension Benefit Guarantee Corporation

(“PBGC”). The PBGC is a federal corporation established by Congress to insure pension

benefits. The Board has been paying insurance premiums to the PBGC for all participants in
WESTERN STATES OFFICE AND PROFESSIONAL

EMPLOYEES PENSION FUND

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order to provide participants benefit protections under this federal program. Should the

circumstance of insolvency arise, the Plan will stay in place, employers will continue to make

contributions and supplemental contributions and the Plan will start paying PBGC guaranteed

benefits. The PBGC will provide additional funds to the Plan to help fund those benefits.

The level of PBGC guaranteed benefits are set by law and are based on participants’ vested

benefits. The PBGC guarantees a monthly benefit payment equal to 100 percent of the first $11

of the Plan’s monthly benefit accrual rate, plus 75 percent of the next $33 of the accrual rate,

times each year of credited service. This means that the PBGC’s maximum guarantee is $35.75

per month times a participant’s years of credited service. Examples of how the PBGC

guaranteed benefits are determined are provided as Exhibit 1 to this notice.

The PBGC guarantees pension benefits payable at normal retirement age and some early

retirement benefits are available. In calculating a person’s monthly payment, the PBGC will

disregard any benefit increases that were made under the Plan within 60 months before the

earlier of the Plan’s termination or insolvency (or benefits that were in effect for less than 60

months at the time of termination or insolvency). Similarly, the PBGC does not guarantee (1)

pre-retirement death benefits to a spouse or beneficiary (e.g., a qualified pre-retirement survivor

annuity) if the participant dies after the Plan terminates; (2) benefits above the normal retirement

benefit; or (3) disability benefits not in pay status.

D. Employer Supplemental Contributions under the Revised Rehabilitation Plan.

Employers that have already adopted the 2012 Rehab Plan will stay on the schedule they started

with, but contributions will be automatically capped at 80%. A table showing the new 80% cap

on supplemental contributions is attached as Exhibit 2.

Example 1: Employer adopted the 2012 Rehab Plan effective January 1, 2012. The employer

stays on the rehabilitation plan schedule the employer started with, until the cap applies (see

attached exhibit):

2012 48%

2013 63%

2014 78%

2015 80% - the cap applies for all subsequent years.

Example 2: Employer adopts the 2013 Rehab Plan effective July 1, 2013. At that point

forward the 80% cap applies so the employer’s supplemental contributions start at 80% and stay

at 80%.

Attached as Exhibit 3 are Questions and Answers which help explain the current situation.

For more information about this notice, you may contact:

A & I Benefit Plan Administrators, Inc.

1220 SW Morrison St., Suite 300

Portland, OR 97205-2222

Toll Free: (800) 413-4928; Local: (503) 222-7694
WESTERN STATES OFFICE AND PROFESSIONAL

EMPLOYEES PENSION FUND

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EXHIBIT 1: PBGC BENEFIT GUARANTEE EXAMPLES

Example 1.

Assume a participant has 10 years of credited service and a vested accrued monthly benefit of

$500. The PBGC guaranteed benefit is determined as follows:

a. Determine the maximum PBGC accrual rate by dividing the vested accrued monthly

benefit by years of credited service:

Accrued benefit $500 = $50 maximum

Credited service 10

b. Determine the PBGC guaranteed amount for a $50 accrual rate.

(1) 100% of the first $11 of benefit: = $11.00

(2) 75% of the next $33 of benefit: = $24.75 (.75 x $33)

Guaranteed amount: $35.75 of the $50 accrual rate

c. Determine the PBGC guaranteed monthly benefit: $35.75 x 10 = $375.50

Conclusion: The Participant has an accrued benefit of $500 a month. The portion of

that benefit guaranteed by the PBGC is $375.00. This means that the

Participant’s benefit is reduced to $375.00/month. This is 75.1% of the

Participant’s original benefit.

Example 2.

Assume a participant has 10 years of credited service and a vested accrued monthly benefit of

$200. The PBGC guaranteed benefit is determined as follows:

a. Determine the maximum PBGC accrual rate by dividing the vested accrued monthly

benefit by years of credited service:

Accrued benefit $200 = $20 maximum

Credited service 10

b. Determine the PBGC guaranteed amount for a $20 accrual rate.

(1) 100% of the first $11 of benefit: = $11.00

(2) 75% of the next $9 of benefit ($20-$11): = $ 6.75 (.75 x $9)

Guaranteed amount: $17.75 of the $20 accrual rate

c. Determine the PBGC guaranteed monthly benefit: $17.75 x 10 = $177.50

Conclusion: The Participant has an accrued benefit of $200 a month. The portion of

that benefit guaranteed by the PBGC is $177.50. This means that the

Participant’s benefit is reduced to $177.50/month. This is 88.75% of the

Participant’s original benefit.
WESTERN STATES OFFICE AND PROFESSIONAL

EMPLOYEES PENSION FUND

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EXHIBIT 2: SUPPLEMENTAL EMPLOYER CONTRIBUTION SCHEDULE

2013 Revised Rehabilitation Plan (2013 Rehab Plan)

Supplemental Employer Contribution Schedule

The following Supplemental Employer Contribution percentages apply to collective bargaining

agreements effective on or after November 25, 2009. PPA makes it unlawful for the bargaining

parties to reduce employer pension contribution rates below the level of the pension contribution

rates in effect as of March 31, 2009.

All employers are subject to a 10% surcharge contribution effective January 1, 2010. The

surcharge continues until the Rehabilitation Plan is adopted.

CBA Effective

Date

1st year 2nd year 3rd year 4th & later

1/1/2012 48% 63% 78% 80%

2/1/2012 50% 65% 80% 80%

3/1/2012 52% 67% 80% 80%

4/1/2012 53% 68% 80% 80%

5/1/2012 55% 70% 80% 80%

6/1/2012 56% 71% 80% 80%

7/1/2012 58% 73% 80% 80%

8/1/2012 60% 75% 80% 80%

9/1/2012 62% 77% 80% 80%

10/1/2012 63% 78% 80% 80%

11/1/2012 65% 80% 80% 80%

12/1/2012 67% 80% 80% 80%

1/1/2013 69% 80% 80% 80%

2/1/2013 70% 80% 80% 80%

3/1/2013 72% 80% 80% 80%

4/1/2013 74% 80% 80% 80%

5/1/2013 76% 80% 80% 80%

6/1/2013 78% 80% 80% 80%

7/1/2013 80% 80% 80% 80%

Note: For any CBA effective date on and after 7/1/2013, the Supplemental Employer

Contribution Percentage that applies is the ultimate maximum rate of 80%.
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EMPLOYEES PENSION FUND

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EXHIBIT 3: QUESTIONS AND ANSWERS

Employer/Bargaining Unit Questions

1. An employer and a local entered into a new collective bargaining agreement effective

January 1, 2011. The CBA states that the employer will make supplemental

contributions pursuant the then current Rehabilitation Schedule, which will eventually

exceed 80%. Do the bargaining parties have to amend the CBA to adopt the new

Rehabilitation Schedule capped at 80%?

Answer: Yes, the parties need to adopt a side-letter agreement adopting the new

schedule.

2. Assume the bargaining parties are currently bargaining a new CBA. What do they need

to do to adopt the new schedule?

Answer: The parties need to adopt the new schedule in their CBA or in a side-letter.

3. Does the revised Rehabilitation Plan change the rules regarding when the default

schedule applies?

Answer: No. The current rules regarding imposition of the default schedule

continue to apply. The Board has previously issued a Rehabilitation Plan

Contribution Policy dated December 1, 2011, which sets forth the rules on

when the default schedule applies. A copy of the policy is available on the

Plan’s website: http://www.wsp.aibpa.com or from the plan administrator.

Participant Questions

1. Is the Plan terminating?

Answer: No. The Plan is continuing to operate and will continue to operate in the

event the Plan becomes insolvent. In that case, the PBGC will provide

financial assistance to the Plan. The PBGC will not take-over the Plan

administration. The Plan will continue as before, collecting contributions

and paying guaranteed benefits.

2. Can the Plan still emerge from the red zone?

Answer: Yes. The Plan could emerge from the red zone or “critical status” depending

upon a number of factors, including: a strong economic recovery; increased

investment returns; the addition of new employers; action by Congress and/or

regulatory agencies; etc. The Board will continue to review the Rehabilitation

Plan each year and make appropriate changes.
WESTERN STATES OFFICE AND PROFESSIONAL

EMPLOYEES PENSION FUND

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3. If the Plan becomes insolvent in the future, what happens to retiree benefits?

Answer: If the Plan becomes insolvent the law requires the Plan to reduce all

benefits to the PBGC maximum guaranteed amount. Examples of how the

maximum guaranteed benefits are determined are provided in the Notice.

The reduction applies to current and future retirees. However, the

reduction will not take place until the Plan is actually insolvent, which

absent the improvements noted above are currently projected to be

approximately 2040.