1. PENSION PLAN OF ANNE ARUNDEL MEDICAL CENTER

2. PENSION PLAN Two types of Retirement Programs
Defined Contribution Plans
403(b)/401(a)
401(k)
Annual Contribution $18,000
>50 Catch up $ 6,000
Defined Benefit Plan
Your accrued benefit from the plan is based on a benefit formula, which uses salary and service. The benefit that is a result of that formula is paid as a fixed amount each month for your lifetime, beginning at your normal retirement date, which is the first of the month following the date you turn age 65. This is known as a monthly life annuity. It is not a lump sum or an account balance type amount, like in a 401(k) or 403(b) plan.

3. ACCRUED BENEFIT Based on benefit formula
Fixed amount payable monthly for your lifetime, beginning at your Normal Retirement Date (i.e. monthly life annuity)
Not a lump sum or account balance
Normal Retirement Date – first of the month coincident with or following 65th birthday
Your accrued benefit from the plan is based on a benefit formula, which uses salary and service. The benefit that is a result of that formula is paid as a fixed amount each month for your lifetime, beginning at your normal retirement date, which is the first of the month following the date you turn age 65. This is known as a monthly life annuity. It is not a lump sum or an account balance type amount, like in a 401(k) or 403(b) plan.

4. ACCRUED BENEFIT Two Plan Formulas:
Prior to 1999 – Final Average Pay formula
Annuity payable at age 65
Effective January 1, 1999 – Cash Balance formula added
Account balance credited with interest
Account balance converted to annuity payable at age 65
Two benefit formulas existed under the plan: the one that was in effect prior to 1999, a final average pay formula, and the one that became effective on January 1, 1999, a cash balance formula. The result of the final average pay formula is a life annuity payable at age 65; the result of the cash balance formula is an account balance that is credited with interest to retirement, then converted to a life annuity. Again, the base form of benefit from the plan is a life annuity beginning at age 65.

5. ACCRUED BENEFIT Participants on 12/31/1998
Earned benefit under both plan formulas
Receive greater benefit
Participants 1/1/1999 and later
Earned benefit under Cash Balance formula only
Prior to the plan freeze, employees who were participants in the plan on 12/31/1998 earned a benefit under both formulas and at retirement will receive the greater of the two (comparing apples to apples since both are life annuities beginning at age 65). The reason for this is that the hospital wanted to make sure that no one who was already a participant in the plan would receive a lower benefit by implementing the cash balance plan. Employees who became participants in the pension plan on January 1, 1999 and later only earned a benefit under the cash balance formula.

6. ACCRUED BENEFIT
For most, if not all, participants on 12/31/1998, benefit from Final Average Pay Formula greater than benefit from Cash Balance formula
Benefit from Cash Balance formula ultimately does not apply to these participants
Cash Balance interest credit has no impact on benefit
In most, if not all cases, the benefit from the FAP formula will be greater than the benefit from the CB formula. Therefore, the cash balance benefit ultimately does not apply to participants who were in the plan on 12/31/ Also, the interest that is credited to cash balance accounts each year does not apply to the FAP formula benefit in any way and has nothing to do with the lump sum value of the benefit.

7. FROZEN ACCRUED BENEFIT
Plan was frozen on 8/31/2009
No additional benefits earned after this date
Cash balance accounts continue to be credited with interest to retirement (considered part of accrued benefit)
Frozen accrued benefit shown on 2009 benefit statement
As I mentioned, the pension plan has been frozen. It was frozen on August 31, This means that no additional benefits were earned after that date under either formula. However, because it is part of the accrued benefit (the interest credit that’s needed to get the account balance to NRD so that it can be converted to an annuity to begin at NRD), cash balance accounts continue to earn interest until retirement. A calculation of your frozen accrued benefit was shown on your 2009 statement.

8. Here is a 2009 statement for an employee who was a participant in the plan on December 31, 1998, and therefore earned a benefit under both benefit formulas. The statement shows the monthly life annuity payable at age 65 earned under the FAP formula, $585, as well as the calculation of the benefit under the CB formula. The CB account balance at 9/1/2009 was $20,602. This was then credited with interest at the interest crediting rate in effect for 2009 to the participant’s NRD and converted to a monthly life annuity of $172. The two benefits were then compared (apples to apples). The $585 is greater so that is the participant’s accrued benefit as of this date. This calculation is performed each January 1 so see which benefit is greater and the amount is shown on your TC statement. This is also how your benefit will be determined when you decide to retire.

9. LUMP SUM VALUE
Lump sum value of benefit from 12/31/1998 formula based on current interest rates
Prescribed by IRS
Change each January 1
As interest rates decrease, lump sum value increases
Lump sum value of benefit from 12/31/1998 formula will fluctuate depending on direction of interest rates

10. LUMP SUM VALUE Interest rates decreased from 2009 to 2013
Lump sum values increased during this time
Interest rates increased end of 2013
2014 lump sum values decreased
Interest rates decreased end of 2014
2015 lump sum values increased
Interest rates increased end of 2015
2016 lump sum values decreased
Interest rates decreased end of 2016
2017 lump sum values increased
Lump sum value of benefit based on Cash Balance formula not impacted by these interest rates (equal to account balance)

11. TOTAL COMPENSATION STATEMENTS
Cash Balance account shown on benefit statement for everyone
Monthly income at age 65 for participants on 12/31/1998 should be same on each year’s statement after 2009 (due to plan freeze)
Other amounts on statement will change
A few things about the TC statement. Even though the benefit from the FAP formula is greater for employees who were participants in the plan on 12/31/1998, and therefore the cash balance account doesn’t come into play for you, you still maintain a cash balance account and benefit under the plan, so your CB account has been shown on the statement each year. Ultimately, this account balance doesn’t impact your benefit, but it is used to determine your benefit under the CB formula, which is then compared to your benefit from the FAP formula. The Monthly Income at age 65 shown on the statement is the greater of the benefits from the two formulas. The FAP formula benefit is greater, therefore, that amount has been the same on your TC statement each year since 2009, the $585 on the sample statement. This is the base benefit off of which all other payment options are determined. While this amount stays this same, other amounts on the statement will change. Let’s take a look at the TC statements for the same person for 2011 through 2014.

12. The monthly income at age 65, which is the monthly life annuity at age 65 from the FAP formula, is still the greater benefit, so the $585 is shown.

18. PENSION PLAN Eligible to Receive Benefits
Early Retirement - Age 55 with 5 years of service (greater than 1,000 hours)
Normal Retirement – Age 65
Disability Retirement – Age 45 with 10 years of service (greater than 1,000 hours)
Death Benefit
A few things about the TC statement. Even though the benefit from the FAP formula is greater for employees who were participants in the plan on 12/31/1998, and therefore the cash balance account doesn’t come into play for you, you still maintain a cash balance account and benefit under the plan, so your CB account has been shown on the statement each year. Ultimately, this account balance doesn’t impact your benefit, but it is used to determine your benefit under the CB formula, which is then compared to your benefit from the FAP formula. The Monthly Income at age 65 shown on the statement is the greater of the benefits from the two formulas. The FAP formula benefit is greater, therefore, that amount has been the same on your TC statement each year since 2009, the $585 on the sample statement. This is the base benefit off of which all other payment options are determined. While this amount stays this same, other amounts on the statement will change. Let’s take a look at the TC statements for the same person for 2011 through 2014.

19. RETIREMENT Retirement at AAMC Contact HR 3 months in advance
Sarah Turano, Retirement Specialist x1960
Information on Spouse
Actuarial Firm will determine benefit
A few things about the TC statement. Even though the benefit from the FAP formula is greater for employees who were participants in the plan on 12/31/1998, and therefore the cash balance account doesn’t come into play for you, you still maintain a cash balance account and benefit under the plan, so your CB account has been shown on the statement each year. Ultimately, this account balance doesn’t impact your benefit, but it is used to determine your benefit under the CB formula, which is then compared to your benefit from the FAP formula. The Monthly Income at age 65 shown on the statement is the greater of the benefits from the two formulas. The FAP formula benefit is greater, therefore, that amount has been the same on your TC statement each year since 2009, the $585 on the sample statement. This is the base benefit off of which all other payment options are determined. While this amount stays this same, other amounts on the statement will change. Let’s take a look at the TC statements for the same person for 2011 through 2014.

20. FORMS OF PAYMENT At retirement:
Monthly Life Annuity – equal to accrued benefit
Other annuity forms – based on accrued benefit
Joint & Survivor Annuity – reduced benefit payable to participant for lifetime, then 50%, 66 2/3%, 75%, or 100% of benefit payable to beneficiary if still living after participant’s death
Certain & Continuous Annuity – reduced benefit payable to participant for lifetime. If participant dies prior to 5, 10, or 15 years of payments, beneficiary receives same amount for remainder of period

21. FORMS OF PAYMENT Lump Sum
One-time payment representing “present value” of accrued benefit
Lump sum determined differently depending on which formula accrued benefit is based
Lump sum value of benefit determined under 12/31/1998 formula is amount needed to invest at current interest rates to provide accrued benefit (monthly life annuity beginning at age 65)
Lump sum value of benefit determined under Cash Balance formula is current account balance

22. PENSION PLAN OF ANNE ARUNDEL MEDICAL CENTER
QUESTIONS?