Pension Plan Articles
January 2010
Getting to Know Your Pension Benefits
Participants in the DGA-Producer Pension Plans have the advantage of both a Defined Benefit plan (the Basic Pension Plan) and a Defined Contribution plan (the Supplemental Pension Plan). In this article, we will address some of the basic features of the DGAPPHP’s pension plans as well as some of the misconceptions associated with them.
The contribution percentages, rules and benefits described in this article are only a general summary of Pension Plan rules. This summary cannot possibly describe the details of the Pension Plan rules, which are sometimes very complex. A detailed description of benefits can be found in the Pension Plans Booklet and updates available on this website, or by contacting the Plans’ office.
A Little Background
Participants in Defined Benefit (DB) plans earn a specific benefit usually based on their total years of service and their level of compensation. Thus, with a DB plan, the participant receives a pre-set benefit regardless of the amount of contributions made to the plan and regardless of how the plan’s investment assets perform.
A Defined Contribution (DC) plan, like a 401(k) plan, provides a benefit to the plan participant based on the amount in the participant’s individual account. However the Supplemental Plan, unlike most 401(k)’s, requires that participants are automatically enrolled and requires employer contributions. Also, while the individual makes the investment decisions regarding his or her 401(k) account, the monies in the Supplemental Plan account are professionally managed by the plan itself and the participant’s account is credited with a pro rata portion of the investment returns received by the plan. Unlike a DB Plan – where the amount of pension benefits is established and guaranteed in advance – under a DC Plan, the benefit amount is not guaranteed and determined by the amount of contributions and investment returns credited to the participant’s account.
The DGA-PPHP Basic Plan
When you work in a DGA capacity for a DGA-signatory employer, your employer makes a pension contribution equal to 5.5% of your gross salary up to certain compensation caps set under the collective bargaining agreement and established by federal law. Sixty percent of this employer pension contribution up to certain caps (or 3.3% of your gross salary) goes to the Basic Pension Plan. In addition to these contributions that are based on salaries, signatory producers make additional contributions to the Basic Plan based on a percentage of the gross sales of theatrical projects to free television, pay television and cassettes/DVDs. These types of contributions are known as “gross receipts contributions.”
Since the Basic Plan is a Defined Benefit Plan, there are no individual accounts in the Basic Plan and your pension benefit from the Basic Plan is not directly determined by the amount of contributions that are contributed on your behalf or on the returns of the Basic Plan’s investments. Instead, your pension benefit will be determined by a formula based on your Credited Service Months (“CSMs”), your DGA-covered earnings over your career, your age at the time of retirement and the type of Basic Plan benefit that you choose.
Currently, you earn one CSM for every $3,000 in earnings during a calendar year. Generally, you must earn 120 CSMs in order to become eligible for a Basic Plan Benefit. This is called ten-year vesting. You may become eligible to receive a benefit from the Basic Plan with as little as 60 CSMs (five-year vesting). However, some retirement options (e.g. the lump sum option, the disability pension and pre-retirement death benefits for non-spousal beneficiaries) are not available to participants that are five-year vested.
At retirement, vested participants can elect a benefit from the Plan. The benefit options include:
- The Single Life Annuity (monthly payments are made to the participant for the rest of his or her life);
- The Participant and Partner Pension (monthly payments are made to the participant and the participant's spouse, same-sex spouse or same-sex domestic partner for the rest of their lives); or
- The Lump Sum (a one-time lump sum payment is made to the participant from the Basic Plan).
As previously noted, all of these benefits are determined based on the CSMs you have earned, your age at retirement, the Plan benefit you choose and, in the case of the Immediate Lump Sum, actuarial calculations. None of these benefits is based on the investment returns of the Plan or the amount of contributions received by the Plan from employers.
The Lump Sum Option
The amount of the Lump Sum benefit is directly based on the actuarial value of the annuity payments that would otherwise be made to you. This actuarial value varies depending not only on the value of Sthe annuity that you have earned, but also on the current interest rate assumptions that the actuary must utilize in calculating your Lump Sum. The Lump Sum option is only available with regard to benefits accrued before January 1, 2003.
One of the common misconceptions relating to the Lump Sum option is that a participant’s Lump Sum amount grows every year based on the Basic Plan’s investment returns. That is not the case.
It may be helpful to look at the Lump Sum payment as the opposite of an annuity. When you purchase an immediate annuity, you make an initial lump sum payment to the annuity provider and then receive a series of periodic payments from the annuity provider over a period of time (usually a lifetime). Since the annuity provider can expect a certain investment return on the lump sum that you paid, you can expect to receive payments that will equal more than your initial lump sum.
When you elect the Lump Sum option from the Basic Plan, you are, in essence, taking the role of the annuity provider in the above example. You receive a lump sum payment from the Basic Plan that, based on current interest rates, should allow you to invest the money and make a monthly withdrawal equal to what would have been your monthly Basic Plan benefit. Since it is assumed that you will receive a certain interest rate by investing your lump sum, the lump sum payment is less than what would have been the total of your monthly Basic Plan payments. It is assumed that you will withdraw a portion of your principal (i.e. the lump sum paid to you by the Plan) each month in addition to the interest earned and it is also assumed that you will continue to earn a reasonable return (measured by a rate mandated by the federal government) on the amount that still remains in your account. In other words, the amount of the lump sum is the present dollar value of the amount that would have been paid by the Plans over the course of your lifetime.
As discussed, there are only three factors that can affect the amount of your Lump Sum option:
- An adjustment to your pre- 2002 contributions and work history. An adjustment could be made to your past contribution history if it is discovered that an error was made in reporting the contributions. Generally, this occurs as the result of an audit.
- Your age. Our actuaries utilize mortality tables commonly used by other DB plans to estimate how many years a participant will receive their pension benefits under the various benefit options. Once you reach retirement age, every year that you delay your retirement benefit lessens the total number of payments you would have received.
- Interest rates. When interest rates go up, your lump sum will decrease, since it is assumed that you will receive a higher rate of return on your invested lump sum. Conversely, when interest rates go down, your lump sum increases.
It is important to note these factors. When you compare your recent annual statements, it is most likely that the changes to the Basic Plan lump sum amounts are solely a reflection of your age and the change in interest rates. In fact, if you are under retirement age, it is likely that fluctuating interest rates are the only thing affecting the amount of your calculated lump sum. The Plans’ investment returns do not affect the amount of your lump sum.
The DGA-PPHP Supplemental Plan
As previously mentioned, when you work in a DGA capacity for a signatory employer, your employer makes a pension contribution of 5.5% of your salary up to certain caps. Up to sixty percent of that contribution goes to the Basic Pension Plan. At least forty percent (or 2.2%) goes to your individual Supplemental Pension Plan account. In addition to these employer contributions that are made to the Supplemental Plan, your employer will deduct 2.5% of your gross salary up to certain caps from your paycheck. This entire employee pension contribution goes directly to your Supplemental Plan account.
Each quarter, the employee and employer contributions remitted on your behalf are added to your Supplemental Pension Plan account. In addition, every participant’s Supplemental Plan account is combined and invested by the Plan’s investment managers and a prorated portion of the Supplemental Plan’s investment returns is also credited to each participant’s account. Thus, for example, if the net quarterly investment return of the Supplemental Plan’s assets is 2%, your account will be credited with a 2% investment return.
At retirement, you have several payment options from the Supplemental Plan. They are similar to the options available through the Basic Plan (i.e. the Single Life Annuity, the Participant and Partner Pension and the Lump Sum option). The main difference is that the amount of your benefit is directly related to the balance in your Supplemental Plan account at the time of your retirement. If you elect the Lump Sum option, you will simply receive the balance in your Supplemental Plan account. If you elect the Single Life Annuity option, your monthly payment will be determined by the balance in your Supplemental Plan account and your age, as an annuity is purchased on your behalf from the Pension Plans' annuity provider.
It is estimated that only 11% of workers in this country receive benefits from both a defined benefit and a defined contribution pension plan. DGA-Producer Pension Plan participants are fortunate to receive the unique benefits offered by both types of plans.