The Trustees expect the NASI Pension Fund will grow at the rate of 7½% per year, on the average. In recent years, the investments of NASI Pension Fund have grown faster than was expected. It is the "extra" growth of the assets (among other things) have permitted the Trustees to increase the benefits payable by the Plan.
I like to describe the NASI Pension Plan as a big pie. Every year you work you get another slice of the pie. Those "slices" are called pension credits. Providing early retirement and not fully reducing that retiree's benefit is another way to "slice the pie". In past years, the Trustees decided to provide subsidized early retirement benefits instead of increasing the value of each pension credit. That past decision is why the full benefit amount is now payable at age 61 and a 94% benefit is payable at age 55. A full (and fair) reduction many pension funds have would provide 40% of the benefit at age 55 as would otherwise be payable at age 65. Last October when the Trustees met, they again had to decide how to reslice the pie because it had increased in size faster than was expected.
The Trustees focused the benefit increase for active members on the pension credit rates rather than on other rule changes. A pension credit for work after 1974 is now worth $109, up from $102. In addition, a pension credit for work before 1975 is now worth $71, up from $69.
Imagine a sprinkler fitter who has 30 pension credits. Five of those credits were earned from 1970 through 1974 and the other 25 credits were earned 1975 through 1999. This imaginary sprinkler fitter retired in 2000. His pension would be calculated as follows:
5 pension credits times $71 per credit adds $55 per month to his pension, 25 pension credits times $109 per credit adds $2,725 per month to his pension. Total $3,080 per month
Although his pension worth $3,080 per month at age 61, if this individual was 55 years old, his benefit would be reduced by 6% (1% for each year he is younger than age 61). Therefore, at age 55, he would receive $2,895 per month for the rest of his life.
Over the years, many people have asked the Trustees to eliminate the reduction for early retirement. The Trustees must decide whether such a rule change should be made. As you can imagine, any type benefit increase has to be funded by the assets of the Pension Plan. If the Trustees eliminated the early retirement reduction, then the assets used for that benefit increase would not be available to change the pension credit value.
Look at the following facts. Before the recent pension benefit increase, the pension benefit of the imaginary individual above would be calculated as follows:
5 pension credits times $69 per credit adds $345 per month to his pension, 25 pension credits times $109 per credit adds $2,550 per month to his pension. Total $2,895 per month
Notice that the age 61 benefit amount using the old rates is exactly the same amount as the age 55 benefit using the new benefit rates. This is just a coincidence, but it also can be instructive. Had the Trustees eliminated the early retirement reduction instead of increasing the value of each pension credit, it would have made no difference in this individual's pension. He gets the exactly same benefit amount either way. So, if you were wishing the Trustee would eliminate the reduction for early retirement, they just did; sort of.
Of course, since the reduction still really exists, if you choose to work after age 55, now you can look at it as if your pension is growing by 1/12% for each month you work after 55.
The way the Trustees improved the pension benefit helps everyone who is still working and earning pension credits. If the Trustees had, instead, just eliminated the reduction for early retirement, they would not have been helping sprinkler fitters who choose to work to age 61 at all.