The NASI Pension Fund provides you with basic financial information every year, as required by law. Since there has been much in the news concerning Pension Reform and Pension Funding issues in recent months, the Trustees felt that it might be helpful to more broadly address the current financial status of your pension plan at this time.

As many of you undoubtedly know, it has been some years since the benefits provided by the NASI Pension Fund have been increased. A pension credit earned in 2006 has the same monthly pension benefit value as a pension credit earned during 2001: $110 per month per pension credit. Similarly, the pension benefit being paid to retirees has not increased nor have retirees received a 13th check in recent years. While it continues to be the Trustees intent to improve pension benefits when prudent to do so, such conditions have not been present in recent years. Some additional information about the Plan and how it is managed may help promote a better understanding of these circumstances.

The Trustees hire an actuary to assist them in determining how much the Plan can pay per pension credit earned. Then, annually, the actuary reports to the Trustees on the liabilities associated with the total amount of pension benefits earned and expected to be earned by sprinkler fitters compared with the level of assets in the Plan and projected contributions. This lets the Trustees know how the Plan is doing relative to both their long-term funding policy and the minimum funding requirements of the law. If the Plan is exceeding the requirements of the Trustees’ long-term funding policy by enough of a margin, consideration may be given to improvements.

It is important to understand that defined benefit pension plans, like the NASI Pension Plan, depend on investment income to a great extent in order to meet the benefit promises of the Plan. The Fund’s actuary assumes that, over the long term, the NASI Pension Plan will earn 7.5% per year on the invested assets of the Plan. It is not important that exactly 7.5% is earned each year, but only that, on average over the long term, the Plan earns 7.5%. For most years in the 1980s and 1990s, the NASI Pension Plan had investment returns in excess of 7.5%. The excess investment income earned during that period resulted in a funding policy margin and is the main reason why the Trustees were able to increase the pension credit rates from $30 per credit in 1980 to $110 by 2001.

The investment climate changed dramatically with the onset of the new millennium, affecting all pension plans in a big way. In 2000, the NASI Pension Fund earned less than 2% – well short of the assumed 7.5%. This was the year that the “irrational exuberance” of the stock market came to an end. The NASDAQ lost about 50% of its value during the year, yet the NASI Pension Fund made money – albeit not very much. In 2001, the NASI Pension Fund lost more than 2%. Of course, everyone remembers that the events of September 11, 2001, caused havoc with this country’s economy. That affected the remainder of 2001 and a downward slide continued through 2002. By the end of 2002, the NASI Pension Fund had lost almost an additional 9%. (The S&P 500 dropped more than 20% in 2002, but the diversified investments of the NASI Pension Fund helped prevent a loss of that magnitude). When you consider that the actuary assumed we would make 7.5% in 2002, the difference was therefore over 16% from where we were expected to be. While the Plan continued to meet its minimum funding obligations under the law, the Trustees’ funding policy found the Plan in deficit rather than margin territory after this three-year assault.

Even though the NASI Pension Plan earned about 20% in 2003, 10% in 2004, and about 9% in 2005 on its invested assets, it still has not regained all that it lost. While the Plan is not “deficient” under the law, it has not yet generated the funding policy margin necessary before the Trustees can even begin to consider whether improvements would be a prudent course of action. Further, with the passage of the Pension Protection Act of 2006 this past summer, the Trustees will be revisiting their funding policy in light of this reform legislation.

The forgoing aside, participants should rest assured that the NASI Pension Plan remains well funded, especially relative to many of its peers. Different methods of determining funding adequacy exist and each can serve a useful purpose. One measure takes the actuary’s value of Plan assets and compares that to liabilities determined by using long-term corporate bond rates at a moment in time, such as December 31, 2005. This is a method that a federal law, the Pension Funding Equity Act, requires be used in an announcement to participants. Under this method, the NASI Pension Fund has a funded percentage of 81.83%. The Plan’s funded percentage by this measure was higher than that of almost 2/3 of multiemployer pension plans according to a survey by a major national consulting firm. Nonetheless, the Trustees believe this approach to determining funding status can be misleading because it is based on an interest assumption for evaluating the liabilities of 6.1%, which is much lower than the more realistic 7.5% long-term investment return assumption used for a pension plan with well-diversified investments like the NASI Pension Fund.

Thus, it follows that another method of measuring the funded status of a pension plan would compare the present value of earned benefits based on a 7.5% interest assumption to the market value of assets. This is the method provided for in the recently enacted Pension Protection Act. This comparison for the NASI Pension Plan produces a very favorable funded percentage as of December 31, 2005, of 96.7%.

Yet another indication of the Plan’s funded status considered by the Trustees is a comparison between the actuarial value of assets and the actuarial accrued liabilities, a slightly different measure in which liabilities are also valued using the assumed investment return rate of 7.5%. This comparison produces a very solid funding level of 89.97% as of December 31, 2005.

It is important to note that it is not necessary to be 100% funded by any measure for a plan to be considered in good shape. In fact, it is rare for a plan to be 100% funded. What is important is that the investment return expectations on plan assets are reasonable and the projected contribution income in combination with the expected returns are adequate to meet both the minimum funding requirements of the law and the Trustees’ long-term funding policy requirements. The Plan’s actuary has advised the Trustees that the Plan is projected to be on solid footing with respect to both of these standards.

Finally, you should know that the Trustees have taken steps over the past several years to create an investment program that is centered on the principle of further diversification for the Plan’s substantial $2.7 Billion in assets. This has included the replacement of some investment managers who have not been performing “up to par” compared to their peers. The return to investment earnings at or above the assumed rate under a revamped investment program combined with 25-cent contribution rate increases in 2006 and 2007 should place the NASI Pension Fund in good stead as we look to the future.

Participants who are under age 65 and who are receiving a pension from the NASI Pension Plan are generally prohibited from being employed in the sprinkler, plumbing or pipefitting industry. Such employment is called “Disqualifying Employment in Section 7.08(a) of the NASI Pension Plan.

In addition to have your pension suspended during any month you perform Disqualifying Employment, Section 7.08(a)(2) provides for an extension of the suspension period for five additional months once the individual has stopped the Disqualifying Employment. The Trustees have amended Section 7.08(a)(2), effective June 1, 2006, so that this five (5) month suspension will be waived only one time for any Participant who notifies the Plan of his return to work in accordance with Section 7.08(d) of Plan. This will permit a retiree to change his mind about retiring one time. Retirees can choose to return to Bargaining Unit work and have their pension suspended for the period of time of that work. When the retiree chooses to re-retire, he can do so one time without having to suffer an additional period of suspension upon re-retirement.