This letter contains the summary that you requested of the methodology underlying calculations we perform for your financial statements. The accounting profession publishes requirements and guidelines with which financial statements must comply. Statement of Financial Accounting Standards Nos. 87 and 88 (SFAS 87 and 88) provide the requirements for employers' accounting for pensions. Each year we review these standards and have discussions with the accountants to ensure that our calculations are performed in accordance with them. We then prepare a report which is reviewed by the auditors before they certify the results. Actuarial calculations are long-term projections of benefit payments from the pension plan based on demographic assumptions (mortality, disability, turnover and retirement) and economic assumptions (the long-term rate of return on assets, the inflation rate; future salary increases, and the interest rate at which Habilities could be settled). Because these are long-term projections, the actual experience over a short time period usually differs from the projection, resulting in experience gains and losses. SFAS 87 provides specific procedures for how gains and losses are recognized in financial statements. We have followed those procedures consistently since the first application of SFAS 87/88 to the Affiliates Plan. As of December 31, 1994, after the Plan was frozen, there was an unfunded actuarial accrued liability of $27.3 million. There has been favorable investment experience since that time but, as noted earlier, under the accounting rules these gains are not immediately recognized. Benefit accruals ceased as of that date with the exception of certain minimum accruals required by law and accruals for employees of affiliates which chose to make contributions. The participating affiliates are responsible only for the accruals for their employees on or after January 1, 1995. This has been accomplished by separate accounting of the participating locals' accruals, March 23, 1998 liabilities, contributions and assets. This procedure has been reviewed and approved by the Fund's auditors. In summary, based on our understanding of SFAS 87/88 and our discussions with the accountants we believe that the calculations we have performed comply with the accounting requirements. We are also forwarding a copy of this letter to the IBT's auditors for their comments. Please let me know if you have any questions or need more information. |