How the Plan Works

Individual Accounts

Investment Income

The investment income factor shall be determined as follows:

  1. Determine the total gross investment income for the Fiscal Year (without subtracting investment related expenses), including realized and unrealized capital gains and losses.
  2. For the first Valuation Date after the inception of the Fund, determine the total Contributions required to be made during the year.
  3. For each subsequent Valuation Date, determine the sum of the Individual Account balance on the preceding Valuation Date for those accounts that were in existence on the preceding Valuation Date and remain in existence on the current Valuation Date.
  4. The applicable Investment Factor results from the following calculations:
    1. For the first Valuation Date, divide a. by one-half of b.
    2. For subsequent Valuation Dates, divide a. by the sum of c., plus one-half of b.

Account Balance

Due to the fluctuation in the amount of yield on investments, the exact amount you will receive in the future when you are eligible for benefits cannot be determined now. Here is how the amount you will receive will be calculated:

  • The sum of all the Contributions required to be made on your behalf, plus
  • All actual investment earnings credited to your Individual Account, plus or minus
  • Changes in the value of the Plan's investments, minus
  • Any outstanding loans, plus
  • Any loan interest and principal repayments, minus
  • Your share of the expenses of operating the Plan.

Terminations on a date other than December 31st will earn interest based on the San Francisco passbook savings and loan rate in effect as of the preceding January 1st.

A statement will be sent to you annually showing you what has happened in your Individual Account in terms of Contributions, expenses and investment yields.

Account Valuation

Determining the value of the Accumulated Share in your Individual Account
First, of course, is the amount of Contributions that are required to be made on your behalf by your Employer. It also includes any distributions you have transferred into this Annuity Plan from another qualified defined contribution plan in the jurisdiction of the Operating Engineers Local Union No. 3 of the International Union of Operating Engineers and approved by the Board of Trustees. This money, along with Contributions in all other Individual Accounts, is invested under policies established by the Board of Trustees of the Plan. Accordingly, any interest or dividends received is added to Contributions; changes in the value of investments also result in increases or decreases in the value of each Individual Account. From this accumulation is deducted a uniform share of the expenses for operating the Annuity Plan. All of these things taken together determine the value of your Accumulated Share in your Individual Account at any Valuation Date.

Valuation Date
On December 31 of each year, the value of each Individual Account is fixed. December 31 is known as the Valuation Date. That date is selected as the Valuation Date because it is the last business day of the Plan's fiscal year. The value is fixed as of this date by combining the following factors to determine the value of your account: Prior balance (if any) on the previous Valuation Date, Contributions received during the Plan Year, your share of the investment income and expenses of operating the Plan.

Every year, you will receive a statement showing you the status of you Individual Account in terms of Contributions, expenses and investment yields as of the last Valuation Date. It is very important that you carefully check the annual statement that you receive from the Fund Office and notify the Fund Office immediately if there are any errors.

Important: The fact that Individual Accounts are established and valued as of each Valuation Date shall not give you or others any right, title or interest in the Fund or its assets, or in the Individual Account, except at the time or times and upon the terms and conditions provided in the Plan. Subject to such terms, your right to the value of the assets in your Individual Account is non-forfeitable from the time that the Individual Account is established.

Account Expenses

  1. Total operating expenses incurred by the Fund for the Fiscal Years ending in 1985, 1986, 1987, and 1988, shall be recovered on an amortized basis over the next five Valuation Dates according to the following schedules:
    Valuation Date Amortization Rate
    December 31,1989 10%
    December 31,1990 15%
    December 31,1991 20%
    December 31,1992 25%
    December 31,1993   30%

    Therefore, for the first four Fiscal Years, no expense charge shall be assessed.

  2. Beginning with the 1989 Fiscal Year, the Individual Account Expense Charge shall be determined as follows:

    1. Determine the total of all operating expenses incurred by the Fund during the year, including all investment related expenses and Employer Contributions required but not paid.
    2. Determine the amortized operating expenses for the year from section a. above.
    3. Add (1) and (2).
    4. Determine the number of accounts that were in existence on the preceding Valuation Date and remain in existence for the current Valuation Date.
    5. For each Valuation Date beginning December 31, 1989, divide (3) by (4). The result is the Individual Account Expense Charge for the year.

In no event shall the Individual Account Expense Charge exceed the investment income allocated to the Individual Account for the year under the Plan.

Account Termination

An Individual Account shall be considered terminated:

  • On a Valuation Date if the amount in the Individual Account is zero or less; or,
  • On the date in which payment of the Accumulated Share is made in full.

Loan Program

The Operating Engineers Annuity Plan provides for loans to its Participants under its Annuity Loan Program. The Operating Engineers Local Union #3 Federal Credit Union has been authorized to administer the Program for the Trust Fund. A summary of the Annuity Loan Program procedures is as follows:

  1. A written request must be filed with the Board of Trustees at the Fund Office. Participants who are legally married must obtain their Spouse's written consent to the loan in the presence of a Fund Representative or Notary Public.The Fund will charge a loan origination fee which must accompany any application for a loan. The amount of the loan origination fee is set from time to time by the Board to cover the cost of processing the loan.
  2. A Participant's Individual Account must have been in effect for five or more years.
  3. The minimum loan is $1,000, as long as that amount does not exceed 50% of the amount in the Participant's Individual Account. A Participant may check with the Fund Office as to the amount available.
  4. The maximum loan is $50,000 or 50% of the amount in the Participant's Individual Account, whichever is less.
  5. A Participant cannot receive a loan if (a) the loan, together with a prior loan and unpaid interest, exceeds the loan amounts described in items 3 and 4 of this question and answer 24 or (b) the Participant is more than 120 days delinquent on any single installment payment and a partial distribution has been made as described in item 7 below.
  6. The term of the loan shall not exceed five years. The interest to be charged on all loans shall be the same as the interest rate charged on an unsecured loan from the Operating Engineers Union Local #3 Federal Credit Union. The loan and any accrued interest must be entirely repaid within the five-year period.
  7. A late charge shall be applied for any payments received 11 or more days following the date the payment is due. If a loan remains delinquent for more than three months and no installment is paid by the due date of the fourth month, the remaining unpaid balance will be considered a partial distribution. The Fund is then required by law to report such distributions to the Internal Revenue Service and Franchise Tax Board as income to the Participant and thereby subject to income tax and additional penalties.
  8. An outstanding loan balance not paid in full at the time a Participant files an application for benefits will also be reported as a partial distribution.

The provisions of the Annuity Loan Program are set forth in a separate manual obtained from the Fund Office.

Important: The intent of this Annuity Plan is to assist in providing you with a secure income in the event of disability and in your retirement years. Although there may be emergencies and hardships that may warrant recourse to your Individual Account, your Individual Account should not be regarded as a savings account. The Internal Revenue Service has strict standards governing loans from Individual Accounts and the Fund Office must observe these rules to maintain the Plan as a tax-exempt qualified Annuity Plan. The Trustees reserve the right to terminate the Loan Program if there is evidence of abuse.

Payment Options

When you qualify for a payment, you may receive your Individual Account balance in one of the forms described below. If your Individual Account balance is $5,000 or less, it will automatically be paid in a lump sum.

If you are a single Participant, and your Individual Account is greater than $5,000, the normal form of payment (unless otherwise specified) is the Life Annuity. If you are a married Participant, and your Individual Account is greater than $5,000, the normal form of payment is the Joint and Survivor Annuity subject to the terms described later in this section.

  • Life Annuity
    An annuity purchased from an insurance company with your Accumulated Share providing payments for the duration of your life,
  • Lump Sum
    A single payment equal to the value of your Accumulated Share.
  • Joint and Survivor Annuity
    An annuity purchased from an insurance company with your Accumulated Share, providing a fixed monthly amount for your lifetime. After your death, your Spouse will receive a lifetime monthly benefit of 50% of the amount you were receiving. The amount you receive at retirement will be reduced to take into account your expected life span as well as that of your Spouse. Once your payments start, the amount will not be increased if your Spouse predeceases you, or if you and your Spouse are later divorced.
  • Combination of Partial Lump Sum and Life Annuity

If you are applying for distribution of your Individual Account because you are receiving a combination of California, Nevada or Utah State Unemployment, Disability or Workers' Compensation Benefits, your Account will be distributed in the following manner:

  • 50% of the Account Balance as of the first day of the month following the sixth month of your entitlement to State Benefits.
  • 50% of the remaining Account Balance as of the first day of the month following the ninth month of your entitlement to State Benefits.
  • 100% of the remaining Account Balance as of the first day of the month following the twelfth month of your entitlement to State Benefits.

If you elect to receive your distribution in the form of a lump sum or under the Plan's "unemployment provisions," special tax requirements may apply.

Payment of Benefits
You are entitled to receive the money in your Individual Account at any of the following times:

  • At Retirement
  • When you stop working as an operating engineer within the Union's jurisdiction
  • If you are totally and permanently disabled and entitled to a Social Security disability benefit
  • If you are unemployed
  • If you are entitled to state disability or workers' compensation benefits
  • If you are entitled to a combination of State benefits
  • If you die
  • If you are on temporary assignment under the jurisdiction of the Annuity Plan

Review the current Plan for more details about Payment of Benefits.

 

Early Distribution Penalty

If you receive a payment of your Accumulated Share before you reach age 59½ and you do not roll it over, you may have to pay a penalty tax equal to 10% of the taxable portion of the payment. This tax is in addition to any regular federal income tax due.In some instances, defaulting on a Participant loan prior to age 59½ may qualify as a premature distribution subject to the additional tax penalty. A direct rollover will be impossible if you default on a loan from the Plan and it offsets your account balance and treats you as having received a distribution of an amount equal to the unpaid loan balance. In that case, the Plan will withhold sufficient monies from any additional distribution to satisfy the mandatory withholding requirement for amounts already distributed.

Unless you meet the requirements of the exceptions shown below, any lump sum payment of your Accumulated Share before you reach age 59½ shall be subject to this additional tax.

The following distributions made prior to age 59½ are exempt from the early distribution penalty:

  1. payment made in the form of a life annuity (including a Joint and Survivor Annuity) following separation from service;
  2. payment made when you are at least age 55 in accordance with the Plan's early retirement provisions;
  3. payment made due to your death or permanent and total disability, or to an alternate payee as decreed by a qualified domestic relations order; or
  4. payment used to pay your medical expenses otherwise deductible under Internal Revenue Code Section 213.

Note: If you have general questions about this information, please contact the Fund Office for assistance. For more detailed tax information and advice, such as determining if this penalty tax applies to you, we recommend you contact a tax professional.

Eligible Rollover Distributions

This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan administrator, to have any portion of any eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

As used in this Section, the following terms shall have the following meanings:

Eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include:

  1. Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated Beneficiary, or for a specified period of ten years or more;
  2. Any distribution to the extent such distribution is required under Section 401(a)(9) of the Internal Revenue Code;
  3. A loan offset amount which occurs when, under circumstances set forth in the Plan calling for a distribution of an Individual Account, the Individual Account is reduced in order to repay the loan; and
  4. The portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

Eligible retirement plan is an individual retirement account described in Section 408(a) of the Internal Revenue Code, an individual retirement annuity described in Section 408(b) of the Internal Revenue Code, or a qualified trust described in Section 403(a) of the Internal Revenue Code, or a qualified trust described in Section 401(a) of the Internal Revenue Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving Spouse and the Employee's or former Employee's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 4l4(p) of the Internal Revenue Code, are distributees with regard to the interest of the Spouse or former Spouse.

Direct rollover is a payment by the Plan directly to the eligible retirement plan specified by the distributee.

Required Age 70½ Distribution

Generally, benefits will not be payable until an application is filed with the Fund Office. However, Federal law requires that your benefit payments commence no later than April 1 following the calendar year in which you reach age 70 1/2.