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MOSLEY v. NATIONAL MARITIME UNION PENSION & WELFAR

May 9, 1978

Curtis MOSLEY, Plaintiff
v.
THE NATIONAL MARITIME UNION PENSION AND WELFARE PLAN, Defendant.



The opinion of the court was delivered by: MISHLER

Memorandum of Decision and Order

 MISHLER, Chief Judge.

 The court conducted a trial on the issues reserved in its memorandum of decision rendered in response to the parties' cross motions for summary judgment (438 F. Supp. 413). The court finds as follows:

 Mosley's Work Record As A Seaman

 Mosley was a member of the National Maritime Union (N.M.U.) from May, 1937 until February, 1943, *fn1" when he left the Merchant Marine. Mosley returned to part time employment as a seaman in 1951, the year in which the Plan was established. In the eighteen year period that followed, from 1951 to 1969 when he made his last voyage, he accumulated 8-3/4 years of contributory employment based on the liberal method of computing service credit under the regulations adopted by the trustees on August 27, 1953. *fn2" For most of his years of service, Mosley received only partial credit, working less than the required 200 days of covered employment. Mosley was credited with a full year of service only in 1967 (173 days of work plus 29 vacation days). In 1954, he did not work at all as a seaman, and in 1958, he worked only 56 days. Over the eighteen year period, Mosley worked in total 2,054 days.

 The Plan

 The N.M.U. Pension Plan, established in 1951, was designed to recognize members' past and future services. The Plan is funded exclusively by employer contributions under an actuarial method most commonly referred to as "Entry Age Normal Cost Contribution Plus Interest On Unfunded Accrued Liability". The contribution scheme, as originally devised, did not provide for amortization of the unfunded accrued liability (the amount required to pay benefits accrued during non-contributory, pre-plan years). Employer contributions were only calculated to cover: (1) the "Normal Cost" of the Plan or the actuarial amount necessary to fund the future payment of benefits based on credits earned by members during each year of the Plan's operation; and (2) interest on the unfunded accrued liability in order to prevent capitalization of this increment and an increasing burden on the Plan.

 Until 1969, the collective bargaining agreements required signatory employers to contribute an amount based on man days of employment. Contributions were not earmarked for an individual employee, but instead were paid into an aggregate fund in order to meet existing obligations. Benefit levels in the years prior to 1964 were based on two actuarial assumptions; first, that seamen would retire after accumulating 25 years of service credit although less was required, and second, that a normal year would see 7 million man days of employment.

 Prior to 1964, the Plan provided for four types of pensions: (1) the "Normal Pension" available to seamen 65 years of age with 20 years of pension credit; (2) the "Reduced Pension" open to seamen with 15 years of pension credit who have attained the age of 65; (3) the "Early Retirement Pension" available to seamen 60 years of age with 15 years of pension credit; and (4) the "Disability Pension" covering permanently disabled seamen 65 years of age or older who have 15 years of service credit. In June, 1964, the Plan was amended to provide for two additional types of disability pensions and a "Service Pension" available to seamen of any age who have accrued 20 years of service credit. The monthly benefits under this latter plan amounted to $125 in 1964 and $150 in 1965. The Plan was again amended in 1966 increasing monthly benefits under the Service Pension to $175. The increase in benefits was based in part on an actuarial assumption of 28 years of service.

 Decline In The Merchant Marine

 Contribution levels set by the collective bargaining agreements during the first 18 years of the Plan were based on the actuarial assumption of 7 million man days of employment each year. The assumption proved valid until 1968. However, in absolute terms the Merchant Marine experienced a consistent and dramatic decline in employees each year since 1954 and a significant increase in the number of pensioners each year. In 1954, there were 38,000 employed members of the N.M.U. with only 472 retirees receiving pension benefits; by 1962, the membership dropped to 28,550 and the number of pensioners jumped to 2,574. In 1966, while the number of employees remained relatively steady, the number of pensioners rose to 5,673. The pattern is attributable to several factors, i.e., the decline of Merchant Marine activity resulting from the end of the Vietnam war, the loss of passenger business to the airlines, and automation.

 As of December 31, 1966, the level of employer contributions for the year was approximately $22.1 million *fn3" and the actuarial cost was approximately $21.5 million. *fn4" The total accrued liability amounted to $556.0 million and the assets approximated $106.1 million. For the first time since the Plan's inception, the pensioner's liability *fn5" --$157.8 million-exceeded Plan assets.

 The financial soundness of the Plan was taxed further in February, 1967, when an arbitrator resolved a collective bargaining dispute by directing an increase in monthly benefits under the Service Pension from $175 to $250. The sharp increase in benefits caused a rise in retirements by younger seamen who under earlier benefits might have otherwise delayed in filing. *fn6" Not only was the 28 year service assumption now of doubtful validity, but the stability of the Plan was tested by the increase in both the pensioner's liability and the unfunded accrued liability. The next two years saw the greatest surge of new applications in the Plan's history; in 1967 there were 2,256 new applications and 2,329 new applications in 1968. The arbitrator also directed that the unfunded accrued liability be amortized over a 25 year period. Until this point, employer contributions were calculated to retire only the interest on the unfunded liability. A corresponding increase in employer contributions was therefore ordered to compensate for the new demands placed on the trustees. The relative effect of the arbitration award is best exemplified by a comparison of the pertinent data for the years 1965 through 1969: Contributions New Net Assets Pensioner Unfunded Year (Millions) Awards Pensione rs (Millions) Liability Liability 1965 17.4 1.1 01 4,437 85.3 75.3 304.2 1966 22.1 1,517 5,673 106.1 157.8 459.9 1967 36.1 2,256 7,566 132.5 235.1 466.2 1968 43.8 2,329 9,468 159.8 296.0 469.0 1969 38.5 1,787 10,720 177.6 3 38.6 464.4

 The soundness of the Plan was brought into question. The trustees turned to their actuary, Martin E. Segal Co., for advice. The actuary was quick to recognize that the shift in retirement patterns undermined the 28 year service assumption on which he had based his projections. Moreover, it realized that the added cost of amortization might tax employers beyond their capabilities. Unable to shift the burden onto signatory employees, ...


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