BALTIMORE - Automation has changed Baltimore longshoremen's lives, and may also change their pension funds.
The administrators of the $449 million Longshoremen's STA-ILA Pension Trust and Benefit Fund could freeze the defined benefit plan and replace it with a defined contribution plan.
The idea is in its initial stages, but it is an option the fund may take to adjust to the fund's changing work force.
The defined benefit plan is fully funded and well managed, but the work force is aging and contributions lag benefit payments. Only good investment returns keep the fund growing.
Plus, administrators and trustees need to consider what might happen when the longshoremen's collectively bargained agreement expires in September 1996.
In the existing agreement, workers earn pension credits for their hourly service at the rate of 1,000 hours per credit. A normal pension requires 20 pension credits. Those credits may be subject to elimination.
Since pension contributions are tied to the credits earned, contributions would then dry up.
"If they eliminate that, we'll get less contributions," said Stephen M. Byan, co-administrator and secretary. "Plus, ships are getting bigger, meaning there are less man-hours, and contributions are based on man-hours."
The fund is mainly run by Mr. Byan and Charles "Bill" Springer, co-administrator. These two, with the help of eight union and eight management trustees, constructed a well-diversified, actively managed pension fund for their 3,536 workers and retirees.
The longshoremen's fund earned an average 7.5% return between 1992 and 1994; the average multiemployer fund earned 6.2% for the same period, according to Segal Advisors, New York. This year, officials at the longshoremen's fund expect a 15% return.
Their strategy is simple: the fund's nine money managers have to outperform their respective benchmarks.
There are a couple of additional minor rules: Managers can't invest more than 5% in one company, and managers have to invest in companies that have sufficient capital reserves.
"We have a long-term relationship with our managers," Mr. Byan said.
The managers and the amounts they manage are: Sirach Capital Management, Seattle, $27.7 million small-cap domestic equity; Alex. Brown Investment Management, Baltimore, $66.8 million in REIT investments and $17.5 million realty; Lazard Freres Asset Managment, New York, $70.4 million value equity; Turner Investment Partners, Berwyn, Pa., $54.5 million growth equity; Loomis Sayles & Co. L.P., $52.1 million corporate bonds and long-term fixed income from its Washington office and $27.3 million in commercial mortgages from its Pasadena, Calif., office; ASB Capital Managment, Washington, $47 million domestic fixed income; Legg Mason Capital Management Inc., Baltimore, $44.2 million fixed income; Wedgewood Capital Management Inc., Washington, $27.5 million intermediate and long-term Treasury bonds; and Phoenix Home Life Mutual Insurance Co., Hartford, $10.6 million real estate separate account.
(The fund also owns the longshoremen's building and rental property next door, totaling $3.5 million.)
Most of the managers have been with the longshoremen since 1987, and the last termination was in 1993, Mr. Byan said.
"For the most part, our money managers have been performing well," Mr. Byan said. "We don't penalize our money managers if they have one or two bad quarters, or even a bad year."
That's because the longshoremen believe that maintaining a long-term relationship with fund managers helps provide healthy returns; the managers know the fund, its expectations and its needs, Mr. Springer said.
"We feel that we have a good relationship with each of them and if their performance is down, we'll be asking questions about it," Mr. Springer said.
If a manager is underperforming its benchmark, representatives of the firm usually are expected to be at the next monthly investment committee meeting to explain. The trustees and the staff try to work the problem out before considering terminating the money manager.
Helping managers achieve the returns they expect helps keep turnover rates and costs down for the retirement fund, Mr. Byan said.
Administrators keep a close eye on the managers by reviewing their performance annually and by receiving quarterly updates from Investment Performance Services Inc., Savannah, Ga., the fund's consultant.
Next year, managers will be reviewed twice a year, Mr. Byan said.
The fund does not use any hedging devices, market timers or derivative investments. The fund is kept solvent by the depth of its diversified investments, Mr. Springer said.
"I think (hedging devices) are expensive for what they achieve," Mr. Springer said. "I think we really feel that if we have diversified enough, we are hedged."
The fund needs to invest conservatively mostly because of its aging work force. According to its 1994 actuarial report, 83% of the fund's 1,550 active participants are over 40. And with an average retirement age of 62, the fund needs to be ready for massive pay-outs.
For the most part, investment return and hourly contributions have been able to take care of annual payouts to retirees. In 1994, benefit payments were about $24 million, of which $8 million came from contributions, and $16 million from investment returns.