The annual funding notice is a mandatory notice that discloses certain information in a format developed by the Department of Labor.  Every multiemployer pension plan is required to issue this notice each year going forward.  Some of the language that is required to be contained in the notice is not particularly applicable to the NPP.  For example, the notice contains a description of rules governing plans in reorganization and insolvent plans, even though the NPP is neither in reorganization nor insolvent.  In addition, the notice explains the limitations on the PBGC guarantee of benefits, although this would only be pertinent in the event a multiemployer plan is terminated and does not have sufficient assets to pay full benefits.

One of the primary purposes of the notice is to show the extent to which NPP's liability to pay future benefits is currently funded with assets.  The "current liability" funded percentage of 81% reported in the notice needs to be put in context.  It is based upon an interest rate assumption of 5.77% mandated by the government, based on high quality corporate bond yields.  The interest rate assumption is a plan's expected rate of return on its investments.  A corporate bond yield of of 5.77% is not the NPP's overall expected rate of return, since less than 15% of the NPP's assets are invested in corporate bonds.  The NPP's asset allocation, shown below, has investments in stocks, real estate, hedge funds and private equity, all of which have higher expected returns than corporate bonds.  Indeed, the NPP's actual investment return over the last twelve years has averaged 10.1%.  Based on its well diversified investment allocation, the NPP rate of return assumed by the independent actuaries was 7.5% for the January 1, 2006 valuation.  When applying that more reasonable assumption, the NPP's funded percentage as of January 1, 2006 was 98%.

For comparative purposes, the NPP's actuaries surveyed funding levels (based on the mandated assumptions) of 401 multiemployer pension plans across the country.  The NPP's current liability funded percentage of 81% is higher than over three-quarters of the multiemployer plans in the survey.

Keep in mind that a plan's funded percentage will fluctuate from year to year depending primarily on that plan's investment returns.  In past years, NPP has had both lower and higher funded percentages than reported here, so the notice only provides a snapshot as of the beginning of 2006.  However,  the notice does provide the opportunity to communicate information about the Plan's relatively solid funded status as noted above.

Investment Target Allocation
The following investment asset allocation, as set forth in the Plan's investment policy, provides diversification and is intended to meet the Plan's long-term investment goals without undue risk.  The investment policy was developed and is continually monitored by the Board of Trustees together with its investment advisor, Jack Marco of the Marco Consulting Group.
Mr. Marco is one of the premier investment consultants in the country for multiemployer pension plans.

Equities 60%:  (Large Cap - 40%, Mid Cap - 10%, Small Cap - 5%, Foreign - 5%)  The stock portfolios are managed by selected professional investment management firms and diversified among growth and value styles.

Fixed Income 25%:  Diversified among government securities, investment grade corporate bonds, high yield bonds, mortgage securities and non-U.S. bonds, and managed by specialist bond investment management firms.

Real Estate 7%:  Diversified among real estate sectors and managed by professional real estate firms in three different commingled funds.

Hedge Funds 5%:  The Plan uses two hedge fund of funds, each of which invest in approximately 30 individual hedge funds, to diversify across various strategies and among numerous selected hedge fund firms.  The fund of funds managers use their expertise to select the most suitable hedge funds, construct the portfolio and monitor performance.

In addition, the Plan utilizes two other hedge fund of funds to overlay an S&P 500 Index and a Lehman Aggregate Bond Index, with the goal of exceeding the returns of those Indices by an average of 2% per year.

Private Equity 3%:  The Plan uses a professional manager to select and monitor the private equity partnership funds in which to invest.  Currently, the Plan is invested in 10 partnerships, each of which invests in numerous privately owned companies.
 
 
 
 
 
 
 

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