February 2009

RE: BASIC AGREEMENT RATIFICATION

Dear Local 706 Members:

You will find in this correspondence information on the newly negotiated Basic Agreement. It is being sent out to Roster members of the IATSE to dispel the misinformation and rumors that have been going around the industry and the internet about the agreement. The longer people are allowed to spread half-truths and gossip, the more fiction becomes fact, and the damage, if left unchecked, can be very harmful.

That being said, the purpose of this correspondence is to provide some factual information and insight into the recently concluded IATSE and AMPTP Basic Agreement negotiation. This entire negotiation was really about two things: first and foremost, our Health Plan, and secondly, securing the jurisdiction over new media work in the same way the DGA, WGA, and AFTRA did.

Our Health Plan is in severe trouble due to the so far unabated rise in costs. Over the last three years, costs to the Plan have increased an average of 9.67% compounded each year. While this was happening, residuals and hourly contributions, two direct funding mechanisms, were essentially flat.

The residuals income is always used to first fund the Pension Plan, and whatever is left is then given to the Health Plan. Due to the Pension Protection Act, recently passed by Congress, the rules surrounding pension plan funding have changed. One aspect of these changes requires that all participants who have had contributions made on their behalf be counted as if they will receive a pension when they ultimately retire. This is different than it used to be for us, as we only had to count vested participants (five or more qualified years) prior to the enactment of the new law. This means that our minimum funding requirement has increased, and there is even less from the residuals going into the Health Plan.

So, with hours and residuals essentially remaining flat and a projected 9% compounded increase in health costs going forward, we have a projected $587 million shortfall to the Plans over the next three years. When the negotiations started, the producers claimed we had a $780 million shortfall. Why the difference?

Due to an extremely poor investment climate, the producers claimed an additional $200 million was necessary to make up for the 20% in losses the Pension Plan incurred for 2008.

We managed to nullify that claim. Because the Pension Plan has different investment returns each year, we have an 8% projected return that we use each year to “smooth out” variations year to year. Looking backward, we have made our 8% to date, and on a go forward basis our investment advisors, employed by the Finance Committee of the Plans, assure us over time we will continue to meet our 8% number. Our Pension Plan is secure, and our returns are in the top 1% of all Taft Hartley Plans for 3, 5 and 10-year periods.

The producers have agreed to put an additional $200 million into the Health Plan over the course of the next three years by way of increased hourly contributions.

This, coupled with our wage increases, gave us a comparable money package to those recently obtained by the DGA, WGA and AFTRA.

This left us with $387 million still to “find.” The reserves in the Health Plan, currently at 12.5 months in the active plan, and 16 months in the retiree plan, will be spent down to 6 and 8 months, respectively. This will provide $189 million toward the $387 million (1 month of reserves equals the amount the Plan would spend providing coverage if all contributions ceased).

The rest needed to come from Plan modifications.

No one likes this. For us to keep the Health Plan intact, we did what we could to minimize the effect on all the members. This is not a “give back” to the producers, but a deal crafted in the face of rising costs in a terrible economic environment, based on what the consultants and actuaries, employed by labor and management, as well as the Plans´ administrators, told the bargaining parties they needed.

The economics of the negotiation was all about the Health Plan. We needed, in a sense, this $587 million before we started, while still retaining a 3% wage increase per year. With inflation abating for the moment (the government number is 1% for 2008), we negotiated this 3% a year to make up for the years in other agreements where we had a $.50 or $.75 increase, when at that time, all the other money also went into the Health Plan.

Members have asked if an increase was necessary in the third year from 300 to 400 qualifying hours, why didn´t we increase the bank of hours? This would have increased costs, not decreased them. Raising the bank to 600 hours would have increased our shortfall by an additional $150 million. Remember, in 2000, the bank was increased from 300 to 450. Likewise, a two-tiered plan, if this were instituted, would result in a higher number of qualifying hours to qualify for the Plan we have.

Perhaps, the badly broken health care system in this country can be fixed, but in the meantime, every available dollar we can find has to go into our own health care. It is still free to individuals and families, requiring work approximately 30% of the year.

The trustees and finance committee of the Plans struggle with the economics of the Plans on an ongoing basis and you can be sure that they are doing everything they can on all fronts.

The new media part of the deal locks up a market that is in its infancy, and will provide both additional work and residual revenue when this market takes off.

Hopefully, this document provides some understanding of the architecture of our Plans and of the deal. You will receive a full memorandum of agreement and a ballot shortly.

The Bargaining committee, made up of officers and representatives of all 15 West Coast Studio Locals has unanimously recommended ratification of this agreement.

If you should have any questions at all, please call us at the local. We are here to help.

Sincerely and Fraternally,

Tommy Cole	Sue Cabral-Ebert	John Jackson
Tommy Cole Business Representative	Sue Cabral-Ebert President	John Jackson Secretary-Treasurer

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