ALL LOCAL CHAIRMEN-BNSF                                                                                                         May 16, 2005
                                                                                                                                                               File: Alt. Comp. Agr. Art II
                                                                                                                                                                   Disability Insurance
 

Dear Sirs and Brothers:

This is in reference Article II of the December 23, 2003 BLET/BNSF “Alternative Compensation Agreement”. As most of you know, Article II of the Alternative Compensation agreement removed this property from the mandatory National Disability Insurance program found in Article IV, Section 5 of the 2003 National Agreement. Our on property agreement traded the full 3% value of the July 1, 2004 General Wage Increase for Profit Sharing. Conversely, the National Agreement traded ½ of 1% of that same GWI to fund the National Disability Insurance program. As the full value of that 3% GWI had already been traded on our property, it was not available to be used to fund the $40.00 per month contribution negotiated in the National Settlement.

For that reason, the on property agreement included language requiring the Carrier to provide access to a voluntary on property group disability insurance plan similar to the National Plan. While we know that the delays in implementing this on property voluntary disability program have been frustrating, this letter is to advise that we have finalized the disability offering and a direct mailing with registration packet will be forthcoming to each qualifying engineer. We have also attached printed flyers provided by the vendor selected to provide the disability insurance offering. Please post and/or distribute the flyers so that your membership is aware that the offering that they will be receiving by US Mail is the offering described in our on property agreement. In addition, we will be providing a current list of Local Chairmen to Woody Taylor of Railroad Marketing. Woody has committed to make every effort to attend as many BLET Division meetings during the open registration period, be they special meetings or regular meetings, to directly discuss the program with your membership.

As you are sure to receive many questions concerning the disability insurance offering, we will try to address a few of the key points.

The first issue is eligibility. As with our Flexible Spending Account (FSA) offering in 2004, UTU was not agreeable that this offering be provided to any employees holding engineer’s seniority who happened to be working in demoted status at the point that eligibility was determined. For that reason, a cut off process similar to the one used to determine eligibility for the FSA was used for this offering as well. Accordingly, those who spent the preponderance of the month of February working under the engineer’s agreement are eligible for the offering. Whi1e BLET was open to offering this product to all who hold engineer’s seniority, UTU insisted that this voluntary offering not be provided to any employees working under their jurisdiction. While UTU is within its rights to insist on that handling, we do not see that their position is in the best interest of the involved employees.

One of the other issues that you will get questions on is the comparison between the on property product and the national product. One of the key differences is that the national disability plan is mandatory while the on property plan is voluntary. While it is possible for this property to vote on a future trade of GWI to fund access to the mandatory national plan, absent such ratification and acceptance by the membership, the only plan available to our membership is this self funded voluntary offering. There are several differences that come with a voluntary offering, the first being the rate structure. Mandatory offerings such as the national plan are inclusive of all eligible employees, healthy or unhealthy. The resulting ratio of those paying premiums versus those filing claims creates a self funded program that is more affordable than those plans where participation is totally voluntary.

While the rates for a voluntary plan are traditionally higher than those found in mandatory programs, the difference in tax consequences between the national and on property program not only affect the premium rates, it also affects the actual value of the benefit. The $40.00 paid by the railroad for those in the national plan is paid as a “pre tax” premium. In other words, that $40.00 is treated much like contributions to a Flexible Spending Account or 401(K), it is not taxable as income. With $480.00 set aside as non taxable during any calendar year in the national plan, the tax savings would be somewhere around $100.00 per year. However, when the premiums for disability insurance are paid with pre tax money in this fashion, the actual benefit payout becomes taxable income. For example, while the pre tax premium could save the average employee $100.00 per year, the $400.00 per week benefit becomes taxable income when the employee can least afford it. Again depending on the involved employee’s tax rate, as much as 25% of the benefit could be lost to taxes.

Conversely, the on property program will be based on paying the premiums with post tax money. While we will lose the benefit of approximately $100.00 per year in tax savings as compared to the national plan, our benefits payout will be tax free. While the national plans $400.00 per month could become $300.00 per month after taxes, a $400.00 benefit under the on property plan will remain a $400.00 benefit. We only offer this explanation so that when your membership starts comparing the on property offering to the national rates, they are aware of all of the differences in what affects those rates.

In closing, Railroad Marketing has agreed to provide the membership with several options when selecting their personal disability insurance policy. Waiting periods, length of benefit payout, and amount of benefit payout are all flexible in this offering. While Railroad Marketing has agreed to guaranteed access for our eligible group, there will be a 12 month restriction on benefits for certain pre existing conditions.
For that reason, Railroad Marketing has also agreed to provide various options to address the handling of any pre existing conditions. Ultimately, each employee can set up an individually tailored policy that best meets his or her needs. In addition, Railroad Marketing is set up to allow for payroll deduction of any and all premium payments. All in all, we feel that all of this combined will provide the membership with voluntary access to disability insurance that is of value.

Please distribute this information and add it to your Alternative Compensation Agreement files. Please contact your respective General Committee Office or Railroad Marketing if questions should arise.

Fraternally,

/s/ D.R. Pierce                                                                                             /s/ P. Williams
BLET General Chairman                                                                             BLET General Chairman
 

/s/ A. Morison                                                                                              /s/ RC Gibbons
BLET General Chairman                                                                              BLET General Chairman


cc:     Steve Speagle, VP BLET
        Woody Taylor, Railroad Marketing
        Wendell Bell, BNSF

Enclosures