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Union Workers, Don't Overlook Your 401k

By Clifton Linton

Participating in your union-sponsored 401k plan could mean the difference between buying a used pop-up camper trailer or a luxury RV when you retire.

The traditional defined-benefit pension plan is still the retirement benefit of choice for unions. But over the past few years a growing number of multi-employer unions have started adding supplemental defined-contribution savings plans to their retirement benefits, some of them 401k plans.

"It gives workers additional opportunity to save for retirement," said Shaun O'Brien, senior policy analyst with the AFL-CIO.

While many pension plans will provide adequate retirement income, "a number of existing ... plans won't provide all the needed income at retirement," warned Roger King, attorney and partner with Jones, Day, Reavis & Pogue.

If you're a union worker, you shouldn't overlook this benefit.

Taft-Hartley, or Many Employers, One Plan

Benefits like 401k plans are not automatically provided to union workers. They must be negotiated between unions and employers.

In single-employer situations, it's fairly simple to negotiate and administer a 401k plan. The employer's benefits department manages the paperwork and signing up for the plan is a one-time occurrence for the union member.

In multiple-employer situations, where union workers regularly shift among employers as jobs start or finish, it's more complicated. The Taft-Hartley Act provides rules on how unions in this situation can negotiate and administer benefits.

Retirement benefits for multi-employer unions are administered by a trust overseen by trustees from both management and labor. This arrangement works fairly well for employer contributions to standard pension plans, but it gets complicated with 401ks. Among other administrative problems, participation in a 401k is voluntary, so monitoring enrollment is difficult. Also, workers need to enroll at each new job site and choose how much to contribute each time.

Rising 401k Interest

To date, the most popular supplemental plan offered is an "annuity plan," said Peter Zummo, vice president of Taft-Hartley sales with Diversified Investment Advisors. Despite the name, these plans don't always include actual annuities. They are a type of 401(a) plan in which the employer makes a contribution on behalf of the worker and/or the worker can make after-tax contributions. In about 60 percent of these plans, trustees control the investments. Union members call the shots in the remaining 40 percent.

"I get the impression from the youths coming into the trades that they are more comfortable with things like 401k plans, because their spouses have them."

Joe Vater, attorney and partner with Meyer Unkovic & Scott, in Pittsburgh

But now, 401k plans are likely to be the hot new offering by unions, because they allow employees to contribute pretax money directly from their paycheck, choose their investments, and possibly receive employer-matching contributions. Only about 150 multi-employer 401k plans currently exist, estimates Chris Sonner, Taft-Hartley relationship manager in the retirement and investor services group of the Principal Financial Group. Their use is likely to grow. "There is a lot of interest," he said.

The interest comes mostly from younger workers, said Joe Vater, a Pittsburgh attorney and partner with Meyer Unkovic & Scott. "I get the impression from the youths coming into the trades that they are more comfortable with things like 401k plans, because their spouses have them," he said.

Supplemental 401k plans are common among higher-paid trades in the construction, trucking and maritime industries, where workers have more income to save. In the retail industry another field where multi-employer unions operate wages are often so low that few workers think they can spare the money for a 401k contribution.


Compared to plans offered to non-union workers, union-sponsored 401k plans tend to offer fewer features and require more paperwork.

For example, many 401k plan trustees have decided to limit loans and hardship withdrawals because they believe this money should be saved for retirement, and not tapped early for normal expenses like a car payment, said Joyce Mader, a union-side labor lawyer and partner with O'Donoghue & O'Donoghue.

High administrative costs and tricky regulations are leading reasons these plans haven't caught on faster among unions, Mader said. For instance, workers in multi-employer plans must fill out a new 401k-election form at each new job if they want to contribute, just as they must submit a new W-4 form for the IRS. Employers will be diligent about asking for the IRS form, but won't necessarily push the 401k-election form. Workers may not think to ask, because not every employer they work for will have signed on to offer the plan.

The 401k industry is looking hungrily at this untapped market. "As more (providers) become familiar with multi-employer 401ks this issue will work itself out," Mader said. So, if you're a union worker, be sure to check if a new employer has already signed on to the 401k plan.


It's probably worth the hassle to check because a big advantage of saving in a 401k plan is the tax benefit. Your contributions are tax-deductible and your earnings grow tax-deferred. You won't have to pay taxes on the money in your account until you withdraw it.

A 401k plan is a good way to build a disciplined savings program. Because your contributions are deducted from your paycheck, you don't have to remember to save the money. And in many cases you may not miss it.

Michael Romero is a 30-year old apprentice plumber with San Francisco-based Local 38 of the United Association of Journeymen and Apprentices of the Plumbing, Pipefitting, Sprinklerfitting Industry of the United States and Canada. Until he completes his apprenticeship, he's only allowed to contribute the minimum of $1 an hour to his union's plan. You'd figure he couldn't afford the contributions, given the Bay area's high living costs. "I don't notice it. It's such a small percentage (of pay) it doesn't affect the way I live," he said.

"It gives workers additional opportunity to save for retirement."

Shaun O'Brien, senior policy analyst with the AFL-CIO

Another advantage of this plan is it's a way to build additional retirement savings. Financial planners estimate you should expect your retirement living expenses to equal at least 70 percent of your salary the last year you work. If your pension and Social Security won't cover that or you want a more-generous retirement 401k savings can help bridge the gap, Diversified's Zummo explained.

A 401k plan can also be a boon if you work more than the minimum needed to qualify for pension credit. Suppose your union requires you to work only 1,000 hours a year to get credit and you work 2,000 hours. You won't get get an additional year's credit because you worked an extra 1,000 hours, but you can take advantage of those extra hours by saving from those wages in a 401k plan. "A person working (that much) would be better off in a 401k plan," Vater said.

Federal rules permit 401k plan participants to start withdrawing their money without penalty at age 55 if they take early retirement. Early retirement is a key issue for many union workers who are physically ready to retire by their mid-50s. Many pension plans start paying benefits at this age, but workers may find their lifestyle crimped if they don't yet qualify for Social Security benefits. The withdrawals from a 401k plan can provide a bridge, King said.

A last advantage of a 401k plan is that since you direct the investments, you can select the amount of risk appropriate for your own situation. Many pension plans are invested to provide the best return for the entire membership on average, but that may not be appropriate for you. If you have 20 years until retirement, you might want more aggressive investments that provide potential for more investment growth. Conversely, when you are closer to retirement you might find the pension-plan investments too aggressive. To compensate, you can adjust the risk in your 401k. 

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

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