A framework for evaluating your Taft-Hartley plan

1 Are you working with experienced Taft-Hartley plan providers?   

While the general 401(k) rules are the same for union and nonunion plans, your role as a Taft-Hartley plan sponsor differs significantly from most corporate plan sponsors. You’re tasked with managing the needs of multiple employers while delivering benefits to a geographically dispersed membership. Plus, you’re responsible for ensuring the plan is operated in accordance with reciprocity and collective bargaining agreements.

For these reasons, it’s a good idea to work with a team of retirement plan professionals—a financial professional, recordkeeper, third-party administrator, and ERISA counsel—who have a deep knowledge of and experience with multi-employer, Taft-Hartley defined contribution plans, not just corporate 401(k) plans. You want partners who can help you design a plan that reflects your members’ and participating employers’ unique needs and can help you manage the administrative complexities that come with it. 

2 Could you provide a more digital experience?

Paper forms and in-person meetings may not be the most effective approach for your Taft-Hartley plan if your members don’t work nine to five or go to a centralized workplace. But no matter where or when they work, your members will likely have their phones with them. Check with your recordkeeper to see if they offer a mobile app. With an app, your members can manage their retirement accounts wherever and whenever they want. Common app features include plan enrollment, transaction processing, and personal finance tools. Going digital can also help you streamline plan administration, saving you time and, potentially, money.

3 Should you switch to a member-directed plan?

Historically, Taft-Hartley defined contribution plans have been trustee directed, where the same investments are used for all participant accounts; however, more and more plans are becoming member directed as a way to potentially reduce fiduciary risk and get members more actively involved in planning for their retirement. With member-directed plans, participants choose their own investments from the list of available options and their own allocations. Your plan fiduciaries retain responsibility for the selection and monitoring of the plan’s investment lineup.

If you decide to make the change to member directed, you’ll need to adopt a daily valued plan design. Daily valuation is necessary to ensure members have current information on which to base their investment decisions and daily access to make trades. 

4 Is your default investment the right fit for your plan?

As a plan sponsor, you’re responsible for selecting a prudent investment for participants who haven’t made an investment election. Your initial reaction might be to choose a low-risk investment, such as a stable value or money market fund, to help preserve the participants' contributions. These funds do play a critical role in your investment lineup and a member's overall portfolio, but they may not be the best choice for your plan's default. Why? Although they help preserve capital, stable value and money market funds offer little opportunity for growth—something most members need to help reach their retirement savings goals.

To provide this growth potential, many plan sponsors use target-date funds (TDFs) as their default investment.¹ TDFs provide one-stop diversification, where the mixture of stocks, bonds, and cash becomes more conservative over time as the target date approaches. Members who don’t make an investment election would be defaulted into the TDF closest to the year they’re expected to retire. For example, you’d default 30-year-old members into a 2055 TDF.

Worried that using a TDF as your default will increase your fiduciary risk? Consider following the U.S. Department of Labor’s rules for qualified default investment alternatives (QDIA). Under these rules, plan fiduciaries may not be held liable for investment losses sustained by members invested in the QDIA, if certain requirements are met.

Of course, a TDF may or may not be the best default for your members. You’ll want to evaluate different QDIA options based on a variety of factors, including your members’ demographics. Your financial professional can help you with this analysis and explain what you need to do to satisfy the QDIA guidelines.

5 Do your distribution options meet members’ needs?

If you’re not doing this already, you may want to offer systematic or periodic withdrawals in addition to lump-sum distributions² to help members make the most of their retirement savings. It’s tempting for some terminated and retired members to spend their lump sum now, which can negatively affect their current tax situation and financial future.

Allowing these members to stay in the plan can help them keep their goals on track. It can also help them create a distribution strategy that’ll generate the income they need to supplement their other retirement savings. Your plan may also benefit—keeping more assets in the plan could have a positive effect on your pricing structure.

Be sure to loop your team of retirement plan professionals into the conversation. They can educate members about the different distribution options, so they can make informed decisions. Plus, they can help you amend your Taft-Hartley plan document and update your distribution process.      

6 Is your loan policy too lenient?

Any review of your Taft-Hartley plan design should include your loan policy. Some members may be reluctant to participate in your plan if they can’t access their money when a financial need arises. Allowing plan loans is a way to address this concern and encourage participation, but you don’t want members treating your plan like a bank account. Every loan they take can disrupt their savings goals and extend their retirement timelines. Your loan policy should balance the need to access money with the need to keep members on track for the future. For example, you might permit members to have only one outstanding loan at a time, reduce the permissible loan amount, or extend waiting periods between loans.

Many plan sponsors make debt management education part of their loan process to help participants understand the potential impact a loan could have on their financial picture. Your team of retirement plan professionals can help you evaluate your current policy and develop an education program tailored to your members.      

Positioning your members for their financial future

A well-crafted Taft-Hartley defined contribution plan can help your members achieve their definition of financial well-being. Review your plan regularly to help ensure it reflects the evolving needs of your membership and best practices in the retirement plan industry.

1 The target date is the expected year in which investors in a target-date portfolio plan to retire and no longer make contributions. The investment strategy of these portfolios is designed to become more conservative over time as the target date approaches (or, if applicable, passes) the target retirement date. Investors should examine the asset allocation of the portfolio to ensure it is consistent with their own risk tolerance. The principal value of your investment, as well as your potential rate of return, is not guaranteed at any time, including at, or after, the target retirement date. 2 Ordinary income taxes are due on withdrawal. Withdrawals before the age of 59½ may be subject to an early distribution penalty of 10%.