Four key questions at the heart of a Taft-Hartley DC plan strategy
If you were to start a defined contribution (DC) plan for union members, where would you begin? As with a corporate 401(k) or any other workplace retirement plan, a Taft-Hartley DC plan’s structure is driven by its strategy. And this strategy comes down to the answers to a few fundamental questions, including the four we touch on here.
The Taft-Hartley defined contribution plan is an important retirement benefit for union members
About two-thirds of private industry workers in America had access to a workplace retirement plan in 2020. For union members, this percentage jumps to 91%, including the 61% with access to either DC plans only or a combination of defined benefit (DB) and DC plans.1
Taft-Hartley DC plans are cooperative efforts between a labor union and employers that hire the union’s members. Each plan is run by a board of trustees, with half the board members chosen by the union and the other half by the participating employers.
The design and management of a Taft-Hartley DC plan call for a partnership of specialists, with investment and fiduciary consultants, fund counsel, third-party administrators (TPAs), and recordkeepers supporting the board of trustees. But before any of this can begin, make sure you have a clear strategy for the union’s overall retirement program. The following questions can help you define how the DC plan will play its part.
Answer these questions to help shape your Taft-Hartley DC plans
1 What’s the plan’s purpose?
While providing retirement security for members is a basic purpose of any plan, your plan will play a specific role in the union’s benefits package. For about one-third of union members, a DC plan supplements an existing DB plan—giving members a chance to build more retirement assets. But for just over one in four members, it’s the union’s only retirement offering.
What part do DC plans play in union members’ retirement programs?
Members with access to plans (%) as of March 2020
Source: U.S. Bureau of Labor Statistics, March 2021.
The more weight the DC plan pulls in supporting members’ retirement security, the more important thoughtful strategy and plan design become.
2 Who will contribute to the plan?
Taft-Hartley DC plan contributions can come from employers, members, or both. The exceptions are money purchase and profit-sharing plans, two often-used plan options that allow only employer funding.
Employer contributions tend to be based on either the number of hours worked (for instance, one dollar for every hour logged) or a percentage of the member’s wages. Member contributions—e.g., to a 401(k)—are decided by each worker and are normally a percentage of pay.
3 Who will direct the investments and what might the options be?
Either the plan’s board of trustees or members themselves can decide how to invest members’ assets—the former is a trustee-directed plan, and the latter is called member directed.
While some trustee-directed plans may supply a single investment option (often, it’s a relatively conservative one), others may support more dynamic, age-appropriate investing, as shown in this real-world example.
A sequential investment strategy for participants in a trustee-directed plan
In this example, one union designed a glide path for members as they approach retirement. Funds are custom-built based on parameters set by the union.
For illustrative purposes only. Not intended to represent any specific strategy, fund, or investment.
In member-directed plans, the trustees often choose target-date or target-risk funds as core funds and to serve as the plan’s qualified default investment alternatives while making other types of investments available for members who want to select their own.
4 How can you determine if your Taft-Hartley DC plan is effective?
Your answers will be unique to your trade and your goals for your membership. That said, over 85% of Taft-Hartley DC plan sponsors say participation is their most important plan metric, folowed by average account balance and benchmarking against similar Taft-Hartley benefit programs.
Top measures labor unions use to gauge their DC plans (%)
Source: “PLANSPONSOR 2022 Defined Contribution Recordkeeping Survey,” © Asset International, Inc., June 2022.
As for longer-term goals, 89% of these same union plan sponors agreed with the statement, "It is important that our plan offers participants a means to guarantee some level of retirement income."2
Of course, a board of trustees’ objectives may be similar or even more ambitious. Either way, clarifying them up front is the best way to ensure a plan’s design and service structure will support the union’s goals—and its members’ pursuit of a secure retirement.
Use strategy and plan decisions to help set your union retirement program apart
Whether you’re supplementing a DB plan or intend your DC plan to be the cornerstone of a retirement program, you’ll want to take a thoughtful and thorough approach.
Asking and addressing strategic questions such as the ones above can help make your Taft-Hartley DC plan a win-win-win for members, participating employers, and the union. And if you’ve identified potential design and management partners, be sure to take advantage of their experience and insight.
1 U.S. Bureau of Labor Statistics, March 2021. 2 “PLANSPONSOR 2022 Defined Contribution Recordkeeping Survey,” © Asset International, Inc., June 2022.
Important disclosures
This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.
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