Taft-Hartley tips: adopting daily valuation for your trustee-directed plan

We believe that daily valuation may be better for members both individually and collectively—it increases transparency without raising costs, eliminates the uncertainty associated with stale pricing, and doesn’t require trustees to give up control over investments. About half of Taft-Hartley defined contribution (DC) plans are trustee directed, the other half are member directed.¹ If your plan isn’t valued daily, it may be an option to consider.   

There was a time when DC plans for Taft-Hartley members were viewed as purely supplemental to pensions—they were neither designed nor intended to act as the sole source of retirement income. Multiemployer DC plans, therefore, didn’t have the look or feel of their corporate counterparts, including daily valuations. 

Both member needs and technology have changed, weakening historical arguments against daily valuation. Realizing that their DC plan balance may be important to achieving financial readiness in retirement, members increasingly want up-to-date balance and performance information. And, due to technological advances, service providers are able to provide it at no additional to modest cost. 

Benefits of daily valuation 

When members of a plan that isn't daily valued request a distribution, they do so based on the price and balance information as of the last valuation date, but their distribution will be processed on the next valuation date at an unknown price. Large market movements between the request date and processing date could change the expected check amount for a lump-sum request or the expected remaining balance for a partial lump-sum request. Daily valuation eliminates the uncertainty caused by stale pricing by letting members know what they’ll get, or what will be left over.  

Daily valuation also allows for improved planning; for example, members may need to provide their in-plan advice tool with a current balance, or their financial professional with an up-to-date statement of retirement assets. Stale pricing can hinder retirement income planning and give a distorted measure of retirement readiness. The impact on preretirees, for whom a current snapshot of retirement assets is especially important for income planning, may be a source of uncertainty. Daily valuation may improve the quality of financial planning decisions and sharpen the accuracy of retirement income projections. 

Conclusion 

The role of Taft-Hartley DC plans is changing. Members are relying on them more and more for income in retirement. Giving members more timely balance information doesn’t have to compromise other important objectives. Trustees can keep investment control while furnishing members with the information they need to make better retirement investment and distribution planning decisions.  

1 John Hancock internal data, 2019.