Unions and Taft-Hartley retirement plans show their value in tough times

The COVID-19 pandemic has brought an era of constant change. Initial concern about market volatility in the early days of the pandemic in the United States gave way as concern about illness and job security took over. Since the CARES Act took effect in late March, retirement plan participants have had access to some temporary financial relief. We took a look at our Taft-Hartley retirement plan participants to see what actions union members are taking amid the uncertainty.

Union members stayed the course with their retirement plans despite market volatility

The pandemic has shone a spotlight on the value that unions provide workers. With layoffs, furloughs, and illnesses hitting so many industries around the country, workers with access to strong healthcare programs and retirement plan benefits have access to a safety net—and valuable education—that can help them weather financial disruption. 

In March, many investors—including union members—were unsettled by the wild swings in the stock market; however, less than 1% of Taft-Hartley members made changes to their investments.¹ In fact, 30% fewer Taft-Hartley participants changed their investments in March 2020 than in March 2019. The majority of those who made changes in March 2020 either moved to stable value value/fixed income (44%) or stayed in the stock market, but with a different investment strategy (36%).²

Although more participants made changes to their investments in April versus March, they still represented less than 1% of all Taft-Hartley participants. The majority of those who made changes in April stayed in the stock market, with about a quarter leaving stable value/fixed income for diversified stock market investments and a fifth moving into stable value/fixed income. The types of changes members made in April 2020 were very similar to those they made in April 2019. This suggests that, in April, union members were feeling the market was returning to more normal territory. 

Where Taft-Hartley members moved their retirement plan investments

  March 2019 March 2020 April 2020
Stayed in the market by diversifying into equities, target-date funds (TDFs), or diversified funds, or by rediversifying 61%  36% 55%
Moved money into stable value/fixed-income funds 23% 44% 21%
Moved from stable value/fixed-income funds into diversified funds or TDFs 16% 20% 24%

When we look at investment behavior by age group, we see that members generally made moves that follow the sliding scale of age/risk guidelines. Younger people tended to stay in the market and older people tended to seek the shelter of stable value and fixed income.

Where different age groups moved their money in March 2020

  <30 30–39 40–49 50–59 60+
Stayed in the market by diversifying into equities, TDFs, or diversified funds, or by rediversifying 61%  53% 36% 36% 22%
Moved money into stable value/fixed-income funds 22% 28% 41% 43% 60%
Moved from stable value/fixed-income funds into diversified funds or TDFs 17% 19% 23% 21% 8%

Taft-Hartley benefits go beyond the retirement plan

The data clearly shows that most union members are following general retirement plan guidance through the economic and market turmoil. Unions prioritize education and financial wellness through their Taft-Hartley retirement plans and providers, and at John Hancock, we’re seeing the focus on education paying off. When the pandemic hit, we didn’t see members turning to their retirement accounts for financial help, as many retirement plan participants did in the Great Recession of 2008/2009. Because of the behavior we saw over a decade ago, we immediately implemented a multimedia communications campaign with members, helping union members understand the difference between short- and long-term volatility and the importance of saving for the future. This helped to keep the number of members changing their investments low—at less than 1%. Staying the course proved valuable: Stocks have rapidly rebounded this year, gaining more than 35% since their lows on March 23, as measured by the S&P 500 Index.³

Although some members are taking advantage of the CARES Act, the numbers are low

As the market volatility settled down in April, however, the economic reality of the pandemic started to hit quite hard. April was also the first full month members had access to CARES Act provisions, including the potential for a temporary increase in loan amounts and for coronavirus-related distributions (CRDs), such as in-service withdrawals. 

Although the economic news was bad, with many union members affected, not many members have sought financial relief from their retirement plans. For example, although twice as many members reduced their contribution rate in March, that number was still only 2.4%, and it went down to 1.9% in April (on average, about 1.2% of members lower their contributions in a given month), and far less than 1% of members took loans in March or April—even fewer than had taken loans earlier this year.

We see some members taking advantage of CRDs. For our analysis, we’re classifying CRDs as in-service withdrawals. CRDs made up 76% of in-service withdrawals in April and 95% in May, with an average withdrawal amount of $24,081. While growing, the total number so far remains low; less than 1% of members took CRDs and other in-service withdrawals in April and May. 

Percentage of members taking CRDs and in-service withdrawals

March 2020 April 2020 May 2020
0.1% 0.2% 0.7%

Unions and the CARES Act provide shelter and relief

Although some members are making changes and seeking financial relief through their retirement plans, the numbers—as of the end of May—were still low. With access to investment education, it seems many members resisted the temptation to allocate out of stocks during the worst of the market decline, and so far, that discipline has been rewarded. With access to healthcare, pensions, and other benefits offered by their unions, few members are taking advantage of the retirement plan provisions of the CARES Act. As states and businesses start to open up amid the continuing pandemic, we’ll continue to monitor the data to see if any of this behavior changes. 

1 All data is from John Hancock as of 5/27/20, unless otherwise marked. 2 Fund categories were defined as TDF, stable value/income, growth and income, equities, asset allocation, and other. A participant in more than two fund categories was labeled diversified. A participant who changed from more than two fund categories to more than two other categories or to asset allocation alone was labeled as having rediversified. 3 Yahoo! Finance, S&P 500 Index, 3/23/20 to 5/27/20. It is not possible to invest directly in an index. The performance of an index is not an exact representation of any particular investment.

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The content of this document 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 herein.

 

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Lynda Abend

Lynda Abend, 

Head of Strategy and Transformation

John Hancock Retirement

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