What’s the difference between multiemployer and multiple employer plans?

Unique needs of a union workforce

Union workers often move among different employers, which can make it difficult to qualify for standard employer-based retirement benefits. Multiemployer defined benefit and defined contribution plans are designed to address this challenge. Under these plans, union workers are generally able to transfer their eligibility and benefits from job to job as long as the employers are part of the same retirement program. As a result, they’re able to minimize disruptions in plan participation that could throw their retirement goals off track.   

Let’s look at a simple, hypothetical example. Joe is a member of his Local Union 123, which sponsors a multiemployer 401(k) plan. His current employer is part of this plan, and he’s worked for them for two years. Joe is getting ready to take a new painting job with another company. Assuming this employer is also part of the same 401(k), his two years of service will move with him, so Joe can continue to participate in the plan. He won’t have to re-satisfy the eligibility requirements and can keep saving.

Overview of multiemployer plans 

A joint board of trustees, with equal representation from the union and participating employers, usually serves as the plan sponsor and named fiduciary. And like any ERISA plan fiduciary, the board must act in the best interest of participants. It’s also responsible for selecting and monitoring the plan’s investments and service providers.

Additionally, these plans are subject to many of the same IRS rules as single-employer plans, including:

• Eligibility
• Vesting
• Joint and survivor annuities
• Distributions

But they also have some unique requirements, so unions offering these plans should consider working with financial professionals, third-party administrators, and service providers who specialize in Taft-Hartley plans.       

Potential benefits of multiemployer plans

Beyond portability, there are other reasons companies that employ union workers might consider participating in a multiemployer plan, including:

• Centralized plan administration—Which can help ease their administrative burden and fiduciary risk
• Cost efficiencies—As a larger entity, they may receive better pricing than if they set up their own plan
• Expanded services—Similarly, they may have access to investment, consulting, and plan services that would otherwise be cost prohibitive
• Talent attraction and retention—Offering retirement benefits can help them compete for union workers in a tight labor market

Difference between multiemployer and multiple employer plans

So if a multiemployer plan is for union workers, what’s a multiple employer plan? It’s a retirement program maintained by two or more unrelated businesses that typically share a common interest, such as companies in the same industry group or association. And it’s an alternative for small employers looking for a cost-effective way to offer their employees retirement benefits with streamlined administration.

What’s in a name?

The retirement plan industry has a language all its own. Understanding the distinction between multiemployer and multiple employer plans can help ensure you’re considering the right type of retirement program for your business. So can working with the right team of multiemployer specialists.