WASHINGTON - The International Brotherhood of Teamsters is sponsoring a national 401(k) savings plan that it wants employers to offer to 1 million eligible private sector members.
The move makes the Teamsters one of the first unions, and definitely the largest, to sponsor a national 401(k) plan for its members.
Sponsorship of a 401(k) savings plan could stimulate other unions to create similar plans and seek to have employers offer them to their employees.
Ryder Automotive Operations, Troy, Mich., will be the first company to offer the plan to its 3,500 eligible Teamsters employees in July.
State Street Global Advisors, Boston, the plan administrator, will manage the bulk of the plan's assets. Six investment options are offered. Five are State Street commingled trusts - bonds, yield-enhanced short-term investments, diversified U.S. equities, Standard & Poor's 500 Stock Index and the State Street Life Solutions asset allocation fund, which offers conservative, moderate and aggressive portfolio options.
The sixth option is self-directed brokerage, offered through State Street Brokerage Services Inc. Participants can invest in more than 2,000 mutual funds from outside mutual fund managers and individual stocks and bonds.
In all, about 1 million Teamsters from more than 500 locals will be eligible for the new 401(k) plan, assuming their employers agree to participate. Early commitments will bring about 30,000 participants into the 401(k) plan in the first year, said Monty Tarbox, a vice president at Marco Consulting Group, Chicago, and the Teamsters' primary consultant.
Union officials said the program will appeal to a wide range of corporate employers because they generally will pay only negligible start-up costs.
Plus, it's simple to administer and provides a high level of customer service.
Plan costs, paid by the participant, are expected to be low and will drop as assets grow.
'Smart' move by Teamsters
Consultants agree a national 401(k) plan is a smart move by the Teamsters. It combines a potentially huge base of participants and assets into a single purchasing pool, with enormous leveraging power on fees and services.
Said Lawrence Singer, senior vice president at Segal Co. Inc., New York, a consultant with about 1,700 Taft-Hartley clients: "This national plan is an excellent way to get services to smaller employers. And the plan seems to be a pretty fair trade-off. It's somewhat flexible, but not exceedingly so. Standardization of plan features is critical to keeping the costs down. They're trading extensive customization capacity for economies of scale; it's a good compromise."
The national 401(k) plan is said to be the brainchild of Teamsters President Ron Carey. Mr. Carey was a strong proponent of a national 401(k) plan for the union and pioneered retirement education programs at the local level.
His idea was to give members a much better vehicle for private retirement savings than most had access to, particularly members at smaller companies.
Defined benefit plan supplement
The Teamsters-National 401(k) Savings Plan is a supplement to the defined benefit plans under which most union members are covered. Assets of the union's 170 jointly trusteed defined benefit plans total more than $50 billion.
Said Charles Rader, director of the office of benefits in the IBT research office in Washington: "The policy of the union is that employer contributions should go into defined benefit plans. By offering a 401(k) program like this, we are offering our members the best of both worlds."
Mr. Rader said Teamsters' officials aren't worried that the defined contribution plan will supplant the defined benefit ones. "We won't agree to terminations of DB plans, and it takes two to make an agreement in negotiations. Now, the 401(k) plan, as a supplemental savings plan, can also be brought to the bargaining table as an additional benefit for Teamsters members that will cost almost nothing to the employer."
State Street will provide daily valued record keeping, automated voice-response systems with paperless transaction and loan processing capabilities, plan enrollment, meetings and communications and investment education.
State Street Global Advisors was selected primarily because it is one of the few service providers with much experience in multiple employer 401(k) plans, Mr. Rader said.
State Street's experience
State Street Global has set up a somewhat similar, but smaller, national defined contribution program for the American Bar Association, Chicago.
State Street also administers and manages a 457 plan for public agencies for the California Public Employees' Retirement System, Sacramento, and a 403(b) plan for California school districts through the California State Teachers' Retirement System, Sacramento.
Eventually, IBT officials hope total cost per participant will be lower than 100 basis points.
Employer involvement is designed to be no more than a payroll feed to direct participant tax-deferred contributions.
Fiduciary responsibility resides with trustees, of which half will be union representatives and half, employer representatives.
Employer matches are allowed, but union officials don't expect many.
Big employers targeted first
The IBT's Mr. Rader said the union first will target employers with many Teamsters members, then move down to smaller employers.
The first company to add the new 401(k) plan - car hauler Ryder Automotive Operations - did so to fulfill the terms of a national contract with the IBT.
Ryder and other employers in the National Automobile Transporters Labor Division are obliged to offer 401(k) plans to Teamsters under the terms of an October 1995 contract.
"Going with the Teamsters 401(k) plan seemed an inexpensive way for Ryder to provide this benefit," said Ron Borges, Ryder's vice president of labor relations. Mr. Borges is also the employer co-chair of the board of trustees of the Teamsters-National 401(k) plan.
"We're expecting overwhelming acceptance of the plan by our workforce," Mr. Borges said.
In some cases, the union may bargain on the national level with certain employer groups to add the 401(k) plan, as it did with the car hauler employers. In others, local union officials will use the 401(k) plan as a bargaining chip.
Employers also will have some flexibility in plan implementation - whether loans will be offered, whether after-tax employee contributions will be permitted or employer contributions available.
"The union did something smart when it left it up to union locals to negotiate on defined benefit plan terms," said Segal's Mr. Singer. "But for the defined contribution plan, it was really smart to go national to gain economies of scale that allow the service purchaser to negotiate from a position of strength on plan features, expenses and flexibility," Mr. Singer added.
Union endorsement unusual
The endorsement of a 401(k) plan by such a huge union, with 1.4 million members nationwide, is particularly unusual because most unions are only just beginning to look at ways to improve existing annuity defined contribution plans, rather than introducing new defined contribution plans, said Marco Consulting's Mr. Tarbox.
"Among my other Taft-Hartley clients, there is definitely interest right now in exploring new investment paths, whether it is a move to replicate more of a defined benefit style portfolio construction by trustees or by offering participants investment direction among more choices," Mr. Tarbox said.
"But I do think that the 401(k) approach in a Taft-Hartley environment like the Teamsters' is particularly useful as a supplemental savings plan," Mr. Tarbox added.
"It's not a good stand-alone substitute for a defined benefit plan, but it is an easy way to enable employees to save more for retirement at virtually no cost to the employer," he said.
Just one other union, the United Mine Workers of America, Washington, offers a 401(k) plan on a national scale for companies employing union members covered by national or individually negotiated contracts.
The UMW plan's structure - a multiemployer 401(k) plan - is the same as the Teamsters, except employers pay administrative costs.