Ever since the 1930s, this nation's overall concept of retirement security has resembled a three-legged stool: Social Security, pensions and private savings. Employers and employees, though, are no longer content with this time-honored tradition, especially since one of those legs, Social Security, looks like it might just break apart and fall off all on its own.
There are problems with the other legs, too. On the pension front, employers, often competing in a global marketplace, are reluctant to commit to fixed benefits that could obligate them at times of economic slowdowns. Also, the potential for withdrawal liability, coupled with disincentive of government regulation, leads management away from defined benefit plans in favor of defined contribution plans.
Younger employees, forced to view themselves as contingency workers, are not satisfied with defined benefit plans based primarily on years of service. Also, they tend not to save at the bank. It's little wonder that the nation's savings rate is among the lowest in the world and far behind that of Japan and Germany.
The leadership of Operating Engineers Local 4, with the active assistance of management, is attempting to build on the strengths of both defined benefit and defined contribution plans in offering a "hybrid plan" that props an additional leg under the traditional three-legged stool. The plan gives our members an increased role in their own retirement decisions, abates some of their concerns over the integrity of the Social Security System and confers certain benefits on our employers.
The task for the union is trying to keep everyone happy. Veteran members of the union, with an eye to retirement, press for pension improvements. The larger, middle-age group is preoccupied with mortgage payments, college tuition and the need for spendable income. The younger members are driven by a desire to put their fate in their own hands.
Local 4, like most unions, fights for a defined benefit component in any retirement package in every negotiation. The predictability of the defined benefit, coupled with Social Security, theoretically allows our members to retire with dignity.
Local 4 has also fought for an annuity plan, wherein members defer wages into long-term savings. Since 1993, when the annuity trustees converted this plan to a "participant-directed" plan under 404(c) of the Employee Retirement Income Security Act, participants have been able to select from six mutual funds and three diversified "life stage" or asset allocation funds, all run by a third-party provider.
But to add a component to attract still more investors -- the fourth leg to our conceptual retirement stool -- the local has successfully bargained for an annuity and savings 401(k) plan into which members can elect to defer more of their pre-tax earnings.
Members struggling to raise kids or meet mortgage payments can take a pass on this option. Younger members with the ability to defer more of their wages to meet long-term saving objectives can now stop insisting that more money go into the annuity plan, to the detriment of the defined benefit plan.
The plan has first-dollar vesting and members can opt in or out and change their asset allocation mix on a quarterly basis. Administrative costs are kept to an absolute minimum by making participants' investment selections in this plan a mirror image of their selections in their self-directed annuity portfolio.
The joint trustees of the pension and annuity funds have elected to maintain a solid foundation of defined benefits. They have built on that firm foundation a plan of defined contributions by which workers can add a measure of direction to their own investments and exercise greater control over their own retirement destinies.
