401(k) plans for union funds might become commonplace if a model developed by Houston-based Segal Cos. proves successful.
The consulting firm recently helped the Iron Workers of Texas, Austin, start a 401(k) for its 1,100 members employers using an established collectively bargained vacation fund. And Segal officials think the idea could be adopted by other Taft-Hartley plans. Such plans have not been considered likely candidates for 401(k) plans because of cumbersome multiple wage rates and the complexities of the collective bargaining process which create administrative nightmares.
Segal's approach to funding a multiemployer 401(k) is the brainchild of Albert LaCasse, Segal vice president and head of the Houston office. Mr. LaCasse claims the system being used by the Iron Workers "is the only one in captivity," but could be adopted elsewhere at plans with similarly complex funding problems.
How it works
The Iron Workers of Texas resembles many other Taft-Hartley plans in that it has a traditional defined benefit annuity plan, a health and welfare fund, and a self-directed, profit-sharing fund into which employers deposit a negotiated amount. But the Iron Workers also have a vacation fund that already is negotiated and contributions are the same for every member. The plan accepts negotiated contributions of $1 per hour per participant and is distributed to the workers at the end of the year.
To set up the 401(k) plan, Mr. LaCasse first had the existing vacation fund requalified to accept pretax dollars. Now, at the end of the year instead of being offered only the opportunity to accept a payout, members may defer all or a portion of the distribution into a 401(k) account.
The members may elect to defer amounts into the self-directed plan in $100 increments or accept the distribution.
Mr. LaCasse, who has been credited with helping to develop Taft-Hartley 401(k) plans, said "Now, instead of getting an end of the year check (from the vacation fund) they get a form . . . on which they can elect to deposit the amount as an elective contribution into a 401(k) plan."
Participants may make their annual election in December every year. The program has been in existence for only one year and about 400 of the 1,100 members have made contributions into the 401(k) plan from the vacation fund, according to Marvin Ragsdale, trustee. He said as the education program carries word of the program throughout the employee base participation is expected to increase.
He said the plan uses the same multiple investment options as the 2-year-old profit sharing plan, including three lifecycle funds from Oppenheimer and multiple unbundled mutual fund options.
Establishing a 401(k) plan for a Taft-Hartley plan "is a little more complicated than in a corporation," said Mr. LaCasse. "The stumbling block is the collective bargaining process.
"In a collective bargaining environment, you may have 100 contractors making contributions and sometime some of them are reluctant to put it in a collectively bargained agreement because some of the smaller companies may have a problem," he said. "I had a situation where the union wanted a 401(k) . . . and contractors were correctly concerned about paying in and creating a hardship on smaller firms.
"We wanted to give participants as much choice as possible. This is a less complicated way of funding a (Taft-Hartley) 401(k)."