NEW YORK -- Sheet Metal Workers, Local 28, is changing its $180 million supplemental money purchase plan into a participant-directed defined contribution plan.
On Aug. 1, the Sheet Metal Workers, International Association Local 28 Annuity Plan is scheduled to switch from a fund that had been invested by trustees solely in Treasury bills and certificates of deposit, to one offering 14 investment options, said John McGrath, fund administrator. All of the record keeping and other plan services had formerly been done by the trustees, he added.
The local hired New York Life Benefit Services Inc., New York, to be its bundled service provider. To satisfy members who are comfortable with the current investment strategy, the union has hammered out a plan that will include the existing strategy as an investment option called the core option. This option is the default investment for those members who do not direct their money otherwise, Mr. McGrath said.
The new fund options are the INVESCO Balanced Forward, MainStay Institutional Index Equity fund, American Century Equity Growth fund, Baron Asset fund, Fidelity AdvisorGrowth Opportunities fund, INVESCO Dynamics fund, Janus fund, MainStay Institutional Growth Equity fund, MFS Union Standard Equity fund and Janus Worldwide fund.
The core fund, which invests in Treasury bills and certificates of deposit with durations of no more than two years, will be run by MacKay-Shields Financial, New York, a subsidiary of New York Life Insurance Co.
"Members have been asking for this for a while," Mr. McGrath said. "The T-bills have been earning about 5%. They have watched their spouses who are in a 401(k) at their work talk about 20 to 22% returns and they get antsy about their 5%, especially the younger members."
The members also are part of the international union's defined benefit plan, which totals $3.5 billion in assets.
Soon after he was made the union's business manager more than nine months ago, John Harrington created an 18-member committee to research service providers and plan options. The committee worked with a consulting firm, Reynolds Securities, New York.
Because of the dramatic changes in the plan, participants will not have unlimited ability to invest in the new fund options, he said. In the first year of the remodeled plan, union members will be able to direct only 25% of their money into the new investments, rising to a maximum of 50% of their deferrals after that year, Mr. McGrath said.
He noted that in a few years, the membership will be polled to see if they want to increase the percentage of their assets they can self-direct.
Like the current plan, all 2,400 union members will participate in the new version of the so-called annuity plan with the contribution, which is automatically deducted from their paychecks, determined by union agreement. Under the new union contract, the deferral amount has increased to $5 per hour from $4.85 an hour, Mr. McGrath said.
With members working an average of 3.5 million hours a year, the plan is expected to grow to about $500 million in three years, he added. Each time the members receive a pay increase through union negotiations, they can vote to increase the deferral rate, and for the past several years this rate has increased, Mr. McGrath said.
There is no enrollment waiting period, every member participates in the plan from the first paycheck, said Josh Samilow, director of Taft-Hartley services at New York Life.
Another important issue for the union was education, Mr. McGrath said. New York Life already has done a big blitz mailing with the theme, "You built history, build your future." Each member received literature, a bag of microwave popcorn and a video New York Life produced depicting projects on which union members have worked, including the New York Life building, which was completed in 1928, and the Statute of Liberty facelift. Saturday education sessions are being offered.
In addition, New York Life is providing a number of registered representatives to give members one-on-one retirement planning services at no extra charge, Mr. Samilow said. While many unions added so-called annuity plans in the 1970s, they are mainly plans with mandatory contributions that are conservatively invested by plan trustees, Mr. Samilow explained. Over the past few years, more unions have been opening the plans up to more investment options and allowing their members to choose their investments, he said.
"We're seeing an increased amount of activity," Mr. Samilow said. "While not every union makes the move, everybody is talking about it."