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When Michael Young realized his 401(k)
plan was a turkey, he gobbled. Loudly. He rallied fellow union members at the soap
factory where he works, and together they convinced management to offer them a better
401(k).
Young is among a growing number of union
members who see 401(k) plans as a mainstay of retirement, not simply an adjunct to a
traditional pension plan.
Last November, 30-year-old union worker Michael Young told
401Kafı.com what a turkey his 401(k) plan was, offering a low contribution limit and only
one investment choice. But, unlike many nonunion workers' plans, his plan was negotiated
as part of his union contract. And, he wanted it changed.
Why was Young making such a fuss when he also had a pension
plan? "It's not the greatest. ... I'll probably be able to buy a loaf of bread a week
when I retire with the (pension) plan," he said.
Young's experience shows that while many union leaders
regard traditional pension programs as a necessary retirement benefit, rank-and-file union
members are increasingly clamoring for 401(k) plans. Indeed, some unions are running their
own 401(k) plans for their members' benefit. That all goes to show that 401(k) plans are
an increasingly important benefits bargaining issue.
Let's take a look at unions' historical views toward 401(k)
plans and two examples of how unions today are dealing with them in their contract
negotiations.
Defined-benefit Preference
Pension benefits have been one of the leading issues over
which unions have drawn the proverbial line in the sand with management. The major
retirement benefit unions favor is the employer-funded, defined-benefit pension plan.
Defined-contribution plans, like 401(k)s, have traditionally not been a major issue in
contract negotiations.
According to labor laws, unions and management are required
to negotiate benefits such as 401(k) plans. That's why some companies may offer a pension
plan to union workers while nonunion workers get a 401(k) plan.
Indeed, many unions regard 401(k) plans, at best, as a
supplemental benefit. That's the case with the Newspaper Guild, which represents reporters
and other clerical workers at newspapers, says Marian Needham, director of contract
administration with the Newspaper Guild/CWA.
However, the retirement-benefits climate is changing for
union workers
The percentage of union workers participating in a 401(k)
plan negotiated through a collective bargaining agreement has risen from 7.5 percent in
1996 to 10.6 percent in 1999, according to the Profit Sharing/401(k) Council of America.
Union workers are growing comfortable with 401(k) plans and, at least anecdotally, rank
them equal with pension plans as important retirement benefits.
This shift in taste has at least two causes.
First, more workers, including union workers, are becoming
financially savvy and demanding more control over the growth of their retirement funds.
And unions, while traditionally preferring pension plans, are starting to recognize this.
Two cases in point, the International Brotherhood of Electrical Workers and the Teamsters,
both offer 401(k) plans to their members.
Howard Deiner, a labor attorney at the law firm Feder,
Semo, Clark and Bard in Washington, D.C., notes that unions are in a tough spot. They are
trying to satisfy workers who want more control over their retirement plan while also
trying to look out for workers' best interests by not putting them in a position where
they can hurt their retirement future.
In the spectrum of retirement plans, 401(k) plans are seen
by some unions to be riskier than traditional pension plans.
"To the extent that it's perceived that unions aren't
moving quickly enough toward 401(k) plans, they have the best interests of the membership
as a top priority," Deiner said.
The second cause: Some workers recognize that traditional
defined-benefit programs may not be enough to provide for a comfortable retirement. Part
of this is due to employers' moves to trim or eliminate costly defined-benefit plans.
Pam Dumler, a research assistant with the International
Brotherhood of Boilermakers, sees this shift of attitude among younger members of her
union. Their opinions are based on some harsh realities. Some employers participating in
the Boilermakers' pension plan offer retirement payments of as little as $11 a month
multiplied by the years of service. "That's why I think a lot (of members) want to go
into something different," she said.
Two Turkey Deals?
Let's take a look at two examples of different unions and
their views about 401(k) plans.
When we last visited with Young, his gripes were twofold:
low contribution limits (because of his low rank, he was allowed to only contribute $30 a
week into the plan) and inadequate investment choices (the plan only offered a single
investment; a savings account that historically earned about 3 percent a year), Young
says.
The plan did have a $15-a-week employer match.
As a member of his union's negotiating committee, Young
hoped to make the 401(k) plan a leading issue when a new contract was negotiated. But, he
had to learn what features to ask for.
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"My experience is the
rank-and-file do know what is going on. ... They are very well versed on (benefits)
issues."
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| — Howard Deiner,
labor attorney at the law firm Feder, Semo, Clark and Bard in Washington, D.C. |
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Earlier this year, we also wrote about the negotiations
between Dow Jones & Co. and its leading employee union, the Independent Association of
Publishers Employees (IAPE). As the two groups headed into contract negotiations in 1999,
the company made it clear it didn't plan to continue to make an automatic 15 percent
contribution every year to its profit-sharing plan.
Dow Jones offered to continue the profit-sharing plan with
the contribution dependent upon company financial results or a 401(k) plan with a
money-purchase plan. If the union had chosen the 401(k)/money-purchase plan option, the
company's maximum contribution to workers' retirement would have fallen from 15 percent of
salary to 8 percent.
The IAPE decided that fighting to keep the old
profit-sharing plan was a losing battle. And, going with the new one might not be secure
enough. So, it had to figure out if the hybrid was a good deal.
The Resolution
IAPE took advantage of its own members' talents to analyze
Dow Jones' offer and see if it was competitive. Ellen Schultz, a Wall Street Journal
reporter who covers the retirement-planning industry, wrote a 19-page analysis comparing
the company's offering to the rest of the industry.
Her conclusion: Dow Jones' offer was not
"generous" as the company claimed, but average in comparison to plans at other
publishing companies.
Ultimately, Dow Jones agreed to contribute an amount equal
to 7 percent of each worker's annual salary into a money-purchase plan. Additionally, Dow
Jones agreed to automatically contribute an amount equal to 3 percent of a worker's salary
into the 401(k) plan and offer a 100 percent matching contribution on employee
contributions of up to 2 percent of salary. The new plan took effect January 1, 2000.
"Generally speaking, people are pleased" with the
new plan, said Virgil Hollender, IAPE treasurer. "We're hearing the participation
percentage is pretty high (in the 401[k] plan)."
Young and his fellow negotiators had a different situation.
The company offered a pension plan with two major drawbacks. The first was that the plan
was difficult to understand. Second, it was clear the company was determined to cut
pension plan benefits.
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"We still have a pension plan.
It's not the greatest. I would have been willing to sacrifice that for a better 401(k)
plan."
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| — Michael Young,
union negotiator. |
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So, the union decided to fight where it thought it could
win — with the 401(k) plan.
Young didn't have the benefit of IAPE's reporting and
writing expertise, but that wasn't an obstacle to getting a retirement plan he and his
co-workers could be happy with. He and other members of the union's negotiating committee
fired up their home computers and searched the Internet for ideas. Young also talked to
his father, who knew a bit about 401(k) plans.
"We figured out what we wanted on our own," Young
said.
To show management their disappointment with the 401(k)
plan, union workers photocopied and posted articles about their plan that appeared in The
Boston Globe and on 401Kafı.com.
Indeed, Young found management amenable to bolstering the
401(k) plan. "Our owner used to work on Wall Street, he helped us out," Young
said.
The newly negotiated plan, which took effect on January 1,
2000, permits employees to contribute up to 12 percent of their salary. The company agreed
to match 4 percent of employees' contributions, at 100 percent. It also expanded the
investment choices from one to four.
One particularly significant point the union bargained for
was getting the plan sponsor to agree to make a translator available to explain the plan
to the large number of Portuguese immigrants that work at his factory, Young said.
Education Is Needed
What's clear from these two examples is that education is
key, especially for union workers who typically haven't had as much experience with 401(k)
plans as nonunion workers.
In IAPE's and Young's situations, union members were able
to learn the characteristics of a good 401(k) plan and ask for them.
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| More Info |
| Many unions regard 401(k) plans, at best, as
a supplemental benefit. Yet, the percentage of union workers participating in a 401(k)
plan through a collective bargaining agreement has risen from 7.5 percent in 1996 to 10.6
percent in 1999, according to the Profit Sharing/401(k) Council of America. |
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"We are extremely happy with the 401(k) plan,"
Young said.
What's also clear is that more union workers are familiar
with 401(k) plans and want them as part of their retirement benefits package, whether as a
primary saving tool or as a supplemental tool.
Deiner, the labor attorney, says that in his experience,
unions work hard to educate their members about their benefits. "My experience is the
rank-and-file do know what is going on. ... They are very well versed on the issues,"
he said.
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