Pension contributions

Hunter1 · July 2003

Making contributions to a union pension system: If you have only a part of your employees in a union and ALL employees including these, are covered by your existing pension plan, if you (employer) make contributions to the union pension fund, what problems do you run into? Is this contribution taxable income to the employee? (FICA, also?) Can you have problems with discrimination testing? Can the employer be responsible for underfunding amounts in the future? Any other problems I should be aware of? We haven't agreed to it at this point, but the union is pushing hard in negotiations.

Margaret Morford · July 2003

I can't answer any of your questions except to say that every labor attorney I ever worked with said no matter how hard the union pushes, do not join any of the union programs. If there are problems with the plan, the employer always gets blamed even when they have no control over it.

No matter how hard the union pushed (and they did because they made lots of money off these plans), we just said no. Usually our labor attorney would pull the highest level union guy aside privately and tell him that we will never agree to this. This kept the union from continually coming back to it because they didn't want to have a public loss in front of the negotiating committee.

Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]

Scott Ruth · July 2003

I agree with Margaret's response. However, in the event it comes to pass, there are issues to be concerned about if you are contributing to two plans for an employee. Most of the time, when a union bargains into a union sponsored plan, they will freeze the benefits under the employer sponsored plan at the same time. This prevents duplication of benefits and is easier to administer. I recommend talking with the actuaries for your plan about the testing and coordination implications of this. The freeze needs to be done by amendment as soon as possible after an agreement is reached (prospectively only) and a special notice must sent to affected employees.

Also, it may be worth considering spinning off the union employees into a separate employer sponsored plan -- you often can offer the same benefits as the union sponsored plan at less cost. Your actuaries can give you cost estimates. Of course, you will need to consider the implications if your union employees have better benefits than your nonunion employees.

Hunter1 · July 2003

Thanks for the advice. Our primary plan is a state retirement plan (we're a local unit of government) and one of the rules of the primary plan is that if you elect coverage it has to be for all employees, so we couldn't take this group out of the primary plan (5 other unions to contend with plus a group of 85 non-represented employees). I'm taking Margaret's advice and that of a business rep who once told me at the bargaining table: "Sometimes you just have to say 'No'."

Pension contributions

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