Understanding Union 401k and Qualified Plan Exclusions

Union 401k plans are a type of qualified plan that offers tax benefits to employees and employers.

These plans are designed for union members and can be more complex than traditional 401k plans.

A key feature of union 401k plans is that they often exclude certain employees, such as part-time workers or those who have not completed a probationary period.

This exclusion can be a benefit to employers, as it allows them to offer a more limited plan to certain employees.

Expand your knowledge: Union Planters

Enroll in the Union 401(k) plan starting November 18th. You can attend one of the open enrollment sessions in person or virtually.

Open enrollment sessions will be held on Friday, November 18, December 2, and December 9 in Gertrude Lane Auditorium. There will be 2 sessions each day.

Staff will be able to accommodate Spanish speaking and Chinese speaking members in all sessions. Members who live and work in upstate New York, central Long Island, and New Jersey, can request a Zoom link to join virtually.

You'll need to provide your beneficiary information to enroll in the 401(k) plan. This includes the names, addresses, Social Security numbers, and dates of birth of your beneficiaries.

You can contact the Benefit Funds' Retirement Services Department at (212) 586-6400, extension 4330 with any questions before the meetings.

On a similar theme: Can One Business Have 2 Solo 401k

Union members are often envied for their traditional pension plans, but the reality is that multiemployer pensions are struggling due to decreased contributions and a funding shortfall of $58 billion as of June 30, 2024.

For union members, 401(k) plans are a vital retirement savings vehicle, but they put the contribution onus on workers, who may opt out of saving.

The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act passed in late 2022 aims to increase participation in 401(k) plans, but its features may cause an administrative burden for multiemployer plans.

Automatic plan enrollment for new hires and automatic contribution increases for existing employees are features that make sense for corporate plans, but they may not be suitable for multiemployer plans.

As of June 30, 2024, 73 multiemployer plans were relying on infusions from the government’s Special Financial Assistance program due to their funding struggles.

Intriguing read: 401k Audit Due Date

Secure 2.0, a new law, allows penalty-free withdrawals from 401(k) plans for emergency expenses, such as funeral expenses.

This provision applies to withdrawals up to $22,000 in a calendar year, but only if the withdrawal is for a qualified emergency expense.

For example, if you need to cover funeral expenses for a family member, you can withdraw up to $22,000 penalty-free under Secure 2.0.

A unique perspective: Secure 2.0 401k

SECURE 2.0's mechanisms to encourage saving are unnecessary for multiemployer 401(k) plans because the collective bargaining process already provides for immediate entry, immediate vesting, and DC plan contributions.

Trade union members often work for many companies a year, making it difficult to track 401(k) contribution increases across employers.

One multiemployer plan might have thousands of members and interact with hundreds of employers and payroll providers, creating a "spiderweb" of complexity.

This complexity will likely lead to errors and IRS corrections, which will deter union leaders from launching new 401(k) plans.

Existing plans will face increased administration, auditing, and recordkeeping costs, ultimately hurting vendors of these services as unions spend more on expenses and less on benefits.

Take a look at this: What Will Happen to 401k for a Non Resident

In the context of qualified plans, union employees are excluded from certain provisions. Union employees are statutorily excludable employees under IRC Sec. 410(b)(3) and are not included in long-term, part-time provisions.

If a plan is deemed top-heavy, minimum contributions do not apply to union employees. Union and nonunion employees are disaggregated for coverage and nondiscrimination testing rules, meaning they are tested separately.

A unique perspective: Why Is My 401k Not Growing

Union and nonunion employees must be mandatorily disaggregated for ADP and ACP testing if the plan allows both groups to participate. This ensures that each group is evaluated separately.

If a plan does not provide safe harbor contributions to all eligible employees, it will be subject to ADP and potentially ACP testing. For example, if only nonunion employees receive safe harbor contributions, the plan will be subject to testing.

Union employees can be excluded from the top-paid group HCE determination if at least 90 percent of total employees are in a union and the plan does not cover union employees.

Take a look at this: 401k Info for Will

Union members can contribute to a 401(k) plan, but the rules and options vary depending on the union and employer.

Some unions, like the Teamsters, offer a 401(k) plan that matches contributions made by union members.

Employers, such as the International Brotherhood of Teamsters, may also offer a 401(k) plan that matches contributions made by employees.

Discover more: Do Startups Offer 401k

If your employer decides to go union, it can be a significant change for employees.

In some cases, the union may take over management of the company's 401k plan, which can affect how employees contribute to and manage their retirement savings.

The specifics of how this would work depend on the terms of the union contract and the company's policies.

Employees should review their 401k plan documents and consult with their HR representative or a financial advisor to understand the potential impact on their retirement savings.

Consider reading: 401k S and P Index Only Startegy

The UNITE HERE Local 26 401(k) Plan is a pre-tax investment option for many Local 26 members, managed by Principal Financial Group.

Full and part-time members from participating employers are eligible to join the plan. You'll be auto-enrolled at a 3% contribution rate 30 days after your date of hire if you're a new hire or have been rehired.

Contribution rates can be between 1% and 80% of your pre-tax earnings, up to an annual limit set by the IRS each year. You can elect to increase, decrease, or stop contributions by calling Principal Financial Group at 800.547.7754.

On a similar theme: Is 401k Pre Taxed

Your 401(k) statements are mailed to you quarterly, but you can also access your statements or account information online by going to www.principal.com. If you haven't received a statement by mail, contact the Trust Office to ensure they have your up-to-date address information at 617.451.0318.

You won't receive an employer match if you joined the 401(k) plan after May 2009. New 401(k) participants will not receive an employer match.

On a similar theme: T Rowe 401k Plan

Milliman, a firm with deep expertise in advising multiemployer retirement plans, has been vocal about the problems with SECURE 2.0.

Erickson and his colleagues immediately recognized the issues with SECURE 2.0 thanks to their extensive knowledge gained from advising multiemployer retirement plans since 1947, the same year the firm was founded.

The problems with SECURE 2.0 are so significant that labor unions are hoping for a clear exemption from the automatic enrollment and escalation provisions.

HealthWORKS Coalition, an organization that educates elected officials about Taft-Hartley benefit plans, has helped to draft a bill to address these oversights.

You might enjoy: Secure Act 401k Withdrawal

A bill is unlikely to pass in the current Congressional session, so Erickson is hoping for regulatory guidance and relief from the IRS.

Jeffery Owen with the Plumbers and Pipefitters notes that politicians often don't understand how multiemployer plans work, which can lead to legislation that doesn't consider the needs of these plans.

It's a constant vigil for those watching out for multiemployer retirement plans, as Terry Nelson, a retiree and former leader of the International Union of Painters and Allied Trades, so aptly puts it.

A fresh viewpoint: T Rowe 401k Loan