Securing 401(k) plans for unions

SECURE 2.0's unintended penalty for blue-collar workers

Ironically, 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. In addition, the 401(k) feature allows for additional deferrals for participants who can afford to save more. But now, adhering to the law's new requirements will be almost impossible, especially within the construction trades.

Consider a typical corporate employee, who works for one company, with one payroll provider. This makes it simple to track 401(k) contributions and to comply with SECURE 2.0.

In contrast, trade union members may work for many companies every year—hence the name "multiemployer plan"—as new assignments take them from job site to job site. Because each of these hiring companies has its own HR vendors, and because these vendors have no way of interacting with each other, it will be a struggle to tally an individual's 401(k) contribution increases across employers. One multiemployer plan might have thousands of members and interact with hundreds of employers and payroll providers.

"That's a spiderweb you can't track," says Erickson. "It creates an environment where you're going to immediately be out of compliance."

Errors, and IRS corrections, will be likely, and these headaches are expected to deter union leaders from launching new 401(k) plans. For existing plans, administration, auditing, and recordkeeping costs will rise, ultimately hurting vendors of these services as unions spend more on expenses and less on benefits.

All told, SECURE 2.0's goal of encouraging retirement saving is likely to backfire for unions.

Spotting the problem, leading efforts to find a solution

Milliman has been advising multiemployer retirement plans since the Taft-Hartley Act passed in 1947, the same year the firm was founded. Thanks to this deep expertise, Erickson and his colleagues immediately recognized the problems with SECURE 2.0 and have vocalized their concerns across the country, educating groups including the National Coordinating Committee for Multiemployer Plans, a Beltway advocacy firm, and the International Foundation of Employee Benefit Plans, an industry membership organization of which Milliman is a founding member.

For eight years, Erickson also has served as subject-matter expert to HealthWORKS Coalition, which educates elected officials about Taft-Hartley benefit plans. Through the group, he collaborates with Terry Nelson, a retiree and former leader of the International Union of Painters and Allied Trades and current Chairman of the Board of Union Bank and Trust. The two recently addressed members of the U.S. Treasury and Labor Departments about SECURE 2.0's shortcomings.

"I don't think lawmakers want to undermine working-class folks," Nelson says. "But I've talked to several members of Congress that are supportive of labor yet voted for SECURE because they didn't understand what was in it."

Jeffery Owen with the Plumbers and Pipefitters concurs. "I've found in general, over the last decade, fewer and fewer politicians understand how multiemployer plans work," he says. "When they put legislation together, they don't take us into consideration."

To resolve SECURE 2.0's oversights, labor unions are hoping for a clear exemption from the automatic enrollment and escalation provisions. HealthWORKS has helped to draft a bill, but the current Congressional session means any progress is unlikely for at least a year.

Until legislation passes, Erickson is hoping for regulatory guidance and relief from the IRS. In the meantime, he will continue guiding clients, educating lawmakers, and keeping an eye out for any more regulations that could affect multiemployer retirement plans.

"It's a constant vigil," says Nelson. "It's very important to unions to know that somebody's watching out for them."

This article was written by Milliman Senior Writer Adin Bookbinder.

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