Saving for your retirement is vital but doing so is not always easy. The establishment of the Employee Retirement Income Security Act of 1974 (ERISA) made the process easier by creating a set of minimum standards qualifying plans must follow. However, your employer typically chooses your retirement plans. Many employers choose a standard pension plan. This is desired because the pension plan benefits are based on how long you are with the company, encouraging you to stay with your employer for the best retirement benefits.
If you work in an industry where staying with the same company is uncommon, or even impossible, you may not have access to a typical retirement plan. In some situations, you have no choice but to change companies as work becomes available. For example, if you are a construction worker, you may need to travel to locations where your services are required on a seasonal basis. In such a situation, a multiemployer pension plan may assist you. Below is information about how a multiemployer pension plan works and how it compares to other types of pension plans.
How a Basic Multiemployer Pension Plan Works
A multiemployer pension plan is a retirement plan offered in a unionized industry. The plan is designed to allow you to work for several employers within your chosen industry while under a single pension plan. Such an option is normally available if you work for the following types of companies or companies with similar structures:
- Construction companies.
- Trucking companies.
- Grocery store chains.
A multiemployer pension plan is established using Collective Bargaining Agreements (CBAs). It is possible for a single CBA or several CBAs to apply to one plan. A CBA is a contract established at the local, state or national level between unions in the same industry. The purpose of such an agreement is to establish a set of guidelines for the single multiemployer pension plan the involved parties intend to offer. Such guidelines may include:
- Contribution rate establishment.
- Defining specific groups of employees to whom the plan is made available.
- Establishment of contribution regulations for the involved employers.
Multiemployer Pension Plan Extras and Adaptations
If you are not a member of the groups of employees outlined in the CBAs governing a multiemployer pension plan, you may still qualify for plan enrollment. To qualify, the plan must allow a participation agreement. A participation agreement is a side agreement allowing you to join the plan. The participation agreement must clearly define your eligibility and the benefits you are entitled to, as well as the contributions required.
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It is also possible for a multiemployer pension plan to have a reciprocity agreement. A reciprocity agreement is a contract between multiple multiemployer pension plans. It allows the establishment of a “home” plan and one or more “away” plans. Under the agreement, you can work for an employer outside your home plan and have pension funds earned transferred to the home plan.
How a Multiemployer Pension Plan Differs from Single Employer Pension Plan
A single employer pension plan is a standard pension plan issued by one employer. It can reward you for many years of service with increased benefits each year. The amount of money you contribute is often up to you. Your employer may match it or deposit a set amount into the plan at established intervals.
A multiemployer pension plan is often similar in its participation requirements and rules regarding accrual and vesting. However, it typically provides a set monthly benefit you can rely on. This benefit is sometimes called a “unit benefit.” It is established using a simple formula of the per-year dollar amount determined by plan administrators multiplied by the number of years you are employed by employers participating in the plan.
How a Multiemployer Pension Plan Differs from a Multiple Employer Pension Plan
A multiemployer pension plan also differs from a multiple employer pension plan. A multiple employer pension plan is offered by unrelated employers under some circumstances. However, employers may only qualify to offer a multiple employer pension plan if they meet certain Internal Revenue Code (IRC) requirements. Those requirements are:
- Not considered related under IRC controlled group code.
- Not defined by IRC as commonly controlled businesses or trades.
- Not affiliated service groups, as defined by IRC.
If you are working for multiple employers in a related business, such as trucking, a multiple employer pension plan is not applicable. However, a multiemployer pension plan is most likely available, as long as your employers are unionized. The plan provides you with the ability to consistently set money aside for your retirement. Using a multiemployer pension plan, you can enjoy the stability typically provided by a single employer pension plan while still adapting to the changing requirements of your chosen career. This flexibility allows you to go where work is available and still collect the pension benefits you need for a comfortable retirement.
Multiemployer Pension Plan Administration and Employer Regulations
The administration of a multiemployer pension plan is typically conducted by a board of trustees. However, plan administration structures can vary slightly. The board of trustees is composed of labor and management members to ensure fair plan management. The labor members are selected by the union. The management trustees are selected by an association consisting of multiple employers participating in the plan or by employers on an individual basis.
Administrative processes controlled by the board of trustees may also vary slightly. Typically, board members are responsible for defining how plan benefits are structured. Any changes to the benefit structure are also made by the trustees. However, before the trustees establish a benefit, all plan members negotiate to determine the desired benefit rate. Collective bargaining is also used by some multiemployer benefit plan members to establish benefit levels. However, this practice is used primarily in unions catering to specific professions. It is most commonly used for mining pension plans and occasionally in the field of trucking.
Collective bargaining is also commonly used to determine the size of employer contributions for any multiemployer pension plan. For example, all parties may reach an agreement requiring an employer to pay a certain number of dollars into your pension plan for each hour you work. Unlike a single employer plan, federal law allows a multiemployer plan to sue for funds, if an employer does not provide the necessary funds according to the set schedule. A standard schedule requires monthly payment by each participating employer to the pension plan. Any delinquent employer sued must pay each of the following fees:
- The initial balance owed.
- Interest on the initial balance owed.
- Liquidated damages.
- Attorney fees.
- Court fees.
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