Masonry Magazine October 1963 Page. 8
An Independent Consulting Firm Discusses
Joint
Labor-Management
Benefit Plans
Part II
The second of two articles by the staff of Hewitt Associates, Libertyville, Illinois. Hewitt Associates is an independent actuarial and consulting firm providing services to pension, welfare, vacation, and other employee benefit plans. Health and welfare plans were discussed in the first article. Pension plans are the subject of this one.
Copyright 1963, Hewitt Associates.
The private retirement benefit system has expanded dramatically in the last two decades. The assets of private industrial plans, it is estimated, are well in excess of $60 billion. Approximately 25 million workers are covered. The construction industry, however, has been somewhat slower than some other industries to establish pension plans. Some of the reasons for this have been:
* Unions in the building trades have been slower to make negotiation demands for pensions than industrial unions.
* Employees often move from one employer to another as work is available; thus there is no permanent employer-employee relationship to act as an inducement for the establishment of a plan by each employer.
* Employers in the construction industry often are too small for the establishment of plans on an individual employer basis to be practical.
* There are unique and difficult problems in establishment and operation of multi-employer plans
Despite these hindrances, pension plans are now being established in many areas in the construction industry. The employer contribution to a plan is based usually on cents-per-hour or a percent of wages. The programs are directed by boards of trustees. These boards have equal representation from labor and management under requirements of Federal labor law. The trustees generally are selected for their integrity and willingness to do a service. Their knowledge of the benefit field is limited, and therefore they look to certain outside sources for help. The purpose of this article is to discuss the sources of help that may be called on in establishing and operating a joint labor-management pension plan.
Attorney
One of the most important sources of help for trustees is their attorney. In some cases there are two attorneys providing services to the program, one who normally advises the employer group and one who advises the union group.
The work of the attorney with regard to a pension program begins at the time the collective bargaining agreement is being finalized. Carefully worded pension provisions may save considerable future difficulty. For example there should be a clear statement that the trustees will be responsible for establishing a plan and selecting the method of financing. This will eliminate the possibility of having to go back to the employer association or union for decisions in areas that probably would not be understood by the groups because of their technical nature.
Before contributions to the program begin the attorney will prepare an agreement and declaration of trust. This document describes the rights and duties of the trustees, who hold legal title to the assets of the fund. Some of the significant elements of this document are:
* Number of trustees and how they are chosen
* Details of the operation of the board of trustees
* Duties and authority of the trustees in such areas as investment of funds, establishment of a plan, and payment of proper expenses of the program
* Protection of the trustees against personal suit except in cases of bad faith
The attorney usually discusses, with the collective bargaining representatives, the alternatives available regarding the provisions of the agreement and declaration of trust. After agreement on the final draft, the parties to the collective bargaining agreement sign the document. The trustees also sign, indicating their acceptance of the duties set forth in the document.
The trust document usually assigns to the trustees the responsibility of establishing specific benefits. In order to receive the favorable tax treatment afforded a "qualified plan," a definite written program setting forth all essential provisions must be in effect. This document, referred to as the "pension plan," is also prepared by the attorney.
A part of the content of the pension plan is subject to decisions made by the trustees with the help of a consultant. These will be discussed in the next section of this article.
The attorney for the fund also is responsible for establishing the qualified status of the plan for tax purposes. Employers receive a tax deduction for contributions to a pension plan if the program meets certain requirements of the Tax Code and regulations. Basically, a deduction can be taken if contributions are made in a tax year of the employer that ends within, or with, a taxable year of the trust for which the trust is exempt from taxation. To be so exempt the trust must, among other requirements, be in existence and valid under state law. The plan also must be evidenced by a definite written document. The plan must be communicated to employees.
Employees do not pay income taxes on employer contributions when made if the plan fulfills the requirements of tax law. Employees are taxed at the time distributions are made.