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Union Plan


Kevin C
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We met with a prospect yesterday that wants an interesting plan design I haven't seen before. I've been going in circles with the definition of "collectively bargained employee" while trying to decide if their idea works. It's a new company.  Currently, all employees, including the owners, are union employees and are participating in the union plan based on their service with the employer. For a variety of reasons, none of them will leave the union. They want to adopt an additional plan that will cover some, but not all of the union employees. It will also cover non-union employees when they eventually hire some.  One goal of the plan is to entice those they use as supervisors to work for them exclusively.  The other union workers are provided by the union for each job and it may not be the same workers for the next job. The by-the-job workers are the ones they want to exclude.  My initial reaction was that this design shouldn't work, but now it looks like it probably does.

I see two different scenarios, depending on how you interpret the definition of "collectively bargained employee" in 1.410(b)-6(d)(2).  

Scenario 1:  The new plan covering some of the union employees doesn't affect the determination of status as "collectively bargained employee".  In addition to any possible benefits from the new plan, they are still included in a unit of employees covered by a CBA that includes retirement benefits.  Under 1.410(b)-2(b)(7), a plan that benefits solely collectively bargained employees is deemed to satisfy 410(b).  The 401(a)(4) exception under 1.401(a)(4)-1(c)(5) would not apply because this plan would not be a collectively bargained plan, since it would not be maintained pursuant to a CBA. Their idea looks like it works.

 

Scenario 2:  The new plan covering some of the union employees does affect the determination of status as "collectively bargained employees".  Those excluded from the new plan would receive all of their retirement benefits under a CBA and would appear to still be considered collectively bargained employees.  For those included in the new plan, I think you could read the definition in a way that they would not be collectively bargained employees with respect to the new plan since their benefits under the new plan are not covered by a CBA.  Under 1.410(b)-6(d)(1), collectively bargained employees are excludable with respect to a plan that benefits solely noncollectively bargained employees.  They are not wanting to exclude any noncollectively bargained employees, so they should be able to pass 410(b). Their idea looks like it works.    

 

Does anyone see anything I'm missing?  Any opinions about which scenario applies?  It would affect how the plan document is set up.

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I am still trying to wrap my mind around the idea that the owners are members of the union.  The strong implication is that this would be a single employer plan, not a part of a multi-employer plan.  So who tries to hold the line on cost when there are negotiations?

Always check with your actuary first!

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Just remember the union exclusion rule does NOT say you can exclude a union member but you can exclude a union member if their benefits have been subject to good faith bargaining.  People tend to short hand the rule by saying you can exclude union employee.  And 99.99% of the time that works as the union will have done the good faith bargaining. 

However, has there been good faith bargaining regarding those ad hoc employees not being covered?  I am not saying there is an issue as much as I am asking if this is an issue that needs to be looked into? 

 

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Yes, this is would be a single employer plan.  The negotiations between the employer and union would not include this plan.  The owners  and supervisors have been in this union for 20+ years and want to remain in the union because of the union benefits and because of jobsite rules. 

Per the EOB, under the Labor-Management Relations Act of 1947, retirement benefits are a mandatory subject that must be considered in the collective bargaining process.  All of the union employees are currently participating in the union plan and that will continue.  The union plan is one of the reasons that no one will be leaving the union.  

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If you can negotiate it with the union, I don't see a problem.  If you intend to adopt the plan outside the collective bargaining process, big problem: hie thee to a labor attorney forthwith. I have no problem with owners being part of the bargaining unit.  Usually, though, their compensation is, in part, subject to the union rules and, in part, not subject.  We frequently run into these situations where the owners want a qualified plan with respect to the non-union compensation and, most of the time, their labor lawyer agrees that it can be done.  But nobody argues with them being valid union members and the benefits/costs that go along.

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1 hour ago, Kevin C said:

Yes, this is would be a single employer plan.  The negotiations between the employer and union would not include this plan.  The owners  and supervisors have been in this union for 20+ years and want to remain in the union because of the union benefits and because of jobsite rules. 

Per the EOB, under the Labor-Management Relations Act of 1947, retirement benefits are a mandatory subject that must be considered in the collective bargaining process.  All of the union employees are currently participating in the union plan and that will continue.  The union plan is one of the reasons that no one will be leaving the union.  

How are we reconciling these 2 underlined statements?  You say the negotiations would not include this Plan, but what happens when one day you get a signed CBA in the mail & all of a sudden they DID negotiate on this Plan?  That's just 1 of many issues I see happening with this Plan in the first few years.  They are already covered under a union Plan as well, so how much value can another Plan provide?

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10 minutes ago, TPAJake said:

How are we reconciling these 2 underlined statements?  You say the negotiations would not include this Plan, but what happens when one day you get a signed CBA in the mail & all of a sudden they DID negotiate on this Plan?  That's just 1 of many issues I see happening with this Plan in the first few years.  They are already covered under a union Plan as well, so how much value can another Plan provide?

According to earlier posts, this would be a single employer collectively bargained plan.  The union bargaining process for such plans involve the employer representative (that is, the representative for THIS company, presumably one or more of the owners) sitting down and negotiating with the union representative(s) for this specific local.  No outside parties, no area-wide Taft-Hartley bargaining committees making decision binding on individual employers, and no way that a CBA just shows up signed.  It would have to be signed by these owners (as employer representatives) and union representatives.  This employer would necessarily be the plan sponsor, with the plan satisfying the terms of the CBA negotiated between the plan sponsor and the union.

Always check with your actuary first!

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It seems odd that giving union employees more benefits than the CBA calls for would create labor law issues, but then pension law doesn't always make sense, either.  I contacted them and recommended they consult with a labor attorney.

 

 

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I don't think that would be considered union-busting in this context.  Offering employees more to not unionize is union-busting, but here they are already covered by the CBA.

Who said anything about providing benefits that are larger than those called for under the CBA?  I thought I saw something above saying that the union members would continue to get what they have been getting but non-union members (when there are such employees) would be given less.

 

Always check with your actuary first!

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13 hours ago, Kevin C said:

 I think you could read the definition in a way that they would not be collectively bargained employees with respect to the new plan since their benefits under the new plan are not covered by a CBA.

I think that would be pushing it.  I see what you're saying, but the idea of double dipping on the same dollar of compensation would seem to undermine that.  If you earn $10K and your CBA calls for $500 in retirement benefits while the employer turns around and gives an additional $500 in benefits; this would equate to a 10% benefit (of which 5% was due under the CBA). 

Now, the plan becomes Top Heavy (and CBA employees are excluded).  You have created an anomaly because the same $10K in compensation is both union and nonunion. How would this compensation be tested under ADP (or ACP) given the mandatory disaggregation rules?  Wouldn't you have $10K of union compensation included in the test?  I throw these out there as examples of why this approach would be like splitting hairs.  I believe that as of any date, your benefits are either subject to good faith bargaining or they're not. 

Just a few thoughts.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Looks like some clarification is in order.  Union members in the proposed plan would receive the benefits in the union plan PLUS contributions in the new plan.  Union members not in the proposed plan would receive the benefits in the union plan.  Future non-union employees will be office staff, accounting, etc., not anyone who works on the job site. The supervisors currently work for them and also work union jobs for other companies, depending on the job. The goal is to get them to only work on union jobs with their company. The owners were clear that neither they, nor any of their union employees will leave the union. Besides the benefits, they are construction workers who only work on union jobsites that do not allow any work to be done by non-union labor.   A non-union supervisor would not be able to work the way they need their supervisors to work.

 

ETA, I agree that they would either be collectively bargained or non-collectively bargained under the regs.  But, I can't find anything dealing with how to classify them if they were to receive some retirement benefits under a CBA and other retirement benefits outside a CBA.  I agree that under one scenario, the same compensation would be collectively bargained under one plan and not under the other. I'm just not sure that's any more of a strange result than the other scenario having a plan that is not maintained under a CBA get a free pass on 410(b) for the portion of the plan covering union employees. If labor law prevents this, that would explain the lack of guidance.  It will be interesting to see what their labor attorney says.  The owner also said he would contact the union.

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Please be sure to let us know, because if he says anything other than the new plan's benefits hafe to be provided through the colective bargaining process then you need to find a new lawyer!

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So many things wrong here.

1) The owners are NOT "union employees" because their employment is NOT subject to the terms of a collective bargaining agreement.  They might be paying dues, but they are not union members as we talk about them for retirement plan purposes.  For example, the union does not determine their wages or hours.  Therefore, if THEY are covered under a plan you set up, you have to look at all the coverage and discrimination rules.

2) You cannot set up a plan for the "true" union employees because their employment IS subject to a CBA and the employer (your so called "union employee" owners) MUST negotiate all benefits with the union. The union might want more take home pay instead of an additional retirement plan.  The employer does not have the unilateral right to change benefits, even for the better.  It must be negotiated with the union.

The combination of those two issues should be enough for you to understand why you can't do this at all.  You are not covering SOLELY collectively bargained employees because the owners are NOT that. And, you are prohibited from unilaterally setting up a retirement plan for even ONE collectively bargained employee without bargaining with the union about it.

So, any questions?

Larry

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 0:08 PM, ESOP Guy said:

Just remember the union exclusion rule does NOT say you can exclude a union member but you can exclude a union member if their benefits have been subject to good faith bargaining.  People tend to short hand the rule by saying you can exclude union employee.  And 99.99% of the time that works as the union will have done the good faith bargaining. 

However, has there been good faith bargaining regarding those ad hoc employees not being covered?  I am not saying there is an issue as much as I am asking if this is an issue that needs to be looked into? 

 

It's a BIG issue.  See my longer response.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 0:37 PM, Kevin C said:

Yes, this is would be a single employer plan.  The negotiations between the employer and union would not include this plan.  The owners  and supervisors have been in this union for 20+ years and want to remain in the union because of the union benefits and because of jobsite rules. 

Per the EOB, under the Labor-Management Relations Act of 1947, retirement benefits are a mandatory subject that must be considered in the collective bargaining process.  All of the union employees are currently participating in the union plan and that will continue.  The union plan is one of the reasons that no one will be leaving the union.  

See my longer response, but right here you say that retirement benefits are a mandatory subject that must be considered in the CB process.  What part of that leads you to believe you can set up a plan for the union employees WITHOUT collective bargaining about it?  You can't.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 0:49 PM, hr for me said:

I am not understanding how owners/supervisors could possibly be part of the bargaining unit? That goes against everything I have read/studied on union/bargaining unit membership.

I'd run far away from this one...

They can be card carrying members of the union; that doesn't make their employment subject to the terms of the CBA (it doesn't).  See my longer response.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 2:13 PM, Mike Preston said:

If you can negotiate it with the union, I don't see a problem.  If you intend to adopt the plan outside the collective bargaining process, big problem: hie thee to a labor attorney forthwith. I have no problem with owners being part of the bargaining unit.  Usually, though, their compensation is, in part, subject to the union rules and, in part, not subject.  We frequently run into these situations where the owners want a qualified plan with respect to the non-union compensation and, most of the time, their labor lawyer agrees that it can be done.  But nobody argues with them being valid union members and the benefits/costs that go along.

MIke, we mostly agree, except....

They are not covered by the CBA as owners; therefore, they do not get the free pass as 
"union employees".  Usually, there is NO "union compensation" because they don't have to pay themselves according to the union rules. But they might, in order to get certain benefits under the union contract if they are allowed to be members of the union even though they are not covered by the CBA.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 2:31 PM, ESOP Guy said:

I am with TPAJake on this one.  The union bargained for the benefits provided with the union plan but there was no bargaining with regards to the plan being set up.  I would get a lawyer to opine if that is a problem. 

Trust me; BIG PROBLEM!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 3:41 PM, Kevin C said:

It seems odd that giving union employees more benefits than the CBA calls for would create labor law issues, but then pension law doesn't always make sense, either.  I contacted them and recommended they consult with a labor attorney.

 

 

It's not pension law that is the problem (once you understand that they are not "union" employees under ERISA), but labor law that is your concern.  Unilateral action on ANY BENEFITS by the employer is prohibited if the employees are represented by a UNION.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 7/26/2017 at 4:30 PM, My 2 cents said:

I don't think that would be considered union-busting in this context.  Offering employees more to not unionize is union-busting, but here they are already covered by the CBA.

Who said anything about providing benefits that are larger than those called for under the CBA?  I thought I saw something above saying that the union members would continue to get what they have been getting but non-union members (when there are such employees) would be given less.

 

The original statement contemplated providing ADDITIONAL benefits to some union employees beyond what the CBA calls for. That is "unfair labor practice" and is prohibited.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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