mandatory contributions for some employees

[Guest ecleverdon]

I'm looking at a plan that covers bargaining unit and non-BU employees. The plan provides a general benefit of 1.5% x years of service x final average salary for all employees, but BU employees make mandatory contributions and get a 2% multiplier and an early retirement benefit. The plan was amended a few years back to provide that BU members who move into a non-BU position retain their eligibility for the better benefits, but they must continue to make the mandatory contributions. Thus, with respect to non-BU participants in the plan, some, but not all, individuals must make mandatory contributions (and receive the better benefits). This is not a voluntary arrangement -- all former BU employees must make the contributions, and the other non-BU employees may not contribute to receive better benefits. None of the employees are highly compensated.

Does anyone know of any reason this arrangement is not permissible? In particular, whether the employer can require contributions from a subset of employees.

Thanks!

[JAY21]

Since discrimination testing only applies between Highly Compensated Employees (HCEs) vs. Non-Highly Compensated Employees, and you don't have any HCEs, I can't see any reason why this would cause a problem under pension laws. I don't know if there are any outside DOL issue the "always" non-BU could claim if they're unhappy with the arrangement, but people can always complain about anything. Presumably there wouldn't be disparate impact on people who could claim discrimination based on religions, race, sex, etc... I wouldn't think there would be a problem even from the DOL standpoint.

[AndyH]

I don't see how it can be required if the transferees are no longer subject to the CBA. Or are they? That is one question.

If non-CBA-covered transferees choose to no longer contribute I doubt the employer can fire them (geez, talk about at-will employment). Just stop their pension accrual. Right? I don't see why a plan couldn't do that if there are no HCEs.

What a nightmare administratively and PR-wise, though.

[david rigby]

This situation begs for separate plans.

[Guest ecleverdon]

I don't see how it can be required if the transferees are no longer subject to the CBA. Or are they? That is one question.

If non-CBA-covered transferees choose to no longer contribute I doubt the employer can fire them (geez, talk about at-will employment). Just stop their pension accrual. Right? I don't see why a plan couldn't do that if there are no HCEs.

What a nightmare administratively and PR-wise, though.

A nightmare indeed. The problem is that, regardless of the CBA, there are now plan provisions that provide the benefits and require the contributions.

The fun part is that, for whatever reason, the employer never withheld the employee contributions and would like to find that it really was never obligated to make the contributions in the first place.

[masteff]

The fun part is that, for whatever reason, the employer never withheld the employee contributions and would like to find that it really was never obligated to make the contributions in the first place.

Now we're talking about having to do a correction, aren't we? If the employer was making the contributions for the employees, then you have income to the employees that was never included on their W-2. If the employer didn't make the contribs, then you have them material violation of the plan terms.

I'd also add that even if they aren't in the union group anymore, if the CBA addresses this, then you might still have a take away and might still have to negotiate it. Keep in mind the right to make the contributions was acquired by being under the CBA.

[AndyH]

Why would there be an issue with employee taxes? Mandatory contributions are not pre-tax except within a governmental or quasi governmental plan. I wish they were.

[masteff]

Why would there be an issue with employee taxes? Mandatory contributions are not pre-tax except within a governmental or quasi governmental plan. I wish they were.

I'm happy to be shown otherwise as I'm not a payroll specialist, but my thinking is: I pay you a salary of $500 and should have deducted $10 for the pension. Instead, I give you the full $500 and put $10 into the pension plan. You now have $510. The $10 is unreported income.

[Guest ecleverdon]

Oh lord, I didn't think of that aspect of it. Thanks for the tip!