The union advantage for retirement

In the union view, being an electrician is a job for life. We recognize that as a worker gets older, he becomes more vulnerable to the competitive pressures of the marketplace for construction labor. In the union system, our contractors employ workers until they retire instead of disposing of them during middle age. And when retirement age is reached, we need more than just Social Security.

A good wage is important to us, but so is planning for the future. So we quietly save a part of the negotiated package that doesn’t appear on the check and isn’t taxed, invest these savings wisely, and through the magic of compound interest, we likely will be millionaires when we retire. Our employer-paid pensions will allow us to retire with dignity.

Since this is a fringe benefit, it is not taxable when paid, and neither is the interest the money earns year after year. A nonunion worker saving on his own for retirement doesn’t have this tax advantage which very significantly increases the amount accumulated by retirement age. More importantly, it is probably difficult for him to save this amount from wages year after year and not use it for other purposes.

The Local 617 Retirement Plan

Local 617 has bargained for, and with the contractors, has established a defined contribution retirement plan (also known as a money purchase pension plan). The Plan is administered by the Board of Trustees, four from Local 617, and four representing the contractors’ association (the San Mateo Chapter of NECA). The Trustees appoint professional managers to invest the assets of the Plan.

Since this is a defined contribution plan, the participant is not guaranteed a defined benefit at retirement, but instead, the value of the individual’s account is the amount of the contributions made in his name plus its share of the earnings of the Plan. Essentially, the Plan works like a tax-free bank account. Statements are sent annually showing your account’s value, and the actual employer contributions for that period. Withdrawals, however may not be made until retirement except in the case of permanent disability.

Investment choices

There are two funds in which the contributions made on your behalf may be invested. The first is a “Fixed-Income Fund” which is designed to invest in debt instruments including mortgages. The second fund is an “Equity Fund.” It consist primarily of securities listed on the major stock exchanges; however, a portion is invested in real estate.

A form will be mailed to you prior to each fiscal year (June 1 through May 31) on which you may select one of these investment options for the contributions made on your behalf during the upcoming fiscal year. Your account may be allocated for a given year in any of the following ways:

• Plan A—Contributions wil be split equally between the Fixed-Income Fund and the Equity Fund.
• Plan B—All contributions will be invested in the Fixed-Income Fund.
• Plan C—All contributions will be invested in the Equity Fund.

The contribution rates

The standard contribution rate is $6.00 per hour worked, but the vested participant may elect to raise the pension contribution rate by $3.00 or $6.00 per hour during the annual Retirement Plan selection period. When the contribution amount is greater than the standard rate, the wage on the check is reduced by the difference.

The rates of return for the Plan

The return rates vary—the equity fund much more so than the fixed-income option. Over time, however, the 50-50 split has returned about 10% per year. Of course, past performance is not a guarantee of future results.