Plan Sponsors have the flexibility to determine which employees can be eligible to participate in their retirement plan. Whatever rules are set, they must be clearly stated in the plan documents and planned for and followed carefully since the plan documents are what Vestwell uses to administer benefits for the plan. One group of employees that can be excluded from plans are those workers who are members of a union and covered by a collective bargaining agreement (“CBA”). This article explains the nature of that exclusion and the impact on your plan and ability to utilize our integrations with various payroll providers to facilitate processing your payroll files.
The Plan-Related Complexities of Having Unionized Employees
Retirement plan documents typically give plan sponsors the right to modify the plan at any time. However, when an organization sponsors a retirement plan and has employees who are members of a union, the terms of the CBA supersede the terms of the retirement plan. Any changes to the retirement plan need to be separately negotiated with the labor union. Many CBAs promise union employee members a retirement benefit based on years of service and other factors, and those terms may conflict with and override the terms of the 401(k) plan. The inconsistencies between a CBA and 401(k) plan are only magnified every few years when CBAs are usually renegotiated, and they create administrative complexities for 401(k) plan record-keepers like Vestwell.
Additionally, some businesses, especially those in the construction industry, that employ unionized workers may also be subject to Davis Bacon Act prevailing wage laws. These laws also trump the definition of compensation in your plan documents, making retirement plans highly complex to administer for compliance with those rules.
As if this wasn’t complicated enough, many labor unions require union representatives to represent their members in the event any claims arise relating to benefits. If a plan participant claims to be entitled to certain vested benefits, for example. In that case, you may have to deal with and follow the labor union’s dispute resolution procedures, which can be more costly, adversarial, and time-consuming than the typical dispute resolution process in a 401(k) plan.
As the plan sponsor, you have a few options:
- Your plan can exclude these employees from participation, in which case Vestwell can support your plan with our full turnkey services, but you may have to undertake certain additional responsibilities regarding your payroll files. We explain these below.
- You may be able to set up two plans - one for your non-unionized employees and one for your unionized employees. This depends in part on the ability to satisfy various compliance testing requirements; theoretically, you could set up separate plans for each union. If your plans pass the required testing, this option may allow you to create different vesting, compensation, and other rules for your unionized and non-unionized employees.
- You can allow your unionized employees to participate in your 401(k) plan. If the CBA covers the employees’ retirement benefits, we may need you to engage a Third Party Administrator (“TPA”), which you would engage separately. In that scenario, Vestwell performs only certain record-keeping services, which will be described in Appendix B and J of your Plan Services Agreement. Your TPA would handle compliance testing, create plan documents, and other activities listed in your services agreement. You must remember to keep your plan document updated to align with any newly negotiated provisions of the CBA. If the plan document and CBA are out of sync, there are ways to fix it, but there are costs and potential penalties involved in doing so.
Impact on Payroll Integrations
If you wish to exclude unionized employees under option 1 above, you might not be able to utilize payroll integrations that Vestwell has with various payroll providers. Those providers and their specific payroll file requirements are explained in our Help Center. Some payroll integrations cannot support payroll files for plans with eligibility exclusions. You would, instead, submit your payroll files through our manual payroll file submission process even if you do not currently have any employees who are members of a union. The mere fact of having this exclusion in your plan document may make your plan ineligible for payroll integration. Your Vestwell representative will discuss the available options for payroll integrations during your plan onboarding.