Taft-Hartley (Multiemployer Pension) Plans

With multiemployer pension arrangements like a Taft-Hartley plan, workers can build retirement benefits through jobs with more than one participating company. The terms of these arrangements are often established through negotiations involving unions and the employers covered by the arrangement. Though there are upsides to these pensions, making them particularly beneficial to workers who value portability or the benefits of pooled employer resources, there are also limitations and potential downsides worth being aware of.

A financial advisor can help you compare your expected pension income with your retirement expenses and other savings.

What Is a Taft-Hartley Plan?

Responsibility for overseeing a Taft-Hartley pension is shared between trustees representing labor and those representing participating employers. These pensions are common across industries such as construction, transportation, manufacturing, mining, service and entertainment.

Applicable labor agreements determine employer payments into the pension. A participant who takes another covered job may be able to continue building service toward the same pension.

The Employee Retirement Income Security Act (ERISA) establishes federal requirements that affect areas including plan funding, fiduciary conduct and protections for participants. Requirements under ERISA apply to plan administration, reporting and participant protections.

Participants also need to follow the vesting and service rules of their particular plan. Benefits in a defined benefit multiemployer plan are generally calculated under a plan formula. This can take into account factors such as credited service and the benefit rate earned under the plan.

Who Benefits the Most from Taft-Hartley Plans?

Workers whose careers involve multiple participating employers may gain particular value from this structure because their pension rights are not necessarily tied to remaining with one company. The arrangement can also make retirement benefits available through a plan supported by contributions from a larger group of employers.

In addition, these pension plans can be particularly useful for people who work for several participating employers during their careers. Instead of starting over with a separate pension each time they change jobs, workers may continue building credited service under the same multiemployer plan if the new employer participates in it.

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Pros and Cons of a Taft-Hartley Plan

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Pros

There are various pros of Taft-Hartley pension programs:

They take advantage of pooled resources. In turn, this can help offer the best possible benefits to those enrolled. Those benefits can include cheaper administration costs and superior investment opportunities.

Changing employers does not necessarily interrupt pension service. This can apply when the same multiemployer arrangement covers both jobs. Qualifying employment with each participating company may count toward the benefit under the pension’s terms.

Employer contributions generally receive favorable tax treatment. However, the pension payments that retirees receive are generally taxable as ordinary income to the extent they were not previously taxed.

PBGC insurance can provide a limited backstop. When a covered multiemployer pension no longer has enough resources to pay benefits under its plan term, this federal guarantee applies, up to the limits established for the multiemployer program.

Cons

There are also downsides, though:

Insurance protection has major limitations. Unlike the maximum guarantees published annually for PBGC-insured single-employer plans, multiemployer guarantee is based primarily on a participant’s credited service and the plan’s benefit rate. The multiemployer guarantee is not adjusted for inflation. Further, PBGC protection may cover only part of the pension promised by the plan.

Former workers can retain pension rights even when their previous employers no longer contribute. In fact, there is a growing imbalance between workers currently generating contributions and people who earned benefits under employers that later left the plan.

Funding can weaken. This may occur when investment returns fall, the participant population changes or participating employers contribute less than expected. However, the financial position of some distressed multiemployer plans changed when the American Rescue Plan Act created the Special Financial Assistance Program. Eligible plans can receive federal assistance intended to support payment of pension benefits.

How to Check What Your Taft-Hartley Pension Is Worth

Your pension estimate can help you determine how much retirement income may need to come from other sources. Start by reviewing your benefit statement or contacting the plan administrator. Find out your credited service, vesting status and estimated monthly payment at the age when you expect to retire.

Be sure to check the employment history used by the plan. This is especially important if you have worked for several participating employers. Pay stubs, W-2 forms and prior plan statements can help you compare your own records with the service credited toward your pension.

For example, suppose your estimated pension is $2,000 per month, or $24,000 per year,. You expect to spend $60,000 annually in retirement. The pension would account for 40% of that spending before taxes. You would still need to consider how Social Security, a 401(k), IRA and other assets could cover the remaining $36,000.

Payment options can also affect the amount you receive. A single-life pension may provide a different monthly benefit than an option that continues payments to a surviving spouse. Comparing the available payment options with your household income needs and other retirement assets can show how each option would affect your broader financial plan.

Plan funding is another factor to review. Participants may receive annual funding notices with information about the financial condition of their pension. PBGC protection applies within federal limits if an insured multiemployer plan becomes insolvent, so the guaranteed amount may be lower than the benefit shown on your pension statement.

Bottom Line

Taft-Hartley plans give employees of smaller companies and those within unions access to pension plans. They also offer portability. Workers who change jobs among employers participating in the same plan may continue accumulating qualifying service. The pension amount generally depends on the plan’s formula and the worker’s credited service. Reviewing your projected benefit alongside Social Security, retirement savings and expected expenses can provide a more complete estimate of your retirement income.

Tips for Retirement

Consider talking to a financial advisor about your plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
As you properly plan your finances for retirement, it’s important to make sure you have planned for enough income to sustain your lifestyle during those years. You can use SmartAsset’s free retirement calculator to help you know how much to save.