Mooney, Green, Baker & Saindon, P.C.
Pension and Welfare Benefits Resources Page
By Paul Green
Welcome to the Mooney, Green, Baker & Saindon Pension and Welfare Benefits Resources Page. The purpose of this page is to provide you with links to resources related to pension and welfare benefits. Pension and welfare benefits have been at the heart of the labor movement since the early part of the 20th Century. Largely thanks to visionaries like John L. Lewis of the United Mine Workers of America, by the 1950s, both pension benefits and medical benefits had begun to come available to ordinary workers, not just to a select few. Now, most of us would not take a job without medical coverage, and most of us would expect a pension program as well.
In addition, we have added to these pages materials from various presentations relating to this subject that may be of interest:
Presentation at the National Education Association providing a brief overview of the major laws governing pension plans.
Presentation at the 48th Annual Employee Benefits Conference:
Pension--A "pension" is income that is provided after we have finished out our working lives. A principal characteristic of a pension is that it is "deferred income." In other words, we give up income now so that we can receive it later after we retire.
Pension Plan--A "Pension Plan" is a program of benefits that provides pensions. Under U.S. law, nearly all pension plans have several things in common. First, the assets held by the pension plan are held in trust. This means that the money is kept separate and apart, and neither you nor your employer may use it. Second, pension plans are "prefunded." This means that the money that you will use for your retirement is set aside during your working life. By the time you retire, the amount that is being held for you in your pension plan's trust should be enough to provide the full amount of your benefit. Third, unless you participate in a plan maintained by a church or a governmental organization, your pension plan is governed by federal law--primarily the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Internal Revenue Code. In addition, if your union helps to run your pension plan, it is also governed by the provisions of the Labor Management Relations Act of 1947 ("LMRA" or "Taft-Hartley Act"). Pensions come in many forms, including "defined benefit plans" and "defined contribution plans."
Defined Benefit Plan--These are the plans we usually think of when we think of pensions. Under these plans, you are promised a benefit amount that is based on some sort of formula. Many union plans promise a benefit that is based upon a flat dollar amount (known as a "unit multiplier") multiplied by your years of service. Other defined benefit pension plans include your current annual income as one of the factors in calculating the amount of your pension. These plans are paid for by money your employer is required to set aside on your behalf. All of the money in these plans is held in a common trust, and the monies held by the plan are not earmarked for any particular individual.
Defined benefit plans hire people known as "actuaries." The job of an actuary is to determine how much your employer must set aside in order to pay for all of the benefits that have been earned under the plan, and that are expected to be earned under the plan. The actuary also determines whether a plan can afford to increase benefits, based upon the amount of money held by the plan and the plan's expected future income. In order to make these determinations, the actuary must guess how long the people covered by the plan will live, in order to ensure that benefits will continue to be paid for the lives of each and every participant and beneficiary in the plan. In order to do this, the actuary primarily relies upon standard life expectancy tables. This is not an exact science, so the people who run the plan must make a series of judgment calls based upon the advice given by the actuary.
Defined benefit plans depend upon the law of averages. Under a defined benefit plan, since it is the amount of the benefit that has been promised, what happens if a participant who retires at age 60 lives to be 105? Presumably, while this individual was working, the actuary only recommended that enough money be set aside to provide benefits for his or her expected life (which may only have been to, for example, age 82). How can the plan continue to provide benefits for the life of this lucky individual, even though only enough money was set aside to pay for a benefit lasting until age 82? This happens because the actuary knows that for every person who outlives his or her expected life span, there is another person who will be unfortunate enough to die young. In this way, every person covered by the plan can expect to receive the full amount of his or her promised benefit for life.
Defined Contribution Plan--These plans are really savings plans. Each participant has an individual account, and all contributions made by and on behalf of that participant (as well as any investment earnings attributable to those contributions) go into that account. When the participant retires, the amount of his or her benefit is based solely upon how much money has accumulated in his or her account. Unlike a defined benefit plan where benefits are guaranteed for life, once a participant's individual account balance is used up, there is no more benefit.
401(k) Plan--This is a special type of defined contribution plan. Under a 401(k) Plan, an employee is permitted to have his or her employer deduct a portion of his or her pay into the plan. This money is pre-tax (meaning no income tax is paid at the time the money is put into the plan), although it is subject to employment taxes (FICA--Social Security and Medicare--taxes). In some cases, your employer may also agree to match some or all of your contributions.
Welfare Plan--This is a general name for any employee benefit plan that provides benefits other than pension benefits. In other words, the term welfare plan includes plans that provide health benefits, life insurance, supplemental unemployment benefits, legal benefits, education and training benefits, etc.
Pension and Welfare Benefits Administration of the U.S. Department of Labor. This site provides a plethora of information on both pension and welfare benefits (with an emphasis on pensions). It includes brochures, laws and regulations, and other information and resources.
Pension Benefit Guaranty Corporation. Under federal law, all private defined pensions are guaranteed by the Pension Benefit Guaranty Corporation, in much the same way as private bank accounts are guaranteed by the FDIC. Besides having information describing their guarantee program, this site provides much general information regarding pensions.
Internal Revenue Service. The IRS is the third of the three federal agencies that administer ERISA. This site has been designed to be easy to use and easy to understand. This process of simplification often makes it difficult, however, to find specific detailed information on particular topics.
Benefits Link. This is a compendium of internet links relating to pension and benefit issues. It is fairly well organized, and a useful source of information.
International Foundation of Employee Benefit Plans. The Foundation was established to help pension and benefit plan trustees and professionals learn more about their obligations and responsibilities. To that end, it offers educational conferences and seminars, publications, and much pension and benefit related information. It is, however, a membership organization. Consequently, the information that a non-member can obtain is somewhat limited.
American Academy of Actuaries. This is a national association representing actuaries in the United States. It also provides information to the general public on what actuaries actually do.
National Institute of Pension Administrators. This organizations represents pension and benefit plan administrators.
Pension Rights Center. "[T]he country's only consumer organization dedicated solely to protecting and promoting the pension rights of American workers, retirees and their families."
To return to the top, press here.
To return to the
list of Labor Union Links, press here.
To see back issues of
the Mooney, Green, Baker & Saindon Legal Report, press here.
To get back to the Mooney, Green, Baker & Saindon Home
Page, press here.
This page is new, and remains under construction. If you have any comments, please do not hesitate to contact us.
This page has been visited 17460 times.