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Understanding Trade Union Pensions, Retirement Plans, and Social Security Benefits

Understanding Trade Union Pensions, Retirement Plans, and Social Security Benefits

March 29, 2023

We work our entire lives and, in the process, we want to make sure that we have planned accordingly for when it is time to retire. Researching the different options out there it can seem overwhelming, trying to figure out which one would be beneficial for you and your family. Seeking help from a financial professional is a great way to learn about the pros and cons of the different retirement vehicles. Before having that consultation, it may help to have some knowledge to discuss the different topics with a greater understanding.

We would like to provide some insight to help you learn more about a pension vs. a retirement plan. In a nutshell, a pension plan is funded by the employer. A 401(k) is funded by the employee, which, unlike a pension plan, allows you control over how you fund it. This article may be helpful to union workers because understanding what strategies would work for you and your family may alleviate mistakes and stress down the road.

A union is an organization formed by workers who join together and use their strength to have a voice in their workplace. Unions help workers to negotiate wage benefits, workplace health, safety, and other work-related issues. i According to the most recent study done by the Bureau of Labor Statistics, approximately 15.8 million wage and salary workers were represented by a union. ii

Unions work with employers to negotiate collective bargaining agreements and lobby for workers’ rights. This support structure provides union workers a means and platform to potentially build a retirement portfolio and financial strategy aligned with their long-term financial goals.

Pension Plan

One of the benefits of being in a union is the potential for a pension plan. A pension plan is a defined-benefit plan that provides a fixed, pre-established benefit for employees at retirement. iii These plans are funded primarily by employers, with retirement payouts based on a set formula that evaluates an employee’s age, salary, and time with the company. After you retire and it is time to collect your pension, you can receive payment in the form of a lump sum or an annuity that provides consistent payments for the rest of your life. iv Pension plans are negotiated for you by the union.

There are several pension plans that you could be eligible to receive:

  • Single employer – Provides pension benefits to the employees of one employer.
  • Multiemployer – Provide benefits to the employees of more than one employer. v These pension plans are for workers who change employers often, more common in unionized industries like construction, manufacturing, retail, and transportation.
  • Cost-sharing multiplier – Participating government employers pool their assets and obligations to provide defined benefit pensions. This means that plan assets can be used to pay the pensions of the retirees of any participating employer. vi

Retirement Plans

It is true that the defined-benefit pension plan continues to be the most popular retirement benefit choice for union members. However, over the past few years, multi-employer unions have begun adding supplemental defined-contribution savings plans to their retirement benefits, some of them 401(k) plans. vii

401(k) Plan

A 401(k) plan (a defined contribution plan), is a retirement account where employees primarily fund the account (however, some employers will match a percentage of the contribution). Certain benefits, like 401(k) plans, are not automatically provided to union workers. These plans have to be negotiated between unions and employers. In reality, supplemental 401(k) retirement plans are more common with higher-income trades like construction, trucking, and maritime industries. This is because workers in these professions feel they have more money to save. viii If an employee is offered the option to sign up for a 401(k) plan, one nice perk is that you can have both a pension plan and a 401(k) at the same time. ix

Another popular retirement plan is a Roth IRA:

Roth IRA

A Roth IRA is a special individual account where you pay taxes on money going into your account. This means any account growth is tax-exempt and may offer greater flexibility compared to a traditional IRA or 401(K); however, be aware that you may have to pay taxes and a 10% early withdrawal penalty if you fail to meet certain requirements. x It is possible to contribute to a Roth IRA even if you participate in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA plan). xi Once enrolled you may consider moving money in your pension into the Roth IRA, however, you will need to pay taxes on that amount.

There could be an advantage to having a Roth IRA for some people. Once your money is in a Roth IRA, you get the tax benefits that a Roth provides. Once you are 59 ½ or older and have had the Roth account for at least five years, your withdrawals will be tax- and penalty-free.

A 401(k) and a Roth IRA, however, are not the only retirement plan options. There are other plans that could be beneficial including a Traditional IRA, Simplified Employee Pension Plan (SEP), and a Savings Incentive Match Plan for Employees (SIMPLE) IRA.

Social Security

Throughout our working lives, when we review our checks, we notice that a portion of each paycheck goes toward Social Security. The Social Security Act was signed into law by President Roosevelt in 1935. This new Act created a social insurance program designed to replace a percentage of your pre-retirement income based on lifetime earnings. xii If you have paid into Social Security and earned work credits during your career, you have a legal right to claim benefits regardless of your membership status in a union.

Planning Your Future

When it comes to our retirement, planning ahead is critical. Understanding the complexities of union pensions, retirement plans, and social security could be challenging and may take significant time and effort. Consider consulting with a financial professional who can help you develop a strategy and get started in the pursuit of your retirement goals.

i What is a Union? | Union Hall (
ii Union Members - 2021 (
iii Defined Benefit Plan | Internal Revenue Service (
iv What Is A Defined Benefit Plan? – Forbes Advisor
vSingle Employer (
vi Cost-Sharing Employer (
viiUnion Workers and 401k Plans -
viiiUnion Workers and 401k Plans -
ixDoes union membership affect retirement plans? - Google Search
x Roth IRA Withdrawal Rules (
xiRetirement Plans FAQs Regarding IRAs | Internal Revenue Service (
xiiLearn About Retirement Benefits | SSA
Important Disclosures
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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