Retirement plans at organizations where the workforce is largely unionized have the unique challenge of being obligated to negotiate plan terms with the union. It’s a process that can be very burdensome, experts say, but also very rewarding.

When a retirement plan is run at an organization with a union, the collective bargaining agreements trump the retirement plan document, as specified by the National Labor Relations Act, according to David Kern, partner with the labor and employment practice and chair of the National Labor Relations Act team at Quarles and Brady LLP, in Milwaukee. “Any changes to the plan need to be bargained with the union,” Kern says.

Retirement plans at non-union organizations typically have a provision that the employer has the right to modify the plan at any time, says Amy Ciepluch, chair of the employee benefits and executive compensation team at Quarles & Brady. At a union shop, however, “that type of language would not trump what a collective bargaining agreement guarantees. The collective bargaining agreement would govern.”

The union can be counted on to push for improvements in wages, health benefits, eligibility, retirement age, early retirement terms, how to handle leaves of absence, employer contributions, and, if the retirement plan is a defined benefit plan, the pension benefits, says Jeff Witt, a principal with Groom Law Group in Washington, D.C. Those pension benefits are negotiated every time the contract is renewed, typically every two to five years, Kern says.

“Most defined benefit plans in the union context will promise a benefit [based on] years of service times a multiplier guaranteeing monthly income,” and each time the contract is renewed, the union will likely bargain for that multiplier to be increased, Ciepluch says. So, if a union member has 30 years of service with a multiplier of $31, he would receive $930 a month, she says. “Or, if they retire early, the employer might do an actuarial reduction, and that would be another subject of bargaining,” Ciepluch says.

NEXT: Matching plan documents 

If the retirement plan is a 401(k) defined contribution plan, the union will negotiate for eligibility to participate, the company match and formula, and how long the employees have to work to become vested, she says.

Then there are multiemployer defined benefit pension plans created by collective bargaining agreements that cover eligible union members at more than one employer, such as the United Automobile Workers, notes Marcia Wagner, partner with the Wagner Law Group in San Francisco. Besides all of the bargaining points at other types of union retirement plans, these plans are subject to “the potential risk of other employers withdrawing from the plan,” she says. “This is akin to being the last person at the table when the waiter brings the check to the table.”

For sponsors and advisers working with a union retirement plan, “the biggest challenge is to align disparate parties' interests," says Josh Gottlieb, chairman and CEO of The Gottlieb Organization in Chagrin Falls, Ohio. "To find a solution, we first work to understand each party's issues. Once we understand each party's expectations, we can then develop financial solutions that will be acceptable to both sides, and then we educate each party as to how the solution meets their goals."

It is important for advisers to make sure that the plan document matches the terms of the collective bargaining agreement, Ciepluch says. “A lot of employers go through a prolonged bargaining process and forget that they need to update their plan document,” she says. “If an employer fails to do that, there are ways to fix it, but it is far preferable to continuously update the document as needed, not when the Internal Revenue Service [IRS] is auditing the plan. The summary plan description [must also] be accurate and correctly reflect the benefits that you bargained for with the union.”

Collective bargaining agreement are habitually misaligned from the plan document, agrees James Obermanns, member of Dykema in Bloomfield Hills, Michigan. There are “frequent disconnects between the plan document that goes to the IRS and the collective bargaining agreement,” he says. While those discrepancies “won’t cause huge penalties [with the IRS] or disputes with the union, the IRS doesn’t like retroactive amendments. It is much better for the company negotiators to communicate [changes to the plan committee] up front and get that done as it is happening.”

NEXT: Employee disputes 

Another common area where problems arise in a retirement plan with union members is if an employee disputes what they are entitled to, Kern says. Unions typically handle disputes through grievance arbitration, but if the issue relates to the pension or 401(k) plan, it is far preferable to appeal under the retirement plans because there are “better standards of review” along with “deference to the plan administrator.” That way, Ciepluch adds, the employer has a little more control over the outcome.

Ronald Santo, senior counsel at Dykema in Ann Arbor, Michigan, says that a big trend at union shops over the past 10 years has been the move from defined benefit (DB) plans to 401(k)s and other types of defined contribution (DC) plans, which results in highly complicated negotiations. “You get generational issues when you are dealing with a union,” Santo days. “Frequently, the [pension plan] committee is dominated by older employees who want to retain their defined benefit plan, whereas younger employees want a defined contribution plan because they are more apt to switch jobs. It’s a highly political process.”

The reason why employers are moving from DB to DC is because “many union plans are underfunded, some more significantly than others, and this is a problem,” Wagner says. “This comes from economic recessions, such as the most recent events of 2008 and beyond, the decreasing membership of union participants, and Baby Boom pressure on liquidity and payout.”

The bottom line is that it is very important for sponsors to negotiate very carefully with unions about their pension or 401(k), Santo says. “Pensions and retirement income are very important to employees,” he says. “It is a high priority for unions and their members. You cannot address it cavalierly.”