401(k) vs. Western
Conference of Teamsters Pension Trust
Which is the Right
Choice?
By: Paul Molenberg, UAL
mechanic, San Francisco
Unlike the AFA, which fought to the very end to keep their pension, the AMFA was a quick sell to replace the pension with a 401(k). It’s outrageous that because of the theft of our pensions we face a less secure retirement, and now the AMFA is contending that 401(k)’s are better than Defined Benefit Plans. This is a position that no union has ever taken, nor should they.
The 401(k) was originally introduced as a SUPPLEMENTAL plan and as a way to defer taxes on income. It was never intended to be a substitute for Defined Benefit Plans. But over time, pension coverage shifted in the private sector from Defined Benefit Plans where professionals manage the money, to 401(k) plans where participants choose the investments in their own accounts.
Granted, we don’t want the company to hold our pension funds ever again, but there is another option. The Western Conference of Teamsters Pension Trust offers us a fantastic opportunity to regain a Defined Benefit Plan.
So which one is better, a 401(k) or the Western Conference of Teamsters Pension Trust? Let’s look at some facts:
In a study by the Center for Retirement Research at
Another reason for the higher rate of Defined Benefit returns is due to poor investment choices of the participants of 401(k) plans. Below average returns are common due to the lack of knowledge of the market and of their investment portfolios. The majority of people do not study the market, continually monitoring their assets and changing with the trends. Do you what your stock fund’s major holdings are? Do you know what bond rating is held by your bond funds? How many people can tell how their portfolio is diversified, what percentage is in stocks or bonds, domestic or international, or what their asset allocation is? How many have actually defined their risk tolerance and abide by it? How satisfied would you be if your contributory plan took a 25% reduction within the next thirty days and remained in a bear market for the next two years? This is something not unheard of in the market's history.
The Western Conference Pension has always taken a conservative approach to investing, which has increased the plan’s immunity to economic downturns. The plan is in a fully funded status for vested benefits and has a funding ratio of 93.8 percent for the January 1, 2006 valuation. This ratio is projected to exceed 95 percent when the January 1, 2007 valuation is completed. The plan’s investment performance has ranked it among the very best in the world among its peer group. With nearly $32 billion in assets and more than 5,200 employer accounts, it’s the largest multi-employer Taft-Hartley plan in the world.
Benefits Speak for
Themselves
Long-term benefits of Defined Benefit Plans are another advantage. It’s a guessing game as to how long you’re going to live after retirement and how much money you will need. The Western Conference Pension will give you lifetime monthly benefits, and unlike 401(k)’s, you cannot outlive your benefits. If you live longer than expected or get stuck with unanticipated expenses, your 401(k) account will run out of money, whereas in a Defined Benefit Plan you will not run out of money. For instance, in the Western Conference Plan, all the money that is paid in or on behalf of a participant who retires now, is paid back to that participant within 42 months (this will be even faster when the accrual rate is raised) and then they still get their monthly retirement for the rest of their lives, regardless of how long they live. See http://wctpension.org/whats_new/pwnl.html#Anchor-100 to read about Walter Gruenke, a retired Teamster who has collected his monthly checks for the last 40 years.
The continuing entrance of new participants into the Western Conference Pension is another source of the plan’s strength. To help encourage new participants, special incentives have been developed. One of those incentives is the 2 for 1 benefit, which gives up to 10 years past service credits and 5 years contributed credits after only five years of plan participation, nearly tripling your investment. See our flier: Pension Plan Update #2[2] to find out how this credit works.
The 2 for 1 benefit is an opportunity for us to make up lost time in a pension plan. The problem with a 401(k) being used as a pension plan substitute is that it’s very difficult to build a fund for those who enter later in life. The ones who really lose out are those of us that are caught in mid-to-late career, which is the majority of UAL mechanics.
Seize the Opportunity !
It’s important to note that joining the Western Conference Pension does NOT mean having to give up your 401(k) and no one would ask you to give up or change what you already have. While it can have its pitfalls, 401(k)’s as a supplemental retirement savings should be an integral part of retirement planning, and everyone should contribute into it as much they afford. However, if you are going to compare a 401(k) and a Defined Benefit Plan, the 401(k) does not work well as a primary means of securing retirement. You can have both; and if you’re given the opportunity to have the added security provided by a Defined Benefit Plan, you need to take it. Having a Defined Benefit Plan like the Western Conference Pension Plan only adds to the peace of mind you will need in retirement.
The AMFA has been trying to confuse the Western Conference Pension plan with the Central States Plan, something our Committee has previously warned about in our flier, Pension Plan Update #3.[3] To be clear: If they negotiate it, everyone in our class and craft would belong to the Western Conference Pension, arguably the best plan the Teamsters have to offer! It’s important to realize that the Western Conference Pension is not like the old United plan. It’s a multi-employer plan with thousands of contributing employers—and new employers continually join—so if a company goes bankrupt, it doesn’t affect a worker’s pension.
I truly want to make this plan a part of my retirement, as do the vast majority of my coworkers. This plan will give us financial security in our retirement years. The first step to achieving this goal is to get the Teamsters in as our collective bargaining representative. I encourage everyone to make the choice to secure our future by filling out and submitting an Election Request Card. An election is the only way to decide who we really want to represent us.
For further reading about the shortfalls of 401(k) plans:
http://www.time.com/time/magazine/article/0,9171,1122017,00.html
To see a video report on Retirement and 401(k)’s:
http://www.pbs.org/wgbh/pages/frontline/retirement/view/