Multi-employer health and welfare benefit plans, also referred to as Taft-Hartley plans, are arrangements wherein several companies band together with their workers to pool their assets to create a more cost-efficient pension or healthcare plan for their members. Workers and their employers jointly negotiate on plan contributions and benefits, then hire a board of trustees to manage pension assets. This board of trustees will examine the actuarial and market data and convert that information into a promised benefit. This arrangement helps workers by making it possible for firms to offer pension plans where doing so in house would be prohibitively expensive or retard returns.
Once the pension plan is set up, the trustees will hire one or more money managers to manage a portion of plan assets. Often, each manager or management firm specializes in buying and selling securities in one corner of the market. These management firms don't work for free, though. Each firm charges the plan a management fee, which can be anywhere from 0.5 percent of assets under management or higher to 2 percent for very specialized areas of the market.
Plan trustees take on significant liability, since each of them has a fiduciary responsibility to run the plan in the best interests of plan participants. These trustees need to be compensated for their time, expertise and personal liability risk. Pension trustees can earn into the six-figure range. Their salaries, stipends and retainer fees are added to the plan expense and paid for out of the plan's assets.
A new pension plan can cost anywhere from $500 for very small plans to $3,000 or more for larger plans in start-up costs and fees. These costs are amortized across the entire plan, so a small plan will likely have a larger percentage burden than a larger one.
Employers may be able to reduce plan costs by electing a defined contribution plan. Many plans also reduce administrative expenses by using index funds or exchange-traded funds, which save them on management fees. These assets are passively managed, and therefore the plan doesn't have to pay for a manager to research stocks and bonds to buy and sell. Instead, the fund just buys all the securities in the underlying index.
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