For IPF:
dstupar@ipfweb.org
Phone: 1-888-880-8222
Fax: 202-347-7339

For IHF:
rdonovick@bacweb.org
Phone: 1-888-880-8222
Fax: 202-383-3905

620 F Street, NW
Washington, DC 20004
202.783.3788

About Us
Retirement Savings Plan - A Summary Plan Description

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401(k) Plan

Through surveys, focus groups and discussions with members, the IU’s Executive Board found that having enough to live on in retirement was a primary member concern. To address this concern, in January 1998 BAC introduced the BAC Save 401(k) plan for members and their families. This new plan gives members another way to save for retirement. This issue-in-brief and video describe the new program, discuss the fundamentals of investing and the associated tax savings, and asks members to let us know what questions still need to be answered.

Background

BAC Save consists of an annuity plan and the new 401(k) plan:

  • The International Retirement Savings Plan Annuity has been in place since 1988. Contributions to the annuity are collectively bargained and every member covered by a participating agreement has the same amount contributed. The Plan Trustees are in charge of making the investment decisions, and earnings are pooled and distributed among the participant accounts.
  • In January 1998, the 401(k) plan was introduced as another way for members to save for retirement. What is a 401(k) plan? It is a savings and investment plan that offers working people an excellent tax shelter. Section 401(k) of the Internal Revenue Code permits an individual to defer a portion of his or her current wages until after retirement in what are commonly called "401(k) plans." Under a 401(k) plan, participants can choose to have an amount up to $10,000 per year deducted from their current wages by their employers and deposited into their individual accounts. No income tax is withheld or paid on the wages contributed or applied to the income earned through the investment of these deferred wages until the money is withdrawn from the plan.

The two programs -- the annuity and the 401(k) -- make up the BAC Save Program.

BAC developed the BAC Save 401(k) plan because the members wanted one and because:

It’s Flexible -- You Decide How Much You Want to Contribute
To participate, your local union must participate in the International Pension Fund, and must have negotiated specific language covering the BAC Save 401(k) Plan into their collective bargaining agreement(s). But once this is done, the rest of the choices are yours. The plan will be available to every member covered by the agreement, but only those members that want to participate in the 401(k) will contribute to it, and each participating member will decide how much they want to contribute. Members will be able to make contributions to the 401(k) in 25 cent increments up to a maximum hourly contribution of $5.00.

In other words, three different members could make three different decisions: Member A could choose not to participate and would contribute nothing to the 401(k); Member B could choose to contribute $1.00 of pre-tax earnings; and Member C could contribute $2.50. All three scenarios would be allowed under the 401(k). This is different from the annuity plan in which employers contribute the same amount for all employees covered by the collective bargaining agreement, and all members covered by the agreement must participate in the plan.

Officers and members have raised concerns about this level of flexibility. A common reaction is "contractors will never go for that -- it will be impossible to administer." This concern was kept in mind during the development of the BAC Save 401(k), and two key steps were taken to address possible contractor resistance and the administrative complexity:

  1. Contractors who are incorporated and the staff of all contractors are allowed to participate in the BAC Save 401(k). This feature creates an incentive for contractors to agree to include the necessary language in the collective bargaining agreement(s) -- if they don’t -- they lose out on this solid investment option.
  2. By linking participation in the BAC Save 401(k) to participation in the International Pension Fund, the administrative difficulties are taken care of. Once a member decides to participate -- and decides how much per hour he or she wants to save -- a personal identification card will be issued to him or her that states the hourly amount. A member will be required to show this card to the employer’s payroll office when he or she starts a new job so that the contractor will know how much to deduct for the first payroll period. From that point on, however, the member’s hourly deduction will automatically be printed on the contractor’s IPF Report Form. This will help the contractor keep track of who is, and who is not, participating and the amount of the deduction. It will also help the contractor continue to make the appropriate pre-tax 401(k) plan deductions from the participating member’s wages. Will it take getting used to? Will it work? The answer to both questions is yes.

There Are Tax Advantages
A member will be able to reduce his or her individual tax burden by allowing investments to build up in the BAC Save 401(k) Plan since it will be a pre-tax account.

What are the advantages of saving through a pre-tax 401(k) plan in dollars and cents? Simply, the money members voluntarily contribute to a 401(k) plan is subtracted from their gross pay before federal and most state income taxes are withheld. As the following example shows, a member with annual earnings of $30,000 who wants to save $1,500 during the year would take home $217 more in their take-home pay by saving in BAC’s new 401(k) Program than if he or she tried to save the same amount using a taxable savings account.

  Taxable Savings Account BAC’s 401(k) Program
You save $1,500 of your pay before taxes $ 0 $ 1,500
Your taxable pay $30,000 $28,500
Estimated Federal Income Taxes $ 2,726 $ 2,509
Your pay after Federal Taxes and your 401(k) deductions $27,274 $25,991
You save $1,500 of your pay on your own $1,500 -----
Your net pay after Federal Income Taxes and savings $25,774 $25,991
Net increase in your take home pay ------- $ 217

The $217 is the federal tax savings -- but there would also be additional state-level tax savings since most states also defer taxation on contributions to 401(k) plans.

In addition to the immediate tax savings, the earnings potential under a tax deferred account -- such as the BAC Save 401(k) Plan -- is greater than for a taxable savings account. Again, let’s look at an example. Members "A" and "B" both save $100 per month for 20 years. At the end of 20 years both have put aside $24,000 and both have earned an 8% rate of return on their investments.

Member "A" invested in a 401(k) plan. The monthly contributions were before taxes and the earnings on the investments were not taxed. At the end of 20 years, Member "A’s" $20,000 investment had grown to $59,925.

Member "B" in contrast, invested in a taxable savings arrangement -- a typical savings account. The monthly contribution was made after taxes, and the earnings on the investments were taxed. At the end of 20 years, Member "B’s" $20,000 investment had grown to only $32,492.

While tax deferred does not mean "tax free," chances are that by the time you pay taxes you will be retired and consequently in a lower tax bracket.

If You Need To -- You Can Use Part Of What You Save
The BAC Save 401(k) Plan is set up to allow for hardship withdrawals for such major life events as the purchase of a primary residence, tuition assistance, medical emergency or eviction/foreclosure prevention. The plan will also include a future loan provision. However, if a member chooses to withdraw the funds the amount withdrawn will be taxed and subject to IRS penalties. The plan will also include a future loan provision. Under the loan provision, a member will be able to access up to 50% of the account value (to a maximum of $50,000). This must be repaid in five years -- but there is no tax penalty. The interest and the principal of the loan both go back into your personal account. Although a few annuity plans have loan or withdrawal features, it is not universal.

What the BAC Save 40l(k) Plan is Not!

Although some non-union contractors have co-opted their workers into believing that a 401(k) plan is a pension plan -- a 401(k) plan by itself is not a substitute for a pension plan. Furthermore, many of the "company" 401(k) plans are invested solely in company stock.

The BAC Save 401(k) Plan is designed to supplement -- not replace -- existing national, regional and local pension and annuity plans. Why? Because a 401(k) plan cannot do what a pension plan does, which is guarantee that everyone who works long enough receives a decent retirement benefit. When people are given the choice between saving for the long-term and buying what they want now, not everyone will have the self-discipline to put enough money away in a 401(k) plan for retirement. That being case, the BAC Save 401(k) Plan is intended to provide members with the ability to maximize tax savings while offering them a convenient savings vehicle and flexible investment options.