Then and Now
In the early part of the 20th Century, American workers were largely employed in heavy industry where working conditions were often unfair, unhealthy, and unsafe. As a result, unions and the collective bargaining process evolved as a means of addressing employee rights and protecting their interests.The American workplace has changed dramatically since then, but the principle of collective organization is as valid in our service-oriented society as it was in the factory- dominated America at the turn of the 20th century.
In fact, the labor movement is shifting. Whereas in the past, union membership consisted primarily of “blue collar” employees, today the union movement is almost 50% white collar. White collar union members work in industries such as insurance, finance, law, banking, healthcare, technology, and many more. Among the professions, approximately 22% of employees are union members, a higher percentage than the workforce in general. Unions speak as the voice of their members as they negotiate for new benefits such as health, life and disability insurance and retirement plans. Through good-faith negotiations, Unions are able to ensure a fair, healthy, and safe workplace for their membership. And for the business owner there are advantages as well…chief among them, the fact that the same good–faith negotiations that guarantee fairness to all employees can also remove some of the restrictions that otherwise limit benefits available to key people.
Assumptions can Hurt Business
Many business owners who have no personal experience with unions nevertheless have strong aversions to them. They sense in unions an opposing force that seeks to hamstring their operations and impair the profitability of their business. The common misconception – unions are bad for my business. They promote a lazy workforce that will either take over control of my business or strike while trying to gain control. This belief is largely formed from stereotypical portrayals of unions on TV and other mass media, and is not necessarily reality. And when business owners assume the public image to be factual, and act on such assumption, they often deny to themselves the avenues to choices that best serve themselves, their companies and their most favored employees. The fact is, assuming unions are the natural enemy of business can cost the business owner money as well as the opportunity to provide important benefits, improve key employee retention, and strengthen loyalty among all employees.
Partners in Profitability
Today, progressive unions see themselves as partners in profitability with management, not its enemies. In this respect, small business owners and professional practitioners may find that they have much to gain by entering into the collective bargaining process. This process can strengthen a small business in many ways, including formalizing the employer/employee relationship, which can be beneficial for both sides of negotiation and is particularly important for small business owners who lack formal human resource capabilities. In fact, a union/employer relationship can enable small business owners to:
• Formalize existing work rules and company culture by using the union contract as a form of “employee handbook.”
• Protect themselves from expensive and potentially damaging litigation through contractual employment rules and arbitration procedures.
• Protect themselves against creditor attachment to corporate funds.
• Provide cost effective employee benefit plans to all rank and file employees.
• Provide substantial benefits for management in compliance with nondiscrimination rules.
Too Expensive
Currently only about 16% of small businesses in the United States provide retirement plans for their employees. This leaves literally millions of employees to fund their retirement on their own. This low percentage likely can be attributed in part to the prohibitive expense of providing non- key employees with the same plan as key employees and owners. It is often too expensive for a business owner to participate in the retirement plan he or she desires when all other employees are factored into that same program (even with sophisticated testing means that eliminate some participants). So, rather than sponsor plans whose costs are well in excess of company budgets, or that allocate an uncomfortably small proportion of costs and benefits to key personnel, many owners choose to provide no retirement benefits to any employee. In such cases, no one wins, and great opportunities are likely missed.
Attractive Opportunity
And in many cases, it doesn’t have to be that way. We mentioned earlier that, as well as serving the interests of union members, good faith negotiation can remove some restrictions on benefits for key employees. Because labor and management have inherently adverse interests, the bargaining process, conducted at arms’ length, serves as an effective check on abuse by either party. Congress has long recognized this, and thus the Internal Revenue Code reflects the relaxing of numerous restrictions where collective bargaining has taken place, that otherwise would have been imposed. One significant Code subsection allows an employer to create its own separate pension plan for nonunion members when the employer and its employees’ union have bargained in good faith over retirement benefits. Thus, collective bargaining can establish, for example, a §401(k) plan with a 3% employer contribution for union members along with other benefits such as group life and health insurance. Having done so, the employer may then establish a separate and distinct pension plan for non-union members where, in some cases, maximum annual contribution levels can be upwards of $300,000. Due to the multiple benefit structure, the total company outlay will be far less than would have been the case had all employees been in the employer (non-union) plan— and the key executives and owners will receive an increased percentage of the tax-deductible contribution…clearly an attractive opportunity for a profitable small business where retirement funding and tax planning are priorities. The key ingredient is good faith bargaining between employer and employee representatives, wherein the results of the bargaining process— established employee rights and meaningful benefits— confirm its legitimacy. Amid the value it offers to union members, the process of collective bargaining reveals an abundance of benefit and tax planning opportunities to the employer. This is what the United Financial Group and our relationship with a nationally recognized labor union can make possible for small business owners and professional practitioners.
And finally, a caution: Not all programs are alike. There are arrangements being marketed that purport to be collectively bargained—where the “unions” are brand new, virtually controlled by employers, and whose membership consists only of participants in a benefit plan that a promoter is marketing. Avoid them. Arrangements work because they are real; not because they are employer-friendly.
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Allan B. Shuman, CLU, is Vice President of Compliance & Technical Support for the United
Financial Group, Ltd. The United Financial Group, Ltd., Located in Northbrook, Illinois,
specializes in tax and benefit planning for small businesses.
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