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Will your Employees be able to retire with dignity?

Contractors have a key role in our society; they are the builders of the nation’s infrastructure and the back bone of business expansion. This critical service comes with a heavy burden on owners and unions. That burden requires that benefit packages are created to help maintain employee’s financial well-being into a retirement landscape of increasing costs, specifically increasing medical expenses. The main hurdle is to motivate your work force to prepare for expenses that can come quicker than many people realize. Benefit plans can sometimes face opposition from workers who may not choose to segregate their own assets for retirement and healthcare expenses. However, the numbers point to healthcare expenses that are dramatically increasing. For an average 65 year old in 2018, estimates top $5,210 per year, with annual inflation growth projected at 6.5%. When coupled with uncertainties of future healthcare, estimates could exceed $18,360 per person for those same individuals reaching age 85 (year 2038). *Information released from J.P. Morgan’s Guide to Retirement. The inflation of healthcare costs alone in retirement is daunting, but compound this with the fact that many Americans expectations on their personal life expectancy is unrealistic. The average life expectancy of an American age 65 today to live to at least age 85, carries a probability of 55% for women and 43% for men, with a married couple having a 74% probability that one individual will live to at least age 85. *Information released from J.P. Morgan’s Guide to Retirement, the Social Security Administration’s Period Life Table, 2014. What can be done to Help Employees Reach Financial Security?

Union companies have workers covered under their respective pensions (Taft Hartley Retirement Plans), deferred compensation arrangements, and healthcare plans. This is a definite bolster to those union members that reach vesting and work long term, but does not mean that employees are actively preparing for retirement. About 1 in 4 workers currently covered by a traditional pension plan is in a multiemployer plan that is established by a labor union. While the 20 || 2018 ISSUE 02

establishment of a pension does greatly assist union workers, this is not a silver bullet for their retirement and financial success. Financial education is a key ingredient to provide the bedrock of long term literacy for employee retirement. Indpendant contractors arguably face more challenges and must take an active role in creating plans that accommodate savings for employees who otherwise may not allocate time or resources for retirement and healthcare. While non-union construction companies are not required to setup traditional pension, 401(k) s, or healthcare plans; an increasing number of employers see the benefits to these plans for both the stability of their employees and their bottom line. With the shifting of retirement plans toward 401(k) defined contribution plans and consumer driven healthcare, benefit plan design provides much opportunity and many risks. What can be done to Help Employees Reach Financial Security?

One way employers who work in the Prevailing Wage and Davis Bacon space have secured their workers futures is with the use of prevailing wage benefit plans. These plans include Prevailing Wage Retirement Plans and Prevailing Wage Health Reimbursement Arrangements. These plans first gained national attention in the 1990s, and allocate fringe dollars directly towards employer provided healthcare and retirement plans. The utilization of fringe benefit plans allow independent contractors the ability to segregate dollars for the exclusive benefit of employees in bone a fide plans. A prevailing wage plan allows the employer to utilize fringe dollars to fund specific targets for benefit packages. These plans can fund health premiums for continual coverage during cyclical layoff periods, health reimbursement accounts for immediate qualified health expenses and OTC (over the counter) items, as well as qualified prevailing wage retirement plans that allows for contributions for employees as an employer non-elective contribution. This use of pretax dollars reduces the bottom line for the organization and offers a tax benefit to the individuals. Funded benefit programs are essential, but the best created plans can still manage

to fail workers who lack basic financial education. Financial education programs can be offered economically today to the work force online, as well as taught in traditional classroom settings. A National Capability Study released in 2016 from the FINRA Foundation, surveyed 27,564 Americans, from June through October, estimating that nearly two-thirds of Americans couldn’t pass a basic financial literacy test. This means participants got fewer than four answers correct on a five question quiz. The percentage of those who passed the test fell to 37%, from 42% in 2009. *FINRA is a quasi-government organization that regulates brokers and Wall Street. With complexity and costs increasing; contractors, construction firms, and labor unions face a task of providing reasonable funding targets for their employees and relevant education to take advantage of these programs. Whether from the perspective of a union or independent firm, the long term success of the organization is not just the bottom line or completion of the current project. The real success is the legacy of those individuals and families that are involved in organization. Justin E. Seitz, CFP® is an Investment Advisor Representative and Principal at Pension Corporation of America® (PCA). PCA is an independent provider of Fiduciary Services, Recordkeeping, and Third Party Administration for Retirement and Health Plans from their headquarters in Cincinnati Ohio. PCA is a member of Alliance Benefit Group® a national LLC organization of independently owned Record-keepers and Administrators.

The Constructor Magazine - Issue 2