HEADQUARTERS: St. Paul, Minnesota





Profit sharing

DEFAULT INVESTMENT: Milliman InvestMap custom TDFs


Pipe Trades Services MN (PTSMN) is composed of seven unions of plumbers, pipefitters and sprinkler fitters working for more than 300 employers throughout the state of Minnesota. The retirement plan offerings—a defined benefit (DB) plan and a defined contribution (DC) profit-sharing plan—needed an umbrella approach to reach workers effectively, says James Hynes, executive administrator of PTSMN in St. Paul.

The organization came up with the theme “What’s Best for the Participant” and has been having success with that for the past five years. “It stemmed from my work as a board member for a local children’s hospital treating chronic illnesses,” Hynes explains. “We have multiple plans, so that simple and understandable theme and catchphrase fits well with the financial and physical goals that we have combined.”

PTSMN has an $850 million pension plan—the Pipe Trades Services MN Pension Plan—which is 96.97% funded and has always remained in the “green zone,” i.e., funded at 80% or greater. To the plan, Pipe Services contributes an average of $3.50 to $7.80 an hour of a worker’s pay, resulting in a credit of $115 to $256 that gets multiplied by years of service to calculate monthly pension payments, Hynes says.

Besides that, in 1981, it decided to create the Pipe Trades Services MN Pension Supplement Plan, a defined contribution profit-sharing plan also with $850 million of assets, into which 6% to 10% of a worker’s pay gets contributed, depending on each union’s collective bargaining agreement. Because contributions are employer profit-sharing, this plan has 100% participation.

It was crucial for Pipe Trades Services to go the profit-sharing route rather than establishing a traditional 401(k), Hynes says, as its workers do not sit at desks equipped with computers where they can access plan data, but work at construction sites. Further, most union members are not conversant in investing, and a 401(k) could lead to additional costs due to such requirements as nondiscrimination testing, he says. Also, the plan is overseen by trustees, half of whom the workers elect and the other half they may work for—an arrangement that gives the workers a sense of ownership, he says.

Gerald Erickson, principal with the plan’s recordkeeper, Milliman, in Minneapolis, agrees that the profit-sharing plan is right for this sponsor. “Pipe Trades Services decided to make a larger contribution to its DC profit-sharing plan so its workers didn’t need to worry about making [them]. PTSMN’s approach proves that employer-only profit-sharing contributions—where an adequate and consistent contribution is provided to all participants, who are immediately eligible—can prove as dynamic as automatic enrollment and escalation [in a progressive 401(k) plan], while freeing up participants to use their incomes to pay for other basic priorities in their lives.”

The profit-sharing plan’s assets are invested in Milliman’s InvestMap—custom target-date funds (TDFs) that take not just a participant’s age but, via his answers to a questionnaire, his risk tolerance into account, Erickson says. The custom TDFs are easier than off-the-shelf TDFs for the investment committee to evaluate because the underlying funds are more transparent—plus the sponsor may select best-of-breed, low-fee funds that fulfill the requirements of its investment policy statement (IPS) and, potentially, generate higher returns, he says.

In 2003, Pipe Trades decided to expand its retirement benefits with the Retiree Health Trust, a health savings account (HSA) into which workers may contribute pre-tax earnings. Earnings grow pre-tax, and premiums are paid pre-tax. On top of these considerable tax savings, the trust is run like a defined benefit plan into which Pipe Trades Services contributes points each year, Hynes says.

The trust is designed to pay two-thirds of retirees’ medical expenses, or an average of $1,020 a month, Erickson adds.

117% Income Replacement Ratio
Milliman has calculated that a Pipe Trades worker earning $75,000 and retiring this year could receive a total monthly benefit of $7,300—an average of $4,000 from his pension, an average $1,000 withdrawal from the profit-sharing plan, and a $2,300 monthly payment from Social Security—or 117% of income, Erickson says.

“An ancillary benefit for PTSMN participants is the pairing of the profit-sharing plan with the pension plan,” Erickson continues. “For those participants who desire to annuitize their profit-sharing account, they may roll that balance into the pension plan and annuitize that benefit at a guaranteed rate of 7%. Given all of the benefits combined, this is a profoundly successful retirement scenario.”

Pipe Trades Services has gone to great lengths to devise education about these benefits for its workers, and to tie them in to holistic wellness education, as well, that includes health care and advice, Hynes says. Since 2002, Pipe Trades Services has been working with adviser Foundations Retirement Consulting of St. Louis Park, Minnesota, to offer group and one-on-one sessions for its workers; on average, 25% take advantage of this opportunity, Erickson says.

“We have had the privilege of working face to face with thousands of members and their families,” says John Ehlers, principal with Foundations Retirement Consulting. “This offers the truest testimonial as to the dedication of this plan sponsor to provide a well-deserved and rewarding retirement for its members.”

Pipe Trades Services pays Foundation Retirement a flat fee, so there is no cost to participants, and the advice is 100% unbiased and conflict free, Hynes notes.

Wellness Benefits
In addition, four years ago, Hynes decided to establish two Pipe Trades Services Family Health & Wellness centers; this year, another two are in development. At these facilities, union members and their families can receive health care and education on holistic wellness, Hynes says.

According to Ehlers, the centers were built “as a result of the extraordinary vision” of Hynes and plan trustees. The centers hire their own physicians and eliminate the need for co-pays and deductibles along with the commensurate paperwork; they also “provide convenient access to care with an emphasis on prevention, health and awareness, focusing on early detection and treatment of chronic conditions,” Ehlers says.

For the financial wellness component, several times a month, Milliman and Foundations Retirement aid Pipe Trades in running sessions on topics such as retirement income, borrowing, Social Security and stress, he says.

Milliman also, to augment the health and wellness centers, provides PTSMN with a series of advice and educational programs, including a mobile application (app) workers may access on their smartphones to view their investments and balances and also a website app, “Plan Ahead for Retirement,” where they can input all of their financial information to project their retirement income, Hynes says.

As Ehlers puts it: “This plan sponsor is making significant life changes for members and their families. Nothing drives that fact home better than the looks on participants’ faces and the words of gratitude they express for this extraordinary work by Pipe Trades Services when we meet with them individually.” —Lee Barney

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