Union Pension Annuities: A Comprehensive Guide

One of the advantages of union membership is that workers are more likely to have retirement plans than are non-union employees. A union pension annuity is a defined-benefit pension plan regulated under the Employee Retirement Income Security Act. Defined-benefit pension plans, in which the employer pays a predetermined amount for life beginning with retirement, have become less common as retirement savings plans funded with employee contributions have grown in popularity among cost-conscious employers.

How Does a Union Pension Annuity Work?

Union pension annuities are established under contracts negotiated with employers. Employers make tax-exempt contributions on behalf of the workers. Employees do not make contributions. Contributions and accumulated interest grow tax-free until withdrawn from the plan. Upon retirement, workers receive a monthly pension payment which is taxable income. Employees generally must work for a participating employer at least 10 years to be fully vested and receive the full monthly benefit for life starting at age 65. Retirees can start reduced benefits as early as age 55. A married worker can choose a spousal benefit option in which the worker gets a reduced benefit while alive and the surviving spouse continues to receive benefits after the worker's death. If the union pension annuity has a lump sum payout provision, workers can take a single cash payout. However, the entire amount becomes taxable immediately unless rolled over directly into another retirement plan such as an individual retirement account.