Ullico Helps Union Members Prepare for Retirement

Ullico Investment Advisors, Inc. and Acropolis Investment Management, LLC have partnered to form Ullico Retirement Services (URS), a new investment service to help American workers prepare for their golden years.

Ullico is already known for its management of defined benefit plans, but unions are looking more and more to defined contribution plans. URS responded by launching a turnkey solution for Taft-Hartley plans. "We've been a trusted partner working on unions' defined benefit programs for 37 years. Now we'll be a trusted partner working on unions' defined contribution plans as well," says Joe Linehan, president, Ullico Investment Advisors, Inc.

Unions and Defined Contribution Plans

In traditional defined contribution plans, employees can choose to contribute to a 401(k) and employers will typically match the contribution up to a certain amount. In the union world, the employee contribution may be determined by a collective bargaining agreement mandating an hourly contribution by the employer. In some plans, employees have control over how the money is invested. In others, the funds are managed by trustees.

Taking a Passive Approach

Whether the plan is trustee-directed or participant-directed, URS advocates a passive approach to investing. "With every paycheck, money is added to the plan, which allows for dollar cost averaging as the money is invested. Passive investors will purchase investments with the intention of long-term appreciation. If the asset allocation is appropriate given the member's age and retirement horizon, they shouldn't need to try to guess when to get in or out of the market. The key is for them to have a strategic asset allocation," says Chris Lissner, president, Acropolis Investment Management.

To help members of the plan meet their goals, URS will offer professionally managed asset allocations based on their individual time horizons that adjust as members age. This helps members avoid the complicated task of constructing and maintaining an appropriately diversified portfolio with the correct allocation. "Even for those in retirement, we believe the same approach makes sense—to have a well-diversified selection of assets and then to rebalance as needed," says Lissner.

At regular intervals or following significant moves in the market, URS will automatically rebalance the account for the member. For example, if the stock market drops and the percentage of bond holdings increases, URS rebalances the account by selling some of the over-weighted bond holdings and adding stock holdings that are now at lower prices. "When this happens, by definition, you're selling high on the bond side and buying low on the stock side," says Lissner.

"Passive management has other advantages," says Lissner. "For one, actively managed investments tend to have higher research and trading costs. Over long time periods, high management fees and related expenses can create a significant drag on wealth creation." Passive management strategies tend to be more cost-efficient, resulting in lower fees. "In the passive world, we can select funds that have extraordinarily low expense ratios and that helps cushion the returns for the investor," says Lissner.

Another advantage is peace-of-mind for plan members. "For professional investors, there is perhaps some value in active investing, but individual investors have virtually no ability to consistently select the best active managers who will outperform the passive indexes," says Lissner.

Education: A Key Component

Every union is a little different, so their defined contribution plans won't be exactly the same. For URS, that means customizing the education that goes with each plan. "Some plans educate members by presenting complicated material, which requires some acumen to figure out what they're saying," says Lissner. "The education we offer is structured so that it speaks to things members can relate to."

URS customizes materials for each plan and offers one-on-one consultations where members can discuss their specific situation with an investment professional. "In those consultations, we can educate specifically around the members' situation. It's not just the broad concept of asset allocation and savings, but getting it down to the point where people can relate," says Lissner. "The focus is on helping members make the right investment selection so their money is properly invested with each contribution and rebalanced appropriately."

He adds that URS education efforts also address debt management, budgeting and other financial basics to help participants understand how to manage their personal finances. Knowing the effects that saving, spending and borrowing have on retirement planning is crucial. "Many people have never been taught the fundamentals, so we educate in a manner that applies to everybody," says Lissner.

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