On The Fringe
By David B. Stewart, CEBS

This article is intended to focus on the fringe benefits provided to members of the Empire State Council of Carpenters. What are fringe benefits? Fringe benefits, also referred to as employee benefits, can be described as compensation paid to an employee in addition to an hourly wage. Your non-union counterparts, are likely to view what you consider to be fringe benefits as perquisites (perks, perqs), when you consider that it is unlikely that they receive the fringe benefits you receive from their non-union employers.

The advantage of fringe benefits like health insurance is that when it is provided to you through your employer’s payroll system it is provided to you tax-free. In this way you get more “bang for your buck” in that your entire contribution goes toward earning health care benefit eligibility or paying your healthcare premium, as opposed to paying a health premium out of net wages.

In the area of pensions (pension and annuity), your contributions are tax deferred. Taxes in these instances are deferred until you take receipt of these monies. This means that your gross contributions are contributed and invested so that there is more money at work in the financial markets to fund your benefit or individual account. Considering yields (positive or negative) are applied to the amount invested, there is potential for greater gains in a tax deferred program. It is assumed that your income in retirement will be less than your income during your working career. If this proves to be true – in most cases it does – it means that you will be in a lower tax bracket and will pay taxes at a lower rate in retirement than you would have if the income was claimed when it was earned.

In the case of the Annuity Fund, distributions of your account balance under age 59-1/2 are penalized for premature distribution in an amount of 10% (except for very limited circumstances). The penalty is in addition to the regularly imposed income tax. The penalty is assessed by the IRS. The reason is that that tax deferred status is granted to the fund by the IRS only if it is administered in accordance with the Internal Revenue Code. The Annuity and Pension Funds are qualified with the IRS as retirement plans. Tax deferred status is granted with the understanding that it is the intent of these funds to supplement income from Social Security and personal savings in retirement.

It must be fully understood that these plans are not intended to be used as savings plans or as a credit union. Compensation for these purposes is subject to immediate taxation, much like your vacation pay contributions. This is a very important concept! Many times members view their annuity account as a bank account and are frustrated when they cannot withdraw money. Please remember - your annuity fund is a retirement fund subject to regulations of the IRS. To protect the qualified status granted to the trust by the IRS the Fund Trustees have a fiduciary responsibility to see to it that the funds are administered in accordance with the applicable Internal Revenue Codes. To violate these rules and regulations would put the qualified tax status of the funds in jeopardy for the entire membership.