The History of Benefit Trusts

The custom of sheltering benefit programs in inter vivos trusts is almost fifty years old. It has developed from inauspicious beginnings, as a compromise solution for a nagging political problem, to an innovative process espoused by organized labour and enlightened management. That evolution is chronicled below, to bring into focus the present popularity of trusteed benefit plans.

  • The inter vivos trust was created, in ancient Common Law, as a facility for protecting the beneficial interests of people for whom trusteeships were needed --- such as orphaned children of minor age, and the mentally or physically infirmed.
  • The concept was given a new life when, after World War II, the U.S. Congress passed the Taft-Hartley Act. As a consequence, numerous benefit plans that had been negotiated and governed by manufacturing-sector unions, were moved to joint union-management control. Ineffective management by the sponsoring unions, had focused public and government attention on the need to secure beneficial interests. To mitigate the outrage of the unions, Taft-Hartley rendered a half-way decision. It left half of the control with the unions, gave half of it back to management, and lodged the resulting mechanism in the inter vivos trust.
  • Construction trade unions saw, in the Taft-Hartley Act, an opportunity to develop work-related, fringe benefits for their members. Due to the transient nature of their work, those tradesmen had no consistent, employer-employee relationship from which to garner such programs. The inter vivos trust afforded that source.

Monetary contributions were negotiated for delivery to benefit trusts. They were computed on the hours worked by specific tradesmen, regardless of the number of employers for whom each tradesman worked, hence the name multi-employer trust. These trusts, governed by boards of trustees, became plan sponsors, and the rules of eligibility and ongoing participation were tied to the accumulated contributions recorded for each worker.

  • The trusteed-benefit fund, or the multi-employer trust, was born. It spread, quickly, throughout the construction industry in the United States.
  • In the early 50's, the multi-employer trust fund (operated under the aegis of the inter vivos trust) became a major bargaining issue within the Canadian construction industry. During the next decade it appeared in all parts of Canada, engulfing the development of benefit plans based on life and health insurance, disability income, pensions, supplementary unemployment benefits, vacation and statutory holiday pay, training, travel expense and scholarship programs. By the mid 60's, the construction tradesmen, in this country, had better fringe benefits than almost any other identifiable group.
  • Inevitably, the construction industry's success, with the establishment and maintenance of excellent benefit programs, captured the attention of other groups. Looking beyond the original impetus for those programs --- the transience of work --- observers found some very positive results and a few desirable possibilities.

Economy of scale --- that traditional enhancer of purchasing power --- begot positive results. More benefits were bought for less. Internal reserves were accumulated against future contingencies.

Administrative efficiency generated unexpected savings, that were reinvested in expanded, more-flexible service for plan members.

Burgeoning assets caught the attention of the financial-service community. In turn the multi-employer trusts gained a kind of public respectability that translated into credibility with constituents and regulators alike.

Transfer of sponsorship away from employers, per se, removed, from the employer-employee relationship, the disenchantment and demotivation that flow, inevitably, from claimant disappointments over the perceived deficiency of benefit payments.

Removal, from the bargaining tables, of benefit-plan details, simplified and abbreviated the collective-bargaining process.

  • By the mid-1970's hundreds of organizations, with far less mobile workforces than in construction, had moved from stand-alone, benefit-plan sponsorship to multi-employer benefit trusts. They could be found in garment manufacture, forestry, ground, air and sea travel, food processing and retailing, education and brewing.
  • As the eighties arrived, and governments intruded more extensively into the operation of benefit plans, another waive of development occurred. Single employers saw an opportunity to rid themselves of the budgetary and administrative uncertainties caused by politicians and government regulators. They encouraged organized and unorganized employees, alike, to form boards of trustees and assume control of benefit plans. Thereby, the employers reduced their responsibilities to precise monetary contributions, nothing more.