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Pension Plans Under Collective Bargaining Bulletin No. 1147 UNITED STATES DEPARTMENT OF LABOR James P. Mitchell, Secretary BUREAU OF LABOR STATISTICS Ewan Clague, Com m issioner Pension Plans Under Collective Bargaining Vested Rights Compulsory Retirement Types and Amounts of Benefits Bulletin No. 1147 UNITED STATES DEPARTMENT OF LABOR James P. Mitchell, Secretary BUREAU OF LABOR STATISTICS Ewan Clague, Com m issioner For sale by the Superintendent of D ocum ents, U . S . GoYernment Printing Office, W ashington 25, D . C. - Price 20 cents From the March, May, and July 1953 issues of the Monthly Labor Review Letter of Transmittal U n it e d S t a t e s D e p a r t m e n t o f L a b o r , B u r e a u of L a b o r St a t is t ic s , W ashington, D . C., October 12, 1958. The S L : I have the honor to transmit herewith a study of various aspects of pension plans under collective bargaining in effect in the fall of 1952. The study deals with vested rights, compulsory retirement, types and amounts of benefits, and problems related to these aspects of pension plans. This study was prepared in the Bureau’s Division of Wages and Industrial Relations by Evan K. Rowe and Thomas H. Paine with the assistance of Harry E. Davis. E C , Commissioner. Hon. James P. Mitchell, e c r e t a r y of abor w an lague Secretary of Labor. (m) Preface During the past 10 years, one of the most important developments in the field of industrial relations has been the increase in the number and coverage of pension, health, and insurance plans established by collective bargaining or brought within the scope of labor-management agreements. Although many employers had sponsored and financed such programs, few union agree ments prior to 1940 made provision for such plans. By mid-1950 upwards of 5 million workers were covered by retirement programs within the scope of collective-bargaining agreements and practically every major union had, to some extent, negotiated such plans. Interest in pension plans was stimulated during the war and immediate postwar periods by a number of factors. Among these were the Government’s wage stabilization and taxation policies which made such programs feasible and less expensive to employers. Wage stabilization regulations limited the amount of wage increases which employers could grant, but, at the same time, permitted the adoption of reasonable employee insurance and pension benefits. Under Federal tax regulations employers were permitted to deduct, within specified limits, contributions to pension plans when computing their tax returns. Another factor which gave impetus to the establishment of private retirement plans was the decreasing value (in light of rising living costs) of the retirement and survivors’ benefits paid under the Federal Social Security program. Benefits under this program remained unchanged from 1940 until late 1950. Concurrently, the obligation of employers to bargain on pensions, under the Labor Management Kelations Act of 1947 was being contested. Early in 1949 this obligation was affirmed by the United States Supreme Court. Later that year the spread of pension plans was greatly accelerated by the report of the Steel Industry Fact-Finding Board which held that industry had both a social and economic obligation to provide workers with social insurance and pensions. The subsequent pension settlements in the steel and automobile industries further stimulated this movement. The number of workers covered by pension plans has continued to grow at a fairly rapid rate since early 1950. With pension plans financed in whole or in part by employers firmly estab lished as an integral part of the system of employee remuneration, consider able attention has been paid recently to the amount of benefits provided under the plans, their relationship to the Federal Social Security program, and their impact on the economy of the country. The immediate concern of many trade unions, particularly, has been to seek an upward revision in the amount of benefits to take account of rising living costs and to adjust those plans which are directly coordinated with or “off-set” against Social Security payments so as to pass on to the retired worker all or a part of the increased benefits made available under the Federal program. Many such benefit increases have occurred since 1950. (▼ ) While not publicized to the same extent as benefit amounts, other provi sions of pension plans have also received the attention of labor, management, and the general public. A major concern involves the loss or protection of the individual’s credited service under a plan if he should change jobs. Another is the matter of compulsory retirement, i. e., whether a worker should be compelled to retire solely on the basis of age. These problems are of vital concern not only to the employer, the worker, and the union, but also to the economy as a whole. Considerable discussion has centered about the extent to which the acquisition of rights toward benefits in one company might effectively deter workers from moving to another firm if their built-up pension credits with them cannot be transferred. Thus, a practice which may provide a low turnover rate, continuity of work, and better plant morale for the individual employer, may be the decisive factor in retaining the worker. The application of a mandatory retirement age may serve to re move from the labor force workers still capable of productive work. These problems take on special significance during a period when the effective utilization of manpower is of national importance. In meeting its responsibility in the field of industrial relations, the Bureau of Labor Statistics has, since 1945, conducted a number of studies dealing with pensions and other employee-benefit plans. These studies have in cluded : periodic reports on the overall growth of employee-benefit plans under agreement, including data on methods of financing and types of benefits provided; reports providing details on the types and amounts of benefits for selected industries; summary digest^ of selected programs; the changes in programs of major companies; and analyses of provisions pertaining to em ployee-benefit plans in the Bureau’s comprehensive file of collective-bargaining agreements. The Bureau maintains a file of current employee-benefit plans which is available for public use in the same way as the Bureau’s file of cur rent collective-bargaining agreements. The Bureau has made the following series of studies which analyze in de tail selected provisions of a representative sample of pension plans under collective-bargaining agreements. It is intended to meet the general interest in the substantive aspects of pension plans and to provide specific data to those directly concerned. (vi) Contents Pax* P art I — Vested rights__________________________________________________________________________________ Analysis of plans_______________________________________ ___________________________________________ Characteristics of vesting provisions_____________________________________________________________ Requirements for vesting_______________________________________________________________________ Attitudes toward vesting______________________________ ____________________ ________________________ Pension plans and labor m obility— ____ _______________ _________________________ ____________________ Vesting r i g h t s . ____ __________________ ___________________________ ________ ______________ _____ M ultiem ployer plans__________________ E a rly retirement benefits______________________________ ________________________ ________________ Other benefits_____________________ Tables: 1. Distribu tion of plans in survey, by workers covered and by type of employer u nit_________________ 2. Vested and nonvested plans and workers covered, by type of vesting and method of financing______ 3. Plans and workers covered by deferred full vesting, by requirements for vesting___________________ Chart: Vesting rights of workers under pension plans, after meeting service requirements, 1952____________ _ Part I I — Com pulsory retirement________________________________________________________________________ Analysis of plans________________________________________________________ Prevalence of compulsory retirement____________________________________________________________ Com pulsory retirement characteristics___________________________________________________________ Retirement practices and labor utilization____________________________________________________________ Attitudes toward compulsory retirement_____________________________________________________________ T a b le s: 1. Plans and workers covered by compulsory and automatic retirement provisions, b y type of em ployer unit— ________________ 2. Plans and workers covered by provisions for compulsory retirement, b y type of adm inistration_____ 3. Plans and workers covered by compulsory retirement provisions, b y compulsory age specified and provision for autom atic retirement at the same or later age___________________________________ 4. D istribution of plans b y specified normal, compulsory, and automatic retirement ages and by am ount of service credited after normal retirement age_______________________________________________ Chart: Com pulsory retirement provisions in pension plans, 1952__________________________________________ Part — T ypes and am ounts of benefits-----------------Participation_______________________ - ________________________________________ ____________________ M in im u m age and service requirements__________________________________________________________ M ax im u m age requirements____________________________________________________________________ Requirements for benefits__________________________________________________________________________ N o rm al retirement_________________ '___________________________________________________________ E a rly retirement______________________________________________________________________________ D isab ility retirement__________________________________________________________________________ N o rm al retirement benefits_________________________________________________________________________ Basic benefit form ula__________________________________________________________ M in im u m benefits_____________________________________________________________________________ Adjustm ent to Social Security benefits--------------------------------------------------------------------------------------------Am ounts of benefits___________________________________________________________________________ E a rly retirement benefits___________________________________________________________________________ D isab ility retirement benefits_______________________________________________________________________ III (VII) 1 1 2 3 4 5 6 6 8 8 2 3 4 5 9 10 10 11 11 13 9 10 11 12 10 15 15 15 15 16 17 17 17 17 17 19 19 20 22 23 Contents—Continued P a rt I I I — Continued Tables: 1. Types of retirement benefits provided, by number of plans and workers, 1952____________________ 2. M in im u m age and service requirements for participation__ ______________________________________ 3. M in im u m age and service requirements for normal, early, and disability retirement benefits_________ 4. Types of basic normal benefit formulas, b y method of financing__________________________________ 5. Provisions for including prim ary Social Security benefits in basic normal benefit formulas, by plans and workers covered__________________________________________________________________________ 6. Am ount of normal retirement benefits, including prim ary Social Security, for selected levels of earnings and years of credited service_______________________________________________________________ 7. Average normal retirement benefits expressed as percentage of selected earnings level_______ 8. Distribu tion of plans by percentage of total m onthly benefit (including prim ary Social Security) paid by the plan for selected earnings and service categories, b y method of financing____________ Charts: 1. T ypes of retirement benefits under pension plans, 1952_________________________________________ 2. Am ounts of normal m onthly retirement benefits under pension plans for $3,000 a year and 30 years’ service, 1952_____________________________________________________________________________ 3. Am ounts of normal m onthly retirement benefits under pension plans for $4,000 a year and 30 years’ service, 1952_____________________________________________________________________________ (v i i i ) Page 15 16 18 19 20 21 22 23 16 21 22 Pension Plans Under Collective Bargaining Part I—Vested Rights W has been focused in recent years on private pension plans, particularly on those established through collective bargaining. The establishment of “$100 pensions” in the steel industry in 1949 and the movement toward slightly higher pensions in other industries in 1950 served further to stimulate this interest as collectively bargained programs spread through large seg ments of industry. Although most attention has been directed to the rapid growth of these plans and the amounts of the benefits provided, other problems and implications also need close scrutiny. The present article contains, first, an analysis of the extent and nature of vested rights in a sig nificant group of pension plans under collective bargaining. An effort is made, second, to relate vesting, the development of multiemployer pen sion plans, and early retirement provisions to the problem of labor mobility. The primary purpose of pension plans is to pro vide income for workers when they retire from the labor force. In order to receive these benefits, plans generally provide that workers must fulfill certain requirements, usually a stipulated amount of continuous membership in the plan and attain ment of a prescribed normal or early retirement age. However, many workers change employers before becoming eligible for retirement benefits and, in doing so, lose all rights to their accrued pension credits. One means of protecting a worker’s credits under separate pension plans is provided by vesting. This is the guarantee to an individual of that right or equity in a pension plan based on all or part of the employer’s contribution made in his behalf should his employment be terminated before becoming eligible for retirement benefits. Contributions made by an employee under a plan financed by both the company and the employee (contributory plan) are almost invariably returned to the worker, with or without interest, should his employment be terminated prior to retirement. The vested right in most cases is granted in the form of an annuity, the payment of which com mences when the worker reaches retirement age. Occasionally, vesting provisions contain an option under which the worker can receive a lump-sum benefit when he leaves the company. id e s p r e a d in t e r e s t 273682—53-----2 Analysis of Plans In order to ascertain the prevalence and charac teristics of vesting provisions, the Bureau of Labor Statistics analyzed 300 pension plans, all of which were under collective bargaining.*1 These pro grams covered approximately 5,857,000 workers.2 Over three-fourths of the plans covering two-thirds of the workers were in manufacturing industries. Represented in the study was virtually every major manufacturing industry as well as many non manufacturing industries in which collectively bargained pension plans existed. The programs varied in size from those covering well over 100.000 workers to those applying to less than 1.000 employees (table 1). Eighty-five percent of the plans were restricted to single companies, the great majority of which had two or more plants. In some multiplantcompanies, the area covered by the program was limited to one plant; generally, however, the pro gram applied uniformly throughout all plants of the company. These single-employer plans cov ered slightly over three-fourths of the workers in a) * For the purpose of this study, plans under collective bargaining include (1) those established for the first time as a result of collective bargaining and (2) those originally established by either employer or union but since brought within the scope of the agreement, at least to the extent of the agreement establishing employer responsibility to continue or provide certain benefits. All of the 300 plans covered in this analysis were in effect in early fall of 1952. * Not all these workers are subject to collective-bargaining agreements. While every plan is under agreement, in many cases the plans are extended uniformly to cover workers outside the scope of the contract. In every instance, the figures represent the total number of workers in all units to which the plan applies. 2 deferred full vesting. Another type of deferred vesting grants only those benefit rights based on a certain percentage of the employer’s contributions after specified conditions are met, and this per centage increases as additional conditions are ful filled until eventually the worker is fully vested. For example, a plan may require participation for 10 years to acquire vested rights to one-third of the employer’s contributions, 15 years for two-thirds and 20 years for full vesting. This type of pro vision is generally termed deferred graded vesting. Deferred full vesting was the predominant type of vesting found in the study. This provision was contained in over four-fifths of the plans—covering a similar percentage of the workers—which pro vided for vesting (table 2). The remaining vested plans were of the deferred graded type. None of the plans gave employees full vesting rights im mediately upon participation in the plan. Only three of the vested plans granted workers cash benefits when they left their jobs after ful filling the necessary age and service requirements; under these plans, no provision was made for deferred annuities. With the exception of two plans which offered workers the choice of receiving either cash or deferred benefits, the remaining pro grams specified that the vested rights would be granted in the form of a deferred annuity com mencing at the normal retirement date; a few of these contained an option under which workers could begin receiving benefits when they reached early retirement age. the study. Multiemployer programs accounted for the remaining plans and workers. Three-fourths of the plans, covering almost four-fifths of the workers, were financed solely by employer contributions (noncontributory plans). The remainder were contributory, usually with the employer paying the greater share of the cost.8 Characteristics of Vesting Provisions The number of plans and workers covered by vesting provisions in the study and the method of financing these plans are shown in table 2. Of the 255 single-employer programs, 73, covering 27 percent of the workers under that type of plan, provided for vesting. Only two of the multiem ployer plans granted workers vested rights. Pension plans may provide for various types of vested rights. Immediate full vesting grants to the worker rights to all benefits based on the em ployer’s contributions which are made in his behalf from the date he begins participation in the plan. A provision under which the receipt of all rights are deferred until a worker attains a certain age and/or has completed a specified period of employ ment or participation in the plan is known as >Some plans provided for a basic noncontributory pension, and workers were given an opportunity to contribute to build up a supplementary an nuity. In these cases, only the noncontributory plan was analyzed. A few plans were noncontributory for workers eamiDg less than a specified amount, e. g., $3,000 per year, and contributions were required from those earning over that amount. These plans were classified as contributory programs. T able 1.— D is tr ib u tio n o f p la n s i n survey, by w orkers covered a n d by type o f em ployer u n it All plans Workers Plans Workers covered Single-employer plan3 Plans Multiemployer plans Workers Plans Workers Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent (thousands) (thousands) (thousands) Total................................ Over 100,000.................... 50,000-99,999.................... 25,000-49,999.................... 15,000-24,999..................... 10,000-14,999.................... 7,000-9,999........................ 5,000-6,999........................ 4,000-4,999........................ 3,000-3,999........................ 2,000-2,999........................ 1,000-1,999........................ Below 1,000...................... 1 Less than 0.1 percent. 300 io~ 12 26 27 33 22 25 23 29 39 33 21 100.0 jTT 4.0 8.7 9.0 11.0 7.3 8.3 7.7 9.7 13.0 11.0 7.0 5,857.3 2,590.3 833.8 860.1 510.5 379.5 177.9 148.9 99.9 99.9 96.5 47.5 12.5 100.0 44.4 14.2 14.7 8.7 6.5 3.0 2.5 1.7 1.7 1.6 .8 .2 255 7 7 26 24 26 20 22 20 26 31 26 20 100.0 %T 2.7 10.2 9.4 10.2 7.8 8.7 7.8 10.2 12.3 10.2 7.8 4,496.6 1,791.4 485.6 860.1 458.5 303.2 162.7 130.9 86.9 90.3 77.3 37.9 11.8 100.0 40.0 10.8 19.1 10.2 6.7 3.6 2.9 1.9 2.0 1.7 .8 .3 45 3 5 3 7 2 3 3 3 8 7 1 100.0 6.7 11.1 6.7 15.5 4.5 6.7 6.7 6.7 17.7 15.5 2.2 1,360.7 798.9 348.2 52.0 76.3 15.1 18.1 13.0 9.6 19.2 9.6 .7 100.0 58.7 25.6 3.8 5.6 1.1 1.3 1.0 .7 1.4 .7 0) 3 T able 2 —Vested and nonvested plans and workers covered, by type of vesting and method of financing Plans Total........................................................... With vesting provisions *_______ ____ Deferred full vesting......................... Deferred graded vesting................... Without vesting provisions.................... Plans Contributory plans Noncontributory plans All plans Workers Plans Workers Workers Plans Number Number Number Number Percent (thou Percent Number Percent (thou Percent Number Percent (thou Percent sands) sands) sands) 300 75 61 14 225 100.0 5,857.3 967.1 25.0 829.3 20.3 4.7 137.8 75.0 4,890.2 100.0 16.5 14.1 2.4 83.5 225 18 14 4 207 100.0 4,592.0 121.4 8.0 6.2 90.6 1.8 30.8 92.0 4,470.6 100.0 2.6 1.9 .7 97.4 75 57 47 10 18 100.0 76.0 62.7 13.3 24.0 1,265.3 845.7 738.8 106.9 419.6 100.0 66.8 58.4 8.4i 33.2 * None of the 75 plans including vesting provided for immediate full vesting. Requirements for Vesting The requirements which workers must fulfill before being vested varied greatly among the plans. Some programs prescribed specified lengths of service before workers were vested. Others provided that vesting rights were accrued after the completion of stipulated periods of partici pation in the plan; these programs often did not permit a worker to join the plan when he first became employed. Frequently, he was required to work with the company for periods ranging from 1 to 5 years before he was eligible to be covered by the pension plan, and often age quali fications also had to be fulfilled. Age, service, and participation requirements of plans providing for deferred full vesting are shown in table 3. Assuming that all workers join the plan when first eligible, the plans under which vesting is con ditioned upon participation requirements may be made comparable to those specifying service qualifications by adding the required prepartici pation period to the plan membership period. Using this approach, the service requirements of all deferred full vested plans ranged from 5 to 25 years, with the median plan providing that a worker must have been employed for 13 years before acquiring vested rights. It is to be remem bered, however, that service qualifications were not the sole requirement for vesting. In a num ber of plans, as indicated above, the attainment of a specified age, almost invariably 45 years or over, was also required before vesting occurred. The plans with deferred graded vesting also varied greatly in the requirements to be fulfilled before a worker had vested rights. The minimum qualification before any part of the employer's share was vested ranged from 5 to 12 years' serv ice, except for one plan, contingent upon age alone, which granted 2% percent of the employer's share for each year of age the worker was over 25. Nine of the 14 plans with deferred graded vesting required 10 years of service before any vesting took place, and 2 of these had age restrictions as well. The methods of grading also ranged widely. The most common method was to vest half of the employer's contributions after 10 years' service, and 5 percent additional for each year of service over 10 until the worker was fully vested after 20 years' employment. Other methods were to vest the employer's contributions by quarters or thirds after specified service conditions had been fulfilled. Half the plans with deferred graded vesting re quired 20 years' employment before full vesting was achieved. In other cases, the maximum serv ice period specified ranged from 15 to 30 years.4 Although the purpose of vesting is to protect the pension equity of those workers who leave their jobs before becoming eligible for retirement bene fits, the presence of restrictive requirements to qualify for vesting found in many of the plans analyzed would tend to limit the value of this provision. The qualification of at least 10 years' service that was present in over three-fourths of the plans would restrict considerably the number who might benefit by vesting. (See chart.) 4 Two of these deferred graded plans conditioned vesting rights upon participation requirements. In these two cases, the period required before participation could begin was added to the plan membership period in the data presented in this paragraph. 4 visions, aside from the influence of pension credits on labor mobility discussed later, is that the plan can be made more appealing to the younger em Plans Workers ployees, who generally are less concerned with the Requirements for vesting3 Number problems of retirement. Number Percent (thou Percent sands) Certain considerations exert influence against the inclusion of vesting rights. One is the feeling Total................................................ 829.3 61 100.0 100.0 that labor turnover will be increased, thereby Service............................................. 17 29.0 198.7 24.0 5 years.......................................... 3 5.0 8.0 1.0 raising replacement and training costs for the 10’years........................................ 9 15.8 148.8 17.9 15 years......................................... 3 5.0 37.3 4.5 employer who provides vesting in his pension 20 years......................................... 2 3.2 4.6 .6 Participation............... ................. 14 22.6 347.4 41.9 plan. A more important consideration is that 6 years......................................... 6 114.3 13.8 9.8 5 10 years.................................. 5.4 44.8 8.0 the inclusion of vesting, assuming the same levels 1 15 years—.................................. 1.6 .3 2.8 2 20 years....................................... . 3.2 22.4 185.5 of benefits, increases the cost of the plan. In a 16 Age and service_______________ 190.1 22.9 26.0 Age 40 and 5 years’ service........ 42.8 5.1 1 1.6 nonvested plan, the amounts contributed in be Age 40 and 10 years’ service___ 1 5.2 1.6 43.3 4 Age 45 and 15 years’ service___ 18.1 2.2 6.4 half of those workers who lea ve their jobs remain Age 50 and 10 years’ service___ 1 1.6 1.0 .1 Age 50 and 20 years’ service___ 3 5.0 3.8 31.5 in the fund. These forfeited funds may be used Age 50 and 25 years’ service___ 3.2 2 33.6 4.1 Age 55 and 20 years’ service___ 15.6 1.9 3 5.0 either to lower the size of the contributions to Age 60 and 15 years’ service___ 1.6 4.2 1 .5 Age and participation.............. ___ 24.4 5 8.0 3.0 the plan or to increase the size of the benefits for Age 45 and 5 years’ participa 1_ tion_____________ 4.7 1.6 .6 those who remain until retirement age. Age 45 and 10 years’ participa tion.................................... _ 2 3.2 1.3 10.7 However, m many cases, the cost of vesting is Age 45 and 15 years’ participa 1 tion......................................... 4.2 1.6 .5 not as large as it might seem from first observa Age 50 and 10 years’ participa 1 tion....... ................................ .6 1.6 4.8 tion. One mitigating factor is that labor turn Service and participation______ 2 2.4 3.2 20.3 10 years’ service of which 5 over is usually concentrated among the younger 1 must be participation_____ 2.2 1.6 18.5 15 years’ service of which 5 workers. Under plans which provide for imme 1 must be participation______ .2 1.6 1.8 1 Service or participation________ 1.6 4.5 .5 diate full vesting, the amounts paid to these younger 25 years* service or 10 years’ 1 participation.............. .............. 1.6 .5 4.5 workers when they terminate their employment Age, service, and participation... 2.2 1 1.6 .3 Age 55 and 15 years’ service of 1.6 2.2 which 2 must be participation. 1 .3 "will be relatively small. If the pension program Alternatives_____ ... . 4 6.4 34.4 4.1 contains provisions which require a long waiting Age 45 and 5 years' participa tion, or 10 years’ participation. 1 1.6 13.0 1.5 period before benefits are vested, the ultimate cost Age 45 and 10 years’ service, or 1 15 years’ service....................... 1.6 .5 4.0 of this provision will be lowered, since a large pro Age 50 and 14 years’ participa 1 tion, or 19 years’ participation. 1.6 4.1 .5 portion of the individuals who change their jobs Age 50 and 20 years’ service, or 1 15 years’ participation........ 1.6 1.6 13.3 will not be entitled to any benefits and since many 1 O ther............... 1.6 7.3 .9 15 years' vesting service where of those having sufficient service to possess vest 1 year of vesting service is given for each year’s service ing rights will remain on their jobs until retire up to age 40, 2 years for each year between age 40 and 50, ment age is reached. Another factor influencing and 3 years for each year’s service over age 50 1 1.6 7.3 .9 the cost of vesting is the percentage of the total contributions to the plan paid by the worker 1 Based on a study of 300 pension plans covering approximately 5,857,000 workers. under a contributory program. In general, the * Service refers to the period of employment of the individual, while par ticipation includes only the plan membership time. Both may be identical cost of vesting becomes smaller as the proportion or may vary if eligibility requirements prerequisite to membership in the program are specified or if the individual, although eligible to join the plan, of the total cost of the plan paid by the employees declines to do so. becomes greater. Union attitudes toward vesting have not been Attitudes Toward Vesting uniform. Many unions have worked to establish The decision on whether to include vesting multiemployer pension plans, in which the need provisions in a pension plan is influenced by several for vested rights diminishes as the area covered factors. Favorable to the inclusion of vesting is by the program increases. For these plans, the the concept that pensions and other fringe benefits question of vesting has not been considered as one constitute withheld wage payments. As such, of paramount importance. they represent earnings in which a worker has a In negotiations for single-employer programs, vested right should he leave his job. Another unions have directed considerable attention to the consideration advanced in favor of vesting pro funding of the plan and the amounts of benefits. T able 3.— P la n s a n d w orkers covered by deferred f u l l vesting, by requirem ents f o r vesting 1 5 While vesting rights have also been considered desirable and in many cases actively sought, this feature has not been incorporated in the great pro portion of negotiated plans. Many of these pen sion plans contained provisions that the programs will continue for a period of 3 to 5 years before further bargaining on proposed changes can be undertaken. In view of the declared intentions of many union leaders, the inclusion of vesting rights will very likely be one of the union demands when these negotiations take place. The atti tude of the United Automobile Workers (CIO) was expressed by its president in a statement to the union’s 1951 convention: “ We have to fight to get vested rights and the ability to transfer credits. . . . The guaranteed funded program is the key to these other matters, because when the money is in a trust fund you can go after these other things much easier . . . ” 6 With reference to establishing new pension plans, the American Federation of Labor has expressed the opinion that vested rights should be provided when a plan is first put into operation, even if this inclusion results in the lowering of the level of retirement benefits. “ The level of benefits can be improved through later negotiations, while the protection of earned pension rights—through a vesting provision or through a multiemployer arrangement—can be more readily accomplished at the inception of the plan than at a later date after the plan has been set up on some other basis.” 6 Pension Plans and Labor Mobility The fear has frequently been expressed that labor mobility may be restricted by pension pro grams that require continuous membership for long periods in order for a worker to qualify for benefits. Many workers may be unwilling to leave establishments in which they have built up substantial credits toward retirement annuities. Pension plans are, of course, only one factor to be considered in labor mobility. Many other con ditions will also influence a worker’s decision on whether to change jobs. In any dynamic economy, there is a substantial amount of shifting of workers among employers. 1 Proceedings of Thirteenth Constitutional Convention, United Auto mobile, Aircraft, and Agricultural Implement Workers of America, April 1-6,1951. • Pension Plans Under Collective Bargaining: A Reference Guide for Trade Unions. American Federation of Labor (p. 74). Vesting Rights of Workers Under Pension Plans, After M eeting Service Requirements, 1952 WORKERS ARE FULLY NT VESTED: Q 10 20 30 40 50 60 70 80PERCE90 -----1 ----1 ------j ---------1 T" nr After ,5 Years -Workers - Plans Within 10 Years _ l----------, Within 20 Years No Vesting Rights BUUNRITEAEUDOSFTALATBEOSRDSETAPTAIRSTTICM*ENTOFLABOR N o t e — Based on a study of 300 pension plans under collective bar gaining, covering approximately 5,857,300 workers. Many of these plans also specified age requirements to be fulfilled before vesting took place. A study made by the Bureau of the Census reveals the extent to which this occurs.*•7 Of wage and salary workers employed in nonagricultural indus tries in January 1951, only about one out of every five had been working for the same employer a decade earlier. Stability of employment varied among these industries. Whereas only about 1 of every 10 workers in the construction industry remained with the same employer during this period, nearly a third of the workers in transpor tation, communication, and other public utilities did so. The Census survey defined a break in continuous period of employment as occurring when layoff exceeded 30 days and when a worker was inducted into military service. Pension plans usually allow longer periods of layoff, as well as all authorized military service, before continuous service is 7 Data in this paragraph are from U. S. Department of Commerce, Bureau of the Census, released in Current Population Reports, Labor Force, Decem ber 5, 1951 (Series P-50, No. 36): Experience of Workers at Their Current Jobs, January 1951. For further discussion of this subject, see also Job Tenure of American Workers, Monthly Labor Review, September 1952 (p. 257) and The Mobility of Tool and Die Makers, Monthly Labor Review, December 1952 (p. 605). 6 deemed to be broken. While these practices would tend to increase median length of service figures as reported by the Census, eligibility requirements prior to participation in some pension plans would tend to reduce the amount of allowable working time counted toward pension credits. In any case, the relatively short job tenure of many workers will prevent them from accruing credits toward retirement income during much of their working life. On the other hand, once an employee has secured substantial credits in a pension plan, his willingness to shift employers might be affected by his desire to retain pension rights. To the extent that private pension plans do in fact act as a brake upon desirable labor mobility, their retarding effect can be mitigated in several ways. Vesting Rights Reluctance to change employers due to loss of pension rights presumably can be reduced through vesting. Liberal provisions, particularly those under which the worker is given partial or full vesting rights in the plan immediately upon participation, would serve to reduce this reluc tance. Under such provisions, should the worker change employment he would retain an equity in his accrued pension credits and, thus, the assurance of at least some income upon reaching retirement age, irrespective of his employment status. Wide spread application of such provisions would permit a worker to receive retirement benefits under many different plans. Although the immediate concern of a worker contemplating a change of employers may be the potential loss of his accrued rights, the presence or absence of vesting provisions in the plan of his prospective employer may also affect his decision to move. The existence of a plan with a liberal vesting provision would presumably make the job more attractive and would be particularly im portant in a defense economy where the need for additional workers in defense jobs may be only for short durations. As has been pointed out, however, the presence of a vesting provision in a plan does not necessarily protect the accrued credits of all individuals whose employment is terminated, inasmuch as these rights are usually conditioned upon the completion of a stated period of credited service and/or the attainment of a specified age. For workers whose job tenure is relatively short, such restrictions would tend to limit their ability to become vested. Multiemployer Plans Another means of protecting pension credits is to broaden the area covered by the plan, thus enabling a worker who moves from one firm to another to transfer his pension credits with him. As the number of establishments covered by a program increases, the degree of mobility that a worker is allowed without losing pension rights also becomes greater. Usually a worker must move to another job covered by the same pension plan to be able to transfer his pension credits, although examples of reciprocity arrangements between different programs do exist. The pension plans of most multiplant companies permit workers employed in one plant or occupa tion to shift to other plants or occupations in the company without loss of pension credits. Under this type of plan, the freedom of movement may be restricted to a few plants within the same local area or may be extended nationwide—sometimes even across industry lines—depending upon the nature and size of the corporation involved. Programs covering more than one employer occur in many and varied industries. The com mon bond which links employers, who are engaged in a particular type of work, in one program usually is collective-bargaining relations with one union. Often the scope of these plans is confined to a metropolitan area. In the New York area, for example, many employers in the wholesale and warehouse industry contribute to one pension fund for the benefit of their workers who are members of the Distributing, Processing, and Office Workers of America (Ind.). New York and Chicago milk truckdrivers who are members of the International Brotherhood of Teamsters (AFL) are covered by pension funds to which their re spective employers contribute. In cases where the fund includes most of an industry’s employers within a metropolitan area, considerable freedom of movement is provided the workers with no loss in pension rights. However, multiemployer funds of this type are often restricted to companies employing workers in one occupational group. 7 For example, in the construction industry in the New York area, separate pension plans are in operation for the painters and decorators, elec trical workers, roofers, and sheet-metal workers, and other crafts. Collective-bargaining practices which have de veloped in some industries have resulted in the extension of multiemployer plans beyond a metro politan area. In the longshore industry on the West Coast, a pension fund has been established under the coastwide agreement between the Pacific Maritime Association and the International Long shoremen's and Warehousemen's Union (Ind.). Workers under the agreement of the American Federation of Hosiery Workers (AFL) with the Full-Fashioned Hosiery Manufacturers of America, located primarily in the eastern Pennsylvania and New Jersey area, are covered by one program which protects the individual against loss of pen sion credits as long as he is employed by any employer member of the plan. Plans of an even wider scope, covering a great proportion of all the workers in an industry, are rare. Perhaps the best publicized plan most nearly industrywide in scope is that found in the bituminous coal industry. The United Mine Workers Welfare and Retirement Fund covers a great proportion of the entire soft-coal industry; employers who bargain with the United Mine Workers of America (Ind.) contribute 40 cents per ton of coal mined to the fund. In the an thracite industry, a similar pension plan exists. Another example of a program which covers a high proportion of workers in an industry is found in the men's and boys' suit and coat industry. Manufacturers located in New York, Philadelphia, Chicago, and other principal cities contribute to one retirement fund for the benefit of their workers who are members of the Amalgamated Clothing Workers of America (CIO). The right to move from one pension program to another gives a worker an additional degree of mobility without endangering his retirement credits. In the women's garment industry, a system of reciprocity between various plans of the International Ladies' Garment Workers' Union (AFL) has been established to insure retirement income to those workers who do not have the necessary service requirements to receive benefits from any one fund but who meet those require ments if their combined length of service under various plans in the industry is taken into account. Each separate ILGWU retirement fund con tributes 1 percent of its income to the Reciprocal Retirement Fund, which pays benefits to those not qualifying under any one pension plan. Among the ILGWU affiliates already participating in the reciprocal arrangement are the New York Cloak and Dress Joint Boards, the South Jersey Joint Board, the Eastern Regional Retirement Fund, and some local unions with their own separate pension programs. The union's general executive board has announced it will request the 1953 convention to make participation in the central fund mandatory upon all garment-industry retirement plans.8 Multiemployer pension plans operate generally within one industry, while the geographical area covered may vary considerably. The Toledo (Ohio) Area Pension Plan represents a different approach in that it covers companies in many different industries but located within one metro politan area. Negotiated by the United Auto mobile Workers (CIO), the plan covered about 1,300 workers employed by 19 different companies in December 1951; the number of workers covered by each employer ranged from below 10 to above 200. Under this plan, a worker may move from one employer to another covered by the program and continue to accumulate his pension credits. Thus, multiemployer pension plans generally afford protection to a worker shifting jobs only if he remains within the particular industry or area. In many instances, however, a worker changes occupation or location when he shifts jobs. In March 1944, one out of every six civilian workers was employed in an industry group different from the one he had been employed in the week before Pearl Harbor.9 In the year following the end of hostilities, a return to a peace time economy brought a new wave of shifts in employment, affecting one of every eight civilian workers. These data refer only to shifts between broad industry groups, e. g., shifts between agri culture and manufacturing or between sales work and skilled trades. If transfers among individual industries or occupations were counted, the total number of employment changes would be increased. s International Ladies’ Garment Workers** Union, J u s tic e , Vol. XXXIV, No. 18. September 15, 1952. • Fact Book on Manpower, U. S. Department of Labor, Bureau of Labor Statistics, January 1951. Source: U. S. Bureau of the Census. 3 Shifts in geographical location also occur fre quently. In March 1945, over 15 million persons in the civilian population were living in a different county from that in which they lived in December 1941.10 Of these, 7.7 million were living in a different State. From April 1948 to April 1949, over 8 million persons in the civilian population moved from one county to another, with over half of these having moved to a different State. Early Retirement Benefits While vesting provisions and multiestablish ment plans are the primary means of protecting a worker's pension credits prior to qualifying for retirement benefits, under many plans a worker is entitled to an early retirement benefit before the attainment of the normal retirement age and after the completion of a specified number of years of service. Although the primary purpose of this benefit is to provide income to those workers who fulfill the necessary qualifications and who wish to withdraw from the labor force before reach ing normal retirement age, some individuals who desire to change jobs may retire earlier, either drawing their monthly annuities while employed elsewhere or deferring the payment of benefits until normal retirement age. The Bureau's study of pension plans showed that early retirement provisions were more prev alent than those providing for vesting. While only one-fourth of the plans, covering one out of every six workers, granted vested rights, over half the plans, with a similar proportion of workers, provided for early retirement. Over three of every five single-employer programs provided this benefit; on the other hand, multiemployer plans only rarely included it. In the plans providing for early retirement, workers were usually eligible to retire 5 or 10 years before their normal retirement age, generally after having been covered by the plan for a Ibid. substantial period of time. The attainment of age 55 or 60 was the most prevalent requirement found, and in cases covering a majority of the workers, the completion of 15, 20, or more years of credited service was also necessary to qualify for early retirement. In many plans, the right of a worker to retire early was contingent upon the consent of the employer. Over two-fifths of the plans, providing for early retirement and applying to more than one of every four workers covered by this benefit, required workers to obtain company approval in order to retire early. Although early retirement provides a method whereby older workers can terminate their em ployment without losing pension benefits, workers in this age group usually have greater stability of employment than younger workers. Conse quently, those who qualify for early retirement benefits are less likely to change jobs. Other Benefits Another approach to the problem of providing benefits for workers who terminate their employ ment is through the inclusion of severance benefits. When integrated with pension plans or established in lieu of such programs, severance benefits often provide a lump-sum benefit to those whose employ ment is terminated before retirement. In other instances, as in the collective-bargaining agree ments of some companies in the rubber-manu facturing industry, severance pay is given to those who have reached retirement age but who have not accumulated sufficient service to qualify for a pension. Disability provisions grant benefits to eligible workers who become permanently and totally disabled prior to normal retirement age. Since eligibility for this benefit is conditioned upon physical incapacity and is payable only as long as the worker is unable to rejoin the labor force, a discussion of this provision is outside the scope of this report. Part II—Compulsory Retirement An upon the relationship between the number of older persons in the labor force and the number retired from work is the age at which cessation, of employment occurs. As the population continues to grow older, an increase in the proportion of the total population that is no longer in the labor force can be expected. In view of the trend toward a longer life span, es pecially if coupled with extension in the average length of “working life” capacity, the inflexible application of mandatory retirement ages would presumably result in an increasing amount of unused manpower. Determination of when work ers should be retired thus becomes an important factor affecting labor utilization. Since 1900, the population of the United States has doubled and its age composition has undergone profound changes. One of the most significant changes has been the rise in the proportion of older persons. In 1900, about 4 percent of the population was aged 65 or over; by 1950, this proportion had doubled.11 Accompanying this in crease in the proportion of older persons has been a declining trend in labor-force participation among older men, especially with respect to those aged 65 or over. In 1890, about two-thirds of all men in this age group were in the labor force; the proportion had dropped to a little over 40 percent in 1950. (The proportion of women in this age group in the labor force has remained fairly con stant and was about 8 percent in 1950.) As a result, the number of persons aged 65 and over im p o r t a n t in f l u e n c e 11 Data In this paragraph are from Bulletin 1092: Employment and Eco nomic Status of Older Men and Women. Washington, Bureau of Labor Statistics, May 1952. T able 1.— P la n s not in the labor force has grown from less than 2 million in 1900 to 9.4 million in 1950. Private pension plans have helped to formalize the age at which workers retire from the labor force. Invariably, these plans provide for a nor mal retirement age. Generally, the normal re tirement age is the earliest age at which a worker, having qualified for benefits, may retire at his own volition and receive the full amount of benefits to which his length of service or amount of earn ings, or both, entitles him under the normal re tirement provisions of the plan. While workers may be permitted to continue in employment past this age, the establishment of a normal age serves to formalize personnel actions with respect to retirement so that all workers covered by the program are treated alike. As pension plans come within the scope of collective bargaining, retire ment ages become matters of labor-management negotiation. The widespread attention which has been focused on these plans has helped to publicize the concept of a formal, uniform retirement age, and has probably influenced the development of policies with respect to older workers in other com panies which do not maintain formal pension programs. The impact that pension plans have upon the utilization of manpower will be determined, in part, by whether retirement is made mandatory through compulsory retirement provisions and, if so, at what ages. As defined in this report, the age of compulsory retirement is that age at which a worker can be retired by reason of age alone. It is that point at which the worker loses the privi lege of deciding whether he should retire or con tinue on his job. Retirement is not necessarily mandatory under such a provision, for a worker , a n d w orkers covered by c o m p u ls o ry a n d a utom atic retirem ent p ro v is io n s by typ e o f em p lo yer u n it Single-employer plans AH plans Provision Plans Num ber Total.............— ............................. -........ With compulsory retirement_________ With automatic retirement______ Without automatic retirement____ Without compulsory retirement.......... . 300 175 61 114 125 Workers Per cent Number (thou sands) Per cent 100.0 58.3 20.3 38.0 41.7 5,857.3 3,376. 5 679.8 2,696.7 2,480.8 100.0 57.6 11.6 46.0 42.4 Workers Plans Num ber 255 172 60 112 83 Multiemployer plans Per cent Number (thou sands) 100.0 4 496.6 67.5 3,337.7 23.5 665.5 44.0 2,672.2 32.5 1,158.9 Per cent 100.0 74.2 14.8 59.4 25.8 Plans Num ber 45 3 1 2 42 Workers Per cent Number (thou sands) 100.0 6.7 2.2 4.5 93.3 1,360.7 38.8 14.3 24.5 1,321.9 Per cent 100.0 2.9 1.1 1.8 97.1 10 Compulsory Retirement Provisions in Pension Plans, 1952 Compulsory Retirement 0r 1......... et AgeoF: 10 T,,w ........^20 Analysis of Plans Percent o .............1 'i50 —i 30 t"*. 40 65 68 70 No Compulsory Retirement N ote: based on a study of 300 pension plans under collective bargaining, covering approximately 5,857,000 workers. Three plans, covering approx imately 42,300 workers and providing for compulsory retirement at ages other than those shown are excluded from the chart. may be permitted to continue to work after reach ing the compulsory age. Under some plans no provision is made for working beyond the compul sory age or beyond a specified later age. Such a provision is called automatic retirement. This article analyzes the extent and nature of provisions for normal, compulsory, and automatic retirement in 300 pension plans under collective bargaining which were in effect in the fall of 1952 and covered approximately 5,857,000 workers.1112 In addition, an attempt is made to relate retire ment practices to labor utilization. T able 2. — P la n s 11Not all these workers were subject to collective-bargaining agreements. While every plan was under agreement, in many cases the plans were extended uniformly to cover workers outside the scope of the contract. In every in stance, the figures represent the total number in all units to which the plan applies. The programs varied in size from those covering well over 100,000 workers to those applying to less than 1,000 employees; 225 were financed entirely by the employer; the remainder were contributory, usually with the employer paying the greater share of the cost. , a n d w orkers covered by p ro v isio n s f o r co m p u lso ry retirem ent by typ e o f a d m in is tra tio n Plans with compulsory retirement All plans Workers Plans Type of administration Total........................................................... Company_________________________ Company with union representation__ Company with individuals’ right to appeal through grievance machinery or to a bipartite committee................... Combination of company and bipartite Bipartite.................................................. Tripartite _ _ _ ___________ _ __ Provisions for compulsory retirement were contained in 175 of the 300 plans, covering almost 3 of every 5 workers in the study. Indefinite extensions beyond the compulsory age could be granted by the employer in 114 of these plans; the remainder provided that workers would be automatically re tired upon reaching a specified age (table 1). Only three multiemployer plans contained com pulsory retirement provisions, one of which also stipulated an automatic age. Generally, the analysis revealed that the greater the degree of union participation in the administra tion of the plans the less likely were they to con tain compulsory retirement provisions. Only 12 of the 55 plans in which the union had equal rep resentation with the employer in administering the program (bipartite or tripartite) provided for compulsory retirement (table 2). On the other hand, 88 of the 111 plans which were administered solely by the company contained such provisions. In about a third of all the plans, including many of those negotiated by the United Steelworkers of America (CIO), the company had full responsi bility for administering the plan; however, the individual had the right to appeal decisions con- Prevalence of Compulsory Retirement. Plans Workers Plans without compulsory retirement Plans Workers Number Number Number Number Percent (thou Percent Number Percent (thou Percent Number Percent (thou Percent sands) sands) sands) 300 111 3 100.0 100.0 100.0 5,857.3 1,964.3 6.2 100.0 100.0 100.0 175 88 2 58.3 79.3 66.7 3,376.5 1.748.2 2.7 57.6 89.0 43.5 125 23 1 41.7 20.7 33.3 2,480.8 216.1 3.5 42.4 11.0 56.5 01 40 48 7 100.0 100.0 100.0 100.0 1,572.0 906.0 576.1 832.7 100.0 100.0 100.0 100.0 39 34 12 42.9 85.0 25.0 690.1 862.2 73.3 43.9 95.2 12.7 52 6 36 7 57.1 15.0 75.0 100.0 881.9 43.8 502.8 832.7 56.1 4.8 87.3 100.0 11 cerning his eligibility for benefits through griev ance machinery or to a bipartite committee. Well over half of the plans in this category did not contain compulsory retirement provisions. A combination of company and bipartite admin istration was found in 40 programs, notably in those negotiated by the United Automobile Workers (CIO). In these plans, a bipartite com mittee made all decisions concerning a worker's eligibility for benefits and the amount of the ben efits to be provided in accordance with the provi sions of the agreement between the parties; other functions of administration, such as investment of funds, were performed by the company within the terms of the contract. Over four-fifths of the plans with this type of administration provided for compulsory retirement. Com pulsory Retirem ent Characteristics. The most prevalent age for compulsory retirement was 65 years and was found in 60 percent of the 175 plans including these provisions (table 3). With three exceptions, the remaining compulsory plans speci fied either 68 or 70 as the age at which workers could be retired by reason of age alone (see chart). Twenty of the plans with compulsory provisions stipulated a lower compulsory age for women, which was 5 years earlier than that for men in all but 2 cases. Significantly, all but 14 of the 300 plans also specified 65 as the normal retirement age; a lower normal age for women, usually 5 years earlier than for men, prevailed in 30 plans. Generally, the lower the compulsory retirement age, the greater was the chance that the plan per mitted extensions beyond that age with the con sent of the employer. Of the 104 plans stipu lating 65 as the compulsory age, only 9 provided for automatic retirement at that age; 18 of the 50 plans with a compulsory age of 68 specified that a worker could not be employed past that age; and 15 of the 18 plans with a compulsory age of 70 automatically retired workers at that age. Of the 131 plans in which extensions beyond the compulsory age could be granted, 114 placed no maximum limits on the length of the extensions which were, instead, subject to the discretion of the employer. In the remaining cases, however, the plans specified that extensions beyond the compulsory age were limited to a maximum age, usually 70, at which point the worker would be automatically retired. Under plans which allow a worker to remain in employment after normal retirement age, an im portant consideration to the individual is whether he is permitted to continue to build up credits toward pension benefits. This concern, of course, is less significant where maximum benefits under T a bl e 3. — P la n s a n d w orkers covered by c o m p u ls o ry re tire m ent p ro v is io n s , by c o m p u ls o ry age specified a n d p ro v is io n f o r autom atic retirem ent at the same or later age 1 ‘ Total Without automatic retirement With automatic retirement Compul Workers Workers Workers sory re tirement age* Plans Num Plans Num Plans Num ber Per ber Per ber Per (thou cent (thou cent (thou cent sands) sands) sands) Total........ 175 3,376.5 100.0 65 years— 104 2,232.0 100.0 66 years... 1 31.5 100.0 68 years... 50 968.8 100.0 69 years— 1 7.0 100.0 70 years_ 18 133.4 100.0 72 years— 1 3.8 100.0 114 2,696.7 79.9 81 1,964.4 88.0 29 674.0 69.6 1 7.0 100.0 3 51.3 38.5 61 679.8 20.1 231 267.6 12.0 31.5 100.0 21 294.8 30.4 15 82.1 61.5 1 3.8 100.0 1 Based on a study of 300 pension plans under collective bargaining covering approximately 5,857,000 workers. * 20 plans, covering 492,500 workers, specified a lower compulsory retirement age for women than for men. In all but 2 cases, the age differential was 5 years; the other 2 programs specified differentials of 3 and 10 years. a plan are based on a specified number of years of service, as for example, 25 or 30 years. In many such cases, workers would have fulfilled these re quirements prior to normal retirement age and thus would have no need for additional credit. Two-thirds of the 300 plans in the study per mitted the workers to continue to accumulate credited service after the normal retirement age. Of these, nearly 90 percent credited all such serv ice worked (table 4). Generally, the plans that did not contain provisions for compulsory or auto matic retirement were more likely to allow a worker to credit all service past his normal retire ment age than were programs with these provi sions. Of the 125 plans without compulsory features, 107 allowed all service worked to be credited. On the other hand, only 68 of the 175 compulsory plans credited all service worked. Retirement Practices and Labor Utilization As the trend toward a longer working life con tinues, retirement at a specified age, particularly on an involuntary basis, would tend to increase the number who have retired from the labor force while still capable of productive work; or it would 12 diminish the efficiency of those able to find sub stitute employment in which skills developed over long years of experience would not be utilized. The efficiency of those retired and seeking substitute work is further impaired by restrictive features in some single-company retirement pro grams which prohibit payment of benefits under certain conditions to those workers who are reemployed by other firms in the industry, where presumably their skills could best be utilized. Restrictions on pensioners under multicompany plans are well illustrated by a recent New York State Department of Labor study of 13 industry wide retirement plans operating in that State. The report states: “All but two of the pension funds ban work by pensioners in the industry covered by the fund. Pensioners are permitted to work in other industries without foregoing pension rights under 8 of the 13 plans studied, but they may not earn more than $75 a month, according to the rules of 5 programs, without losing pension eligibility. Eleven of the thirteen programs allow a retired worker to withdraw from the pension rolls and return to work in his industry.” 13 - T a ble 4. — D is t r ib u t io n o f p la n s by specified n o rm a lt com p u ls o r y t a n d a u tom atic retirem ent ages a n d by a m o u n t o f service credited after n o rm a l retirem ent age Specified retirement age1 Normal Service credited after normal retirement age Until Until Com Auto pulsory matic None age 68 age 70 60 62 — 65 ___ 70 65 60 70 60 65 65 68 65 65 69 70 65 68 68 65 65 65 65 65 65 65 65 66 65 68 65 68 65 70 65 72 65 Total.......... — ___ ___ ___ ___ ___ ___ ___ ’65 67 68 70 66 68 70 70 72 16 ___ ___ ___ 60 __2_ _1_ 29 1_ 9_ _1 4 — 103 1 ___ ___ __ 15 ___ 1 ___ ___ ___ ___ ___ ___ ___ 3 ___ — 20 ... . 1 ___ ___ 1 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ — 2 All 9 1 96 1 1 ___ 20 11 1 ___ 1 ___ ___ 2 2 1 3 17 ___ 11 1 175 Number of plans 9 1 114 1 1 1 80 28 1 2 1 9 1 2 11 1 18 3 15 1 300 130 plans specified a lower normal retirement age for women than for men. This differential was 5 years in all cases except 3 which stipulated 10 years: 22 of these plans provided for compulsory retirement; of these, 18 specified a 5-year differential, 2 stipulated 3 and 10 years, while the remaining 2 had no differential. i Under 1 of these plans, an employee with 12 or more years of service at age 65 was permitted to work and accrue credit until completion of 15 years' service or age 68, whichever came earlier. * 2 of these plans provided that workers who had not completed a stipulated number of years of credited service at age 68 could, at the option of the em ployer, be permitted to work after age 68 until they had the required amount of service. The amounts of credited service stipulated were 15 years in one plan and 25 years in the other. Provisions for a retirement age beyond which no extensions could be granted were not widely found in the 300 plans studied. Where such practices occurred, their effect upon manpower utilization was somewhat mitigated by the fact that many plans set the mandatory age for ceasing work at 3 to 5 years above normal retirement age. More prevalent were compulsory retirement provisions which did not specify an automatic retirement age. However, the presence of these provisions in a retirement plan would not indicate the impact which they might have upon labor utilization, since actual company practice might be to ignore the compulsory ages by granting indefinite periods of extension to some or all workers. Such practice would most likely occur during periods of labor shortages. A recent Princeton University study of retire ment procedures in 14 companies revealed that those firms with pension plans containing provi sion for extensions beyond the compulsory age did not enforce retirement. “While a number of these plans specified that employment beyond the normal retirement age was possible only at the request of and with the approval of management, in practice the request has usually come from the employee and management approval has been routine.” 14 On the other hand, company practice is, of course, subject to variations without any changes in retirement-plan provisions. By pro viding the employer the right to retire workers by reason of age alone, compulsory retirement clauses could have an effect on labor utilization if rigid adherence to the compulsory ages were observed. Another factor influencing the use of older worker manpower is the age at which workers voluntarily retire from the labor force while still capable of productive work. If workers were to retire at 65, the minimum age for receiving social security benefits and the normal retirement age specified in most private pension programs, a considerable amount of manpower would be lost. Recent studies indicate, however, that in practice many workers continue in employment after reach 13 Retirement Under Industry-wide Pension Programs Established Through Collective Bargaining, New York State Department of Labor, Division of Research and Statistics, December 1952. 14 Retirement Procedures Under Compulsory and Flexible Retirement Policies, by Helen Baker, Industrial Relations Section, Princeton Univer sity, 1952 (p. 59). 13 ing age 65. Of about 3 million workers eligible emergency. Past experience in periods of sub for old-age insurance benefits under the Social stantially less than full employment suggests that Security program at the end of 1950, about two- these practices could change. Such conditions fifths were not receiving such benefits. The extent might produce automatic provisions in a greater to which eligible workers were receiving benefits number of pension plans, enforcement of compul varied with age: about 35 percent of eligible sory retirement clauses, and the bringing of com workers aged 65 to 66, 49 percent of those aged munity social pressure to bear on older workers 67 to 68, 57 percent of those 69 to 70, and 82 to retire voluntarily as soon as they can. percent of those aged 70 and over received bene The effect of changing economic conditions on fits.1516 Experience under the Railroad Retirement retirement practices is illustrated by the experi Act indicates that the average age of railroad ence during the past two decades. During the workers awarded full-age annuities in 1950 was depression of the 1930’s, 65 came to be accepted 67.7 years—almost 3 years above the age at which generally as the age at which retirement should workers first became eligible for such benefits.16 take place. This concept was bolstered by the Workers who voluntarily retire do not necessar establishment of the Social Security program,which ily represent a complete loss of potential produc provided that benefits could begin at that age. tive manpower. Some find other employment. During World War II, the need for all available A survey by the Social Security Administration manpower resulted in a relaxation of compulsory in 1951 of beneficiaries under the old-age and sur retirement practices and the encouragement of vivors insurance program showed that 65 percent older workers to remain on their jobs. Although of the men and 71 percent of the women beneficiar many of these workers left the labor force at the ies considered themselves unable to work.17 Only end of hostilities, the present defense emergency 15 percent of the men and 11 percent of the women has again encouraged the older worker to remain on beneficiaries reported they were able to work and the job past his normal retirement age and un wanted to work, but over half of this group desired doubtedly has contributed to a relaxation of only part-time or occasional employment. An compulsory retirement practices. Provisions for compulsory retirement, especially analysis by the United Mine Workers of America Welfare and Retirement Fund of the reasons for those which allow extensions beyond the specified miners retiring showed that almost half of the compulsory age with the employer’s consent, will recipients were disabled for further mine work, a not necessarily have to be altered to enable in third were laid off and could not find mine employ dustry to adapt its policies to changing manpower ment, and only 1 of every 10 retired voluntarily.18 conditions. Probably, more important in deter In the New York State Department of Labor mining future actions with respect to compulsory report cited above, administrators of the pension retirement provisions will be labor and manage funds studied reported that a majority of the pen ment attitudes on whether the retirement of sioners under most of the plans had sought pensions workers is to be the right of management or the choice of the worker. The gradually rising age because of ill health. The inclusion of automatic retirement provisions of the population and the increase in the span of in only a small proportion of pension plans as working life suggest that, regardless of decisions shown by this study, together with indications of concerning the application of compulsory provi relaxation in compulsory retirement rules and of sions, the age at which retirement takes place decisions of individual workers to delay retirement may have to be continually reevaluated. beyond the normal retirement age, seem to be consistent with the present economic goal of Attitudes Toward Compulsory Retirement utilizing all available manpower during the defense Although full employment exerts an influence 15 Social Security Administration, Social Security Bulletin, Vol. 14, N o. 9, September 1951. against the enforcement of compulsory retirement 18Railroad Retirement Board, Annual Report, 1951 (p. 10). provisions, the concept of the right of management 17National Survey of Old-Age and Survivors Insurance Beneficiaries, 1951. Social Security Administration, M ay 1952. (Fact Sheet 6; mimeographed.) to retire a worker for reason of age alone is being 18Welfare and Retirement Fund: Four Year Summary and Review for the challenged. Labor organizations are virtually Year Ending June 30,1951. United M ine Workers of America (p. 11). 14 unanimous in their opposition to such compulsory provisions. Some observers, interested in the problem from the standpoint of the welfare of older workers, or from the point of view of man power utilization, also oppose such provisions as socially or economically unsound. Although management generally favors the concept of com pulsory retirement, it varies the approach to its application. Differences of opinion on the problem of compulsory retirement do not result primarily from disputes of fact, such as the increased cost of a pension plan with a mandatory provision or the ease of administration of such a policy without charges of discrimination. Instead, they indicate a basic disagreement on the question of whether retirement policy is an exclusive prerogative of management or the right of the individual worker. This disagreement may be indicative of different concepts of the meaning and purpose of retirement plans. Compulsory retirement appears to be consistent with a concept that pensions reward long and faithful service. They provide for the regular retirement of superannuated employees without discrimination and for the orderly replace ment of older workers with younger men. On the other hand, compulsory provisions seem incom patible with a concept that pensions are the right of the worker in that they constitute deferred com pensation to be received when the individual desires to cease work, and are an adjunct to, rather than a replacement of, seniority rights. Al though the first concept cannot be described as the consensus of all management opinions and the second as the attitude of all labor organizations, the arguments advanced on the problem of com pulsory retirement by each group tend to reflect these differences of opinion. 15 Part HI—Types of Benefits to virtually every pension plan is a normal retirement benefit to which the worker becomes entitled, having otherwise qualified, upon reaching the normal retirement age.19 In addition to the normal benefit, many pension programs provide for two other types of retirement payments which are available under specified conditions prior to the time workers can qualify for normal benefits. These are usually termed early retirement and total and permanent disability retirement.20 In order to qualify for either type under most plans, workers must have reached a specified age, or completed a stipulated number of years of service, or both.21 Every plan in this study22contained provisions for normal benefits. About two-thirds of the plans covering a slightly larger proportion of all workers provided for disability benefits (chart 1). Significantly, only 24 of the 300 plans provided for normal retirement benefits only. Nearly a third of the plans covering almost half the workers con tained provisions for all three benefits (table 1). B a s ic Participation Participation in a pension plan does not always occur automatically upon employment. A fairly common requirement is that a worker be a regular, full-time employee or on the seniority rolls. Such requirements exclude from participation seasonal workers and newly hired employees for specified periods—often up to 3 months. Under contribu tory plans, the worker must, in most cases, choose whether he desires to participate. T a b l e 1.— , T y p e s o f retirem ent benefits p ro vid e d b y num ber o f p la n s a n d w orkers 1952 , [“X ” denotes benefits provided] Types of retirement benefits Normal X X X X Total. Early Disability X X X X Number of plans 97 69 24 300 110 Workers Number (thousands) 2,691.3 660.2 1,587.0 918.8 5,857.3 M inim um Age and Service Requirem ents . Percent 46.0 11.3 27.0 15.7 100.0 In addi tion to these requirements, some plans also spec ify that the worker must have attained a certain age or have completed a specified period of serv ice, or both, in order to be eligible to participate in the plan. Although preparticipation require ments have become less common under recently established programs, over a fourth of the 300 plans, covering about 17 percent of the workers, contained such provisions23 (table 2). Minimum age and service requirements, where specified, ranged from 25 to 35 years and 1 to 5 years, respectively. Service only was the most preva lent type of requirement found in plans. When combined with those plans specifying both service and age, service requirements were found to exist in 77 of the 84 programs with preparticipation requirements. M axim um Age Requirem ents . In addition to mini mum participation requirements, plans may speci fy an age beyond which the worker cannot become a member of the plan, or be employed and still qualify for normal benefits. Generally, this maximum age was established by the stipulation of a specific age (e. g., 45) or by the application of the requirements to receive normal benefits. Under the latter method, no age was specified; however, by requiring that the worker must have had a certain number of years of service in order to receive benefits upon reaching normal retire ment age, and by providing that service could not be accrued beyond the normal age or a specified » Generally, this age is defined as the earliest age at which a worker, having qualified for benefits, may retire at his own volition and receive the full amount of monetary benefits to which his length of service or amount of earn ings, or both, entitles him under the normal retirement provisions of the plan. Cash severance benefits or retirement separation pay and vested rights are not included within the scope of this report. These are usually paid in the form of a lump sum or, as in the case of vesting, represents rights accruing to the individual prior to qualifying under the various benefit formulas of the plan. For a discussion of these benefits see Part I. « T o receive disability retirement benefits, usually the individual must also have been totally disabled for a specified period of time, very often 6 months. Most pension agreements are very specific with respect to the qualifications for this benefit and spell out in detail the procedure to be followed in deter mining a worker’s original eligibility as well as his continued eligibility. 82This article is based on an analysis of 300 pension plans under collective bargaining covering approximately 5,857,000 workers. Not all of these work ers were subject to collective bargaining agreements. While every plan was under agreement, in many cases the plans were extended uniformly to cover workers outside the scope of the contract. In every instance, the figure represents the total number in all units to which the plan applies. For the purpose of the study, plans under collective bargaining include: (1) those established for the first time as a result of collective bargaining; and (2) those originally established by either employer or union but since brought within the scope of the agreement, at least to the extent of the agreement establishing employer responsibility to continue or provide certain benefits. All of the plans covered in the analysis were in effect in early fall of 1952. « In order to be considered as having a service requirement for plan par ticipation or benefit eligibility for the purpose of this study, a program must have required a period of 1 or more years. 16 Chart 1.—Types of Retirement Benefits Under Pension Plans, 1952 Types of Benefits 0 Provided: 80 PERCENT 100 NORMAL participation age. Of these, 70 plans covering upwards of 650,000 workers set a definite age and the remaining contained benefit requirements which operated to establish maximum ages in the manner described above. Although the maximum ages varied from 40 to 70 years, only slightly more than one-fourth of the plans containing such pro visions set the limit for participation under age 55. Requirements for Benefits EARLY DISABILITY 300 5 857,000 Net*: Based on a study ef pension plans under collective bargaining covering approxim ately , w orkers. later age, a maximum age was, in effect, estab lished. To illustrate: a plan required a minimum of 15 years’ credited service in order for the worker to become eligible for normal benefits at age 65. In addition, it did not permit the accrual of service beyond that age. As a result, age 50 became the age beyond which a person could not be employed or join the plan and still qualify for normal retire ment benefits. If there was, in addition, a pre participation service requirement, the maximum age was further reduced. More than half (163) of the plans, covering about 40 percent of the workers, had a maximum T able 2.— M in im u m age a n d service requirem ents f o r p a r tic ip a tio n Age requirements All plans None Service requirements Workers Number (thousands) Total................................................. None.................................................. 1 year................................................. 2 years............................................... 3 years_______________________ 4 years_______________________ 5 years............................................... 300 223 23 12 16 1 25 5,857.3 4,872.6 434.9 194.4 129.6 1.0 224.8 Age 25 Workers (thousands) Plans 259 216 18 6 11 1 7 * One plan provided an alternative requirement of 4 years’ service. An almost universal requirement for normal re tirement benefits is the attainment of a specified age. Another feature which has received con siderable emphasis under collectively bargained programs is the requirement that workers have a stipulated minimum amount of credited service in order to qualify for normal benefits. Similarly, the great majority of all pension plans providing early retirement benefits specify the attainment of a certain age in order to qualify. Minimum service requirements to qualify for this type of benefit are also found in many plans, such requirements being very common under negotiated plans. Both age and service requirements are common for disability retirement. The greater emphasis, however, is placed on service; many recently bar gained programs specify the completion of a minimum amount of service as the sole qualifica tion for this type of benefit. Under many plans, the stipulated minimum credited service necessary to qualify for benefits does not always provide an accurate picture of the actual service or employ ment prerequisite to qualification for benefits because a preparticipation period may also be re quired and not credited toward retirement benefits. 5,517.8 4,842.9 408.7 82.6 102.3 1.0 80.3 Age 30 Workers (thousands) Plans 11 1 1 2 3 >4 80.6 0.5 5.5 21.8 15.3 37.5 Age 35 Workers (thousands) Plans 18 3 3 2 2 8 188.3 12.9 13.4 63.5 Workers (thousands) Plans 1 2 70.6 16.3 7.3 26.5 6 20.5 12 13 12.0 86.5 * One plan provided an alternative requirement of age 35 with 1 year’s service. 17 N orm al Retirem ent. Although differences of opin ion exist as to just when a worker should be able to retire, the present survey revealed that 65 con tinues to be the age specified for normal retirement in the overwhelming proportion of plans (table 3). Only 14 of the 300 plans analyzed provided for normal retirement at ages other than 65. How ever, 11 plans, containing provisions for normal retirement at age 60, accounted for one-fifth of all workers in the study. A lower normal age for women, usually 5 years earlier than for men, prevailed in 30 plans. In addition to age requirements, over 90 percent of the plans also required the completion of a minimum length of service in order to qualify for normal retirement.24* These periods ranged from 1 to 30 years; about half of these plans, covering a slightly greater proportion of the workers, required 15 years or more. E arly Retirement. Although requirements for early retirement varied widely among the 166 plans containing these provisions, workers were usually required to be at least age 55, to have been covered by the plan for a substantial period of time, or to fulfill both age and service requirements in order to qualify (table 3). The attainment of age 55 or 60 was the most prevalent requirement found; a majority of workers under early retirement pro visions were also required to complete 15 or more years of service in order to qualify. In contrast to normal retirement under which the right to retire was at the option of the indi vidual, early retirement under many plans was contingent upon the consent of the employer. Over two-fifths of the plans providing for early retirement, applying to more than one of every four workers covered by this benefit, required workers to obtain company approval in order to retire early. Generally, those plans which called for longer periods of service and higher age re quirements were less likely to condition retirement upon the employer's consent. u In the discussion on eligibility requirements, references to minimum service requirements include both the plan membership and the prepartici pation period where applicable. In addition, the requirements are the minima necessary merely to qualify for the particular type of benefit. In the great majority of plans, fulfillment of these requirements would provide only the minimum benefits. However, under those plans providing for a flat benefit upon the attainment of a certain age and the completion of a speci fied amount of service, the amount provided would be both the minimum and maximum under the plan. An example of this type of plan is that of the United Mine Workers of America, which provides for $100 monthly upon the completion of 20 years of service at age 60. Although a number of plans established in earlier years made provision for retirement in case of total and permanent dis ability, greater emphasis has been placed on this type of benefit by labor unions in their drive for negotiated programs. Over two-thirds of the plans in this study, covering nearly three-fourths of the workers, made provision for this benefit (table 3). In comparison with the minimum requirements necessary for early retirement benefits, a much greater emphasis was placed on service as a sole qualification for disability benefits. Relatively few plans failed to specify some service requirements for both disability and early benefits; however, disability benefit requirements included age as well as service in less than 35 percent of the 207 plans containing this benefit whereas this combi nation appeared in about 90 percent of the 166 plans providing for early retirement.26* The study revealed that 15 or more years of service were required to qualify for benefits under a significantly larger proportion of disability provisions than under early retirement provisions. Furthermore, the age requirements for disability benefits were generally lower than those for early retirement. D isability Retirement. Normal Retirement Benefits The amount of the monthly pension to which a worker is entitled upon retirement is determined by the benefit formula provided in the plan.28 This formula takes into consideration the employee's earnings, his credited service under the plan, or both. A feature which has received added em phasis under negotiated pension plans is the pro vision for guaranteed minimum benefits. Such benefits are generally based on the completion of specified periods of credited service. B asie Benefit Formula. Although many variations existed in the basic benefit formulas in the study, the overwhelming majority could be classified under *■ The number of pension plans which include a specific provision for retire ment in case of total and permanent disability does not necessarily reflect the extent to which this practice actually exists. Under some plans which do not have formal disability provisions, it is known that the early retire ment provisions are used for the purpose of granting retirement benefits to disabled workers. Moreover, provisions for disability benefits exist outside of some retirement plans. *• The amount of benefit under some plans is discretionary with the com pany. No plans of this type are included in this study. T able — Minimum age and service requirements for normalt early, and disability retirement benefits 3. Age requirements 2 None Minimum service requirements 4 Age 45 Age 55 Age 50 Age 60 Age 65 Other Workers Workers Workers Workers Workers Workers Workers Workers (thou- Plans (thou- Plans (thou- Plans (thou Plans (thou Plans (thou Plans (thou Plans (thou sands) sands) sands) sands) sands) sands) sands) sands) Normal retirement3 All plans.................. None 1 to 4.9 years_____ 6 to 9.9 years_____ 10 to 14.9 years 15 to 19.9 years 20 to 24.9 years........ 25 to 29.9 years____ 30 years and over__ 11 1,203.3 300 5,857.3 25 346.0 43 702.1 30 244.0 57 1,105.2 99 1, 500.3 31 1,805.8 14 153.3 1 0.6 2 5.4 3 28.5 6 1,169.4 286 4,640.9 25 346.0 43 702.1 28 238.6 54 1,076.7 99 1,500.3 23 623.9 14 153.3 3 13.1 2 1 12.5 0.6 2 1 4.8 4.5 1 0.3 Early retirement i All plans.................. None........................ 1 to 4.9 years........... 5 to 9.9 years_____ 10 to 14.9 years........ 15 to 19.9 years........ 20 to 24.9 years........ 25 to 29.9 years........ 30 years and over— 166 3,351.5 9 50.5 35 493.6 21 205.3 19 568.9 14 355.9 26 267.7 33 1,123.5 9 286.1 8 104.3 3 1 1 2 1 34.5 25.7 2.5 35.1 6.5 2 i 1 15.2 6 32.4 11.6 3.6 2 2 1 1 4."6 13.7 8.0 6.1 77 1,660.0 7 44.5 27 267.6 16 183.1 6 102.8 2 4.5 8 161.7 9 823.0 2 72.8 71 1,534.8 1 1.5 3 186.9 3 8.5 11 432.4 11 339.8 14 93.5 22 265.4 6 206.8 Disability retirement3 All plans.................. Nnne__ _ 1 to 4.9 years_____ 5 to 9.9 years........... 10 to 14.9 years........ 15 to 19.9 years........ 20 to 24.9 years........ 25 to 29.9 years........ 30 years and over— 207 4,278.3 5 50.3 9 123.8 56.6 8 23 197.6 119 3,373.9 28 378.3 14 96.0 1 1.8 135 2,708.4 45 50.3 7 121.3 5 35.4 20 136.7 80 2,204.0 9 95.3 9 65.4 4 69.7 1 2 1 0.7 67.7 1.3 19 739.5 33 441.4 13 312.2 1 2.0 2 5.1 1 1 14 3 1.8 11.0 714.6 12.1 1 2 1 20 4 4 1 0.7 10.2 2.8 379.5 17.1 29.3 1.8 1 1 11 57.4 1.6 253.2 1 2.0 1 1 4.5 0.6 1 For those plans which specified a period of employment to be served before participation in the plan could begin, the service requirement in cludes both the preparticipation period and the required minimum plan membership period. 3 In a few plans alternative age and service requirements were specified; in each case, that with the lower age was selected. 3 Age requirements to qualify for benefits were lower for women than men in a number of plans. Thirty plans, covering approximately 1,266,000 workers, specified a differential for normal retirement—5 years in all but 3 plans which stipulated 10 years; 17 of 18 plans, covering approximately 1,115,000 workers, specified a differential of 5 years for early retirement; 2 plans, covering 32,500 workers provided a 5-year differential for disability retirement. 4 One of these plans specified “long service” as the only requirement. three broad categories. The most prevalent type was that in which the benefits varied with the worker’s earnings and length of credited service (table 4). Among the programs which used this method were many of those negotiated in the basic steel industry. These plans provided for a nor mal pension of 1 percent of average annual com pensation in the 10 years preceding retirement multiplied by the years of credited service. From the computed amount, the worker's primary Social Security benefit was deducted. The second most prevalent type of formula was that in which benefits varied only with length of credited service. Illustrative of this type were a number of major programs in the automobile in dustry; the normal monthly benefit in these plans was computed by multiplying a flat sum, for ex ample $1.50, by the number of years of credited service (not exceeding 30). The resulting amount was exclusive of the primary Social Security bene fit to which the worker was entitled. A variation of this type of formula was the common provision under which a flat amount (e. g., $100 or $125 monthly), including primary Social Security bene fits, was provided workers who completed a speci fied amount (25 or 30 years) of credited service. For those with less service, the benefit was propor tionately reduced to a stipulated minimum (e. g., 15 years). Least prevalent of the three types were those plans which provided a flat benefit to all workers who completed a stipulated period of service upon 19 T a bl e 4.— Types of basic normal benefit formulas *by method of financing All plans Type of benefit formula Noncontribu Contributory tory plans plans Workers Num Workers Num Workers (thou Num (thou ber (thou ber sands) ber sands) sands) Total..................................... 300 5,857.3 225 4,592.0 75 1,265.3 = ===== == Benefits vary with work ers’ earnings and length of credited service *......... 184 3,346.7 118 2,380.0 66 966.7 Benefits vary only with workers’ length of cred 3 ited service1..................... 75 1,121.7 72 1,108.0 13.7 Flat benefit provided to all workers who fulfill speci fied service requirements. 39 1,300.9 33 1,016.0 6 284.9 Other..................................... 2 2 88.0 88.0 * These plans may specify a minimum service requirement to be fulfilled before a worker is eligible for benefits. reaching normal retirement age. Under this type of formula, the fixed amount was both the mini mum and maximum. With two exceptions, all programs of this type included in the study pro vided for a flat benefit exclusive of Social Security payments. Many programs in the garment in dustry contained this type of normal benefit pro vision. Nearly 85 percent of the 300 plans in the study guaranteed a minimum pension to all workers upon the completion of a specified period of service at normal retirement age. The majority of these minima (about 60 percent) were provided through a formula separate and distinct from the basic normal benefit formula. Among these plans were those in which the basic normal benefit was geared to earnings and service while the minimum guarantee was based on service only and varied accordingly. Common examples of this type were those plans which provided for a normal yearly benefit, including Social Security, of 1 percent of average annual earnings times years of credited service with a minimum guarantee of $1,200 yearly, including Social Security, for a worker with 25 years of credited service. This guarantee was proportionately reduced for those workers with less than 25 years’ service, down to a minimum of 15 years. A variation of this type of minimum was found in those plans in which the normal formula was likewise based on earnings and service, but the minimum guarantee was in the form of a flat benefit which did not vary with the amount of credited service. The remaining plans which guaranteed minimum benefits did so under the M inim um Benefits. basic formulas which, in many cases, were similar to the minimum formulas described above. In short, if normal benefits were based on earnings and service, the minimum guarantee, if provided for, was generally based on service alone through a separate formula. For those plans in which the benefit was based on service alone, the overwhelm ing proportion of minimum guarantees were in herent in their basic formulas. A djustm ent to Social Security Benefits. Following the establishment of the Federal Social Security program in 1935, many retirement plans were revised or amended to take into account the pay ments which a worker was to receive under the public program. In some cases, programs were eliminated entirely, presumably for the reason that retirement income was available through a public program. Generally, consideration of Social Security bene fits is reflected in the provisions of pension plans in two ways. The benefit provisions, without direct reference, may be designed to take into account the amount of Social Security benefits which the worker is expected to receive. On the other hand, the benefit formula may specifically include all or a part of the Social Security payment. (The latter approach is generally referred to as the “off-set” method of integrating or coordinating Social Se curity benefits under a private retirement plan.) Many variations exist within these two general approaches. A considerable number of plans negotiated or revised through collective bargaining contain provisions in their benefit formulas for “off setting” Social Security payments. This feature has certain consequences in light of the substantial benefit increases which have been provided under the Social Security program since the plans were negotiated. Because total benefit levels were fixed under many of these programs, the increase in Social Security payments results in a decrease in the amount of money to be paid from the private plan.27 Other plans, while containing “off-set” provi sions, specify different techniques in applying the * To illustrate: a plan provides for $100 monthly, including primary Social Security benefits, upon retirement at age 65 with 25 years or more of service. If the worker’s Social Security benefit amounts to $35, the plan will be obligated to pay $65 in order to meet the guarantee. In such cases, the effect of any increase in Social Security benefits is obvious. 20 feature. Under some programs only one-half the Social Security benefit is included in the formula. In this case, the worker benefits to that extent from a rise in Social Security payments. Another approach is to include only those Social Security benefits in effect at the time the plan is established; that is, all future changes are excluded in the calculation of the plan benefits. A variation of this type is found in those plans which include T abl e 5.—Provisions for including primary Social Security benefits in basic normal benefit formulas} by plans and workers covered Provision Total..................................................................Social Security included___________________ Full benefit_____ ____________________ One-half benefit_______________________ Other___________________________ ____ Social Security excluded___________________ Plans 300 140 116 18 6 160 Workers covered (thousands) 5,857.3 2.871.6 1.762.6 967.6 141.4 2,985.7 only one-half of future Social Security benefit increases in computing the benefit. One hundred and forty of the plans in the study, covering nearly 50 percent of the workers, included all or a part of the worker’s Social Security pay ments in the calculation of the basic normal bene fit (table 5). More than 80 percent of these plans specified that the full benefit was to be included. With few exceptions, the remainder provided that one-half the benefit was to be off-set. Further more, 92 of the 140 plans also contained minimum benefit guarantees, virtually all of which made provision for including the full Social Security payment. Of the 160 plans which did not include the Social Security benefits in the basic formula, over one-fourth had minimum benefit guarantees which included these payments. Workers and their unions are concerned with the amount of retirement income, the relationship between retirement and working income (and the resultant effect on stand ards of living),28 and how much the plan itself actually provides exclusive of Social Security pay ments. Analysis29 of the 300 pension plans revealed monthly retirement income ranging from $77.50 (Social Security payments only) for a $3,000 a year man with 10 years’ service to over $250 monthly for workers earning $4,000 a year after 30 years’ service (table 6). In a majority of the A m ounts o j Benefits. plans under both the $3,000 and $4,000 earnings classifications, workers with 10 years’ service upon retirement received no benefit from the private plan, their only income being their Social Security benefit. In part, this was attributable to the fact that a majority of the plans required the worker to have more than 10 years of service in order to qualify for retirement benefits. On the other hand, plans rarely provided less than $100 monthly to workers with 30 years’ service (charts 2 and 3). This reflects, in part, the impact of the many negotiated plans that provided $100 to $125 (including Social Security) upon the completion of 25 or more years’ service. Furthermore, the study revealed that for the assumed earnings level of $3,000, approximately 40 percent of all plans pro vided more than $125 monthly to workers having 30 years of service; a majority of these provided $150 monthly or more. For a worker with the same amount of service and average earnings of $4,000 the proportion which paid more than $125 increased to 57 percent, nearly half of which provided $175 or more. The average normal benefit,30 including primary Social Security, provided workers with 10 years of service and earnings of $3,000, amounted to $77.50 or 31 percent of their yearly income prior to retire ment (table 7). In other words, only the Social Security benefit was available to such workers. For workers with 30 years of service, this percent age increased to 47. Employees with the same periods of service, but earning $4,000, received smaller proportions of their yearly income, largely because of a combination of the following factors: a greater percentage increase in the amounts of the selected earnings levels (33 percent) than in the amounts of Social Security benefits (10 per cent) provided for these levels; the determina 28 In all computations throughout this study, the current maximum pri mary Social Security benefits have been used. They are $77.50 and $85 monthly for workers with average incomes of $3,000 and $3,600 (or more), respectively. The wife of a man receiving Social Security benefits is entitled to one-half his primary payment providing she is at least age 65. 29 In order to provide data illustrative of the benefits provided under pen sion plans, the normal benefits under all programs were computed on the basis of selected levels of earnings and lengths of credited service. Chosen for this purpose were service periods of 10, 20, and 30 years and earnings levels of $3,000 and $4,000 annually. With respect to the latter, it was assumed that earnings levels were c o n s ta n t throughout the period of credited service under the plan. Furthermore, in computing the total monthly pension amount to which the worker was entitled, the primary Social Secu rity benefit was included in all cases so as properly to compare those plans which included or excluded this benefit in their formula. 88 Average retirement benefits are unweighted median levels of the 300 plans in each earnings and service category. 21 Chart 2.—Amounts of Normal Monthly Retirement Benefits Under Pension Plans for $3,000 a Year and 30 Years* Service, 1952 tion of the retirement benefit solely on the basis of service under many plans (thus, an increase in earnings did not increase the benefit); and the maximum limits placed on the amount of service which could be used in computing the benefit, i. e., many plans provided maximum benefits upon com pletion of 20 to 25 years of service. For all selected earnings and service classifi cations, the average retirement benefit provided under contributory plans exceeded those provided under noncontributory plans. In most cases, this difference was fairly significant. For example, the average benefit provided under contributory plans to workers with 30 years of service and $4,000 earnings amounted to nearly 60 percent of their preretirement earnings, whereas under noncontributory plans this figure was 36 percent. In view of the widespread practice of “off-set ting” Social Security benefits in the plan formula, a question is often posed concerning the proportion of the worker’s total retirement income accounted for by the private plan. These proportions under selected earnings and service categories are shown in table 8. Although actual plan payments ranged from zero to as high as 70 percent of the total in come to which the worker was entitled upon retire ment, the majority of plans under all earnings and service categories did not pay in excess of 40 per cent of his total benefit; rarely did they pay in excess of 60 percent of the total benefit. Signifi cant differences existed between the proportions N o t e — Based on a study of 300 pension plans under collective bargaining covering approximately 5,857,000 workers. Benefit amounts are based on future service formulas, assuming a constant level of earnings and including monthly primary Social Security benefits of $77.50 for workers earning $3,000 a year. paid by contributory and noncontributory plans, particularly with respect to benefits based on 20 or more years of service for both the $3,000 and $4,000 earnings levels. Whereas less than 10 percent of the 225 noncontributory plans (based on 20 years’ service and $3,000 earnings level) pro vided 40 percent or more of the total benefit, up- T able 6.— Amount of normal retirement benefits, including primary Social Security, for selected levels of earnings and years of credited service 1 $3,000 per year earnings Amounts of monthly benefits With 10 years’ service With 20 years* service $4,000 per year earnings With 30 years’ service With 10 years’ service With 20 years’ service With 30 years’ service Workers Plans Workers Plans Workers Plans Workers Plans Workers Plans Workers Plans (thousands) (thousands) (thousands) (thousands) (thousands) (thousands) Total........................................... 300 $77 50 to $79.99 ........................ >179 11 $80.00 to $89.99.......................... 45 $90.00 to $99.99........................... 50 $100.00 to $109.99........................ 9 $110.00 to $119.99....................... 5 $120.00 to $129.99........................ $130.00 to $139.99........................ $140.00 to $149.99....................... 1 $150.00 to $174.99........................ $175 00 to $199.99 __________ $200 00 to $224 99 ____ $225 00 to $249.99 ________ $250 00 and over _ ______ 5,857.3 3,985.2 102.4 1,123.7 446.1 165.7 24.2 10.0 300 >27 89 21 41 41 52 6 12 6 4 1 5.857.3 196.7 1, 536. 5 325.6 1.571.3 475.9 855.9 86.4 243.7 80.9 483.3 1.1 1 Benefit amounts are based on future service formulas, assuming a constant level of earnings and monthly primary Social Security benefits of $77.50 and $85.00 for workers earning $3,000 and $4,000 per year, respectively. * Under all of these plans, the only benefit to which the worker was en titled was his primary Social Security benefit. 300 — 1 2 102 47 44 24 11 53 13 2 5,857.3 2lT q1.9o 1,556! 3 1,088.1 1,440. 7 420.5 194.8 465.8 666.4 17.1 300 5,857.3 300 5,857.3 300 5,857.3 >179 15 24 28 34 16 3 1 3,985.2 116.6 712.9 279.7 500.5 215.6 36.8 10.0 >101 11 25 36 18 23 14 52 18 2 1.473.2 96.9 1.075.2 913.1 74.1 642.4 213.3 647.5 715.6 6.0 1 89 21 21 38 22 26 44 26 10 2 1.9 1.381.6 245.2 154.9 1.236.7 953.7 429.5 972.2 269.6 176.4 35.6 *Under all but 3 of these plans, the only benefit to which the worker was entitled was his primary Social Security benefit, 22 Chart 3.—Amounts of Normal Monthly Retirement to work until normal age. Primarily, two factors Benefits Under Pension Plans for $4,000 a Year account for this: first, he would have fewer years and 30 Years* Service, 1952 in which to accumulate credit under the plan and, Note—Based on a study of 300 pension plans under collective bargaining covering approximately 5,857,000 workers. Benefit amounts are based on future service formulas, assuming a constant level of earnings and including monthly primary Social Security benefits of $85.00 for workers earning $4,000 a year. wards of 25 percent of the contributory plans did so. Comparable figures for benefits based on 30 years of service and $4,000 earnings were approxi mately 26 and 90 percent, respectively. Early Retirement Benefits Generally, the benefit provided a worker under the early retirement provisions of a plan is smaller than that which he would receive if he continued secondly, on the average, a worker retiring early would draw his pension for a longer period of time. In the overwhelming proportion of plans in the study which contained early retirement provisions, the basic normal formulas were used to compute the early retirement benefits. These benefits, in the great majority of cases, were then reduced to take into account the longer period of time over which they were to be paid. For example, under its normal formula a plan provided for a monthly amount equal to $1.50 multiplied by years of credited service, exclusive of Social Security bene fits. For a worker who retired prior to age 65, this benefit was reduced by one-half of 1 per cent for each month by which he was younger than that age. Under this plan, a worker who retired at age 60 with 30 years of service received $45.00 less 30 percent, or $31.50. In another method used when the normal for mula included Social Security benefits, the esti mated Social Security payment to which the worker would be entitled upon reaching age 65 was deducted from the computed benefit. The resulting amount was then reduced by one-half of 1 percent for each month by which the worker was under age 65 at date of early retirement. The early retirement provisions of some plans contained an optional method of computing the benefit under which the amount of monthly retire ment income a worker received before and after age 65 was equalized. This method involved the T a bl e 7.—Average normal retirement benefits expressed as percentage of selected earnings level1 All plans Selected earnings and service categories $3,000 yearly with— 10 years’ service_________ 20 years’ service_________ 30 years* service_________ $4,000 yearly with— 10 years* service.................. 20 years’ service _ ___ 30 years’ service................. Excluding Social Security Noncontributory plans Including Social Security Excluding Social Security Including Social Security Excluding Social Security Including Social Security Percent Percent Percent Percent Percent Percent Monthly of Monthly of Monthly of Monthly of Monthly of Monthly of amount earnings amount earnings amount earnings amount earnings amount earnings amount earnings level level level level level level $27.00 40.00 10.8 16.0 30.00 48.76 9.0 14.6 $77.50 104. 50 117.50 85.00 115.00 136. 76 31.0 41.8 47.0 25.5 34.5 40.1 * Based on a study of 300 pension plans under collective bargaining covering approximately 5,857,000 workers. Benefit amounts are based on future service formulas, assuming a constant level of earnings and monthly primary Contributory plans $12.50 35.00 5.0 14.0 15.00 35.00 4.5 10.5 $77. 50 90.00 112.50 85.00 100.00 120.00 31.0 36.0 45.0 25.5 30.0 36.0 $25.00 50.00 75.00 36.70 73.40 110.10 10.0 $102.50 20.0 127.50 30.0 152.50 11.0 121.70 22.0 158.40 33.0 195.10 41.0 51.0 61.0 36.5 47.5 58.5 Social Security benefits of $77.50 and $85.00 for workers earning $3,000 and $4,000 per year, respectively. Averages are unweighted median levels of the plans in each earnings and service category. 23 granting of a larger pension up to age 65 than was actually due the employee under the regular formula. Upon reaching that age, the benefit was reduced so that when combined with the T a b l e 8.— Distribution of plans by percentage of total monthly benefit (including primary Social Security) paid by the plan for selected earnings and service categories, by method of financing 1 Number of plans paying percentage of total benefit (including primary Social Security) Selected earnings and service Oto categories * 9.9 per cent 10 to 19.9 per cent 20 to 29.9 per cent 30 to 39.9 per cent 40 to 49.9 per cent 50 to 59.9 per cent 60 to 69.9 per cent All plans (300) $3,000 yearly with— 10 years’ service. 20 years' service. 30 years’ service. $4,000 yearly with— 10 years’ service. 20 years’ service. 30 years’ service. 180 105 2 186 102 1 44 27 32 24 89 57 45 105 37 52 30 18 90 90 41 38 54 25 68 3 60 37 1 7 31 1 23 73 1 4 1 16 Noncontributory plans (225) $3,000 yearly with— 10 years’ service. 20 years’ service. 30 years’ service. $4,000 yearly with— 10 years’ service. 20 years’ service. 30 years’ service. 171 102 2 177 100 1 31 26 28 21 88 15 38 103 13 49 28 7 46 80 6 29 49 7 28 17 30 1 5 10 1 8 27 1 2 1 2 Contributory plans (75) $3,000 yearly with— 10 years' service. 20 years’ service. 30 years’ service. $4,000 yearly with— 10 years* service. 20 years* service. 30 years’ service. 9 3 13 1 9 2 4 3 1 42 7 2 24 3 2 11 44 10 35 9 5 18 40 3 43 7 2 21 2 15 46 14 approximately 5,857,000 workers. Total benefit amounts are based on future service formulas, assuming a constant level of earnings and monthly primary Social Security benefits of $77.50 and $85.00 for workers earning $3,000 and $4,000 per year, respectively. worker’s Social Security payment, the tota amount was equal to that received prior to age 65. Disability Retirement Benefits A wide variety of formulas were used to deter mine the disability benefits under plans in the study. Similar to early retirement provisions, a considerable number of plans based the benefit on the normal benefit formula. A far greater pro portion, however, utilized other approaches to determine the benefit. The amounts of disability benefits were generally more liberal than those under the early retirement provisions. In part, this was a recognition of the fact that the worker was being forced to retire for reasons beyond his control. Whereas in early retirement provisions the estimated Social Security payment often was included in the benefit com putation, under the disability provisionsa common practice was to establish a minimum or flat benefit exclusive of Social Security payments. Due largely to the inclusion of Social Security benefits in the normal benefit formula, these flat or minimum disability pensions often were greater than the amounts paid by the plan under the normal retirement provisions. Upon reaching age 65, the flat or minimum disability benefits were either continued in the same amount or the worker’s benefit was recomputed according to the normal formula. In some plans, the disability benefit was the same as that for normal retire ment, but payment was deferred until the worker reached normal retirement age. This simply relieved the employee of the requirement that he work until normal retirement age in order to be eligible for benefits. U. S. GOVERNMENT PRINTING OFFICE: 1953