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Employees of the Public Service Electric and Gas Co. in the northern New Jersey area ended a 40-day strike on June 23. Represented by the International Brotherhood of Electrical Workers, they received wage increases of about 5 percent and improved fringe benefits. Service was not seriously interrupted.
Notice of intent to invoke a wage reopener clause was served by the National Maritime Union on operators of nearly 600 Atlantic and Gulf Coast vessels. The 1958 agreement allows two reopeners.
men, Electrical Workers, Sheet Metal Workers, Firemen and Oilers, and Blacksmiths. The agreement establishes settlement machinery which provides for final and binding decisions, and embodies the first revision of rail shop rules in 40 years.
Another manifestation of interunion agreement was the naming of a committee to draft a constitution leading to a federation and ultimately the merger of eight postal unions.
CONVENTION DELEGATES of the Newspaper Guild approved raising a million dollar “defense" fund (by increasing the share of each member's dues which goes to national headquarters). They also heard a representative of the Typographical Union suggest merger of the two organizations. Arthur Rosenstock was elected president to succeed Joseph F. Collis.
The Communications Workers of America in its annual convention also raised the share of main office per capita tax (by 50 cents) and reelected all incumbent officers. The increase had been rejected a year earlier. Trial procedures for members charged with aiding the jurisdictional claims of a rival union were shifted by constitutional amendment from the local union to an international trial board. The move reflects CWA's growing concern with jurisdictional conflicts.
In another recognition of growing jurisdictional troubles, the Office Employees' International Union, in its convention, urged the AFL-CIO “to merge all organized office workers in the United States and Canada under the ... OEIU.” It authorized its officers to withdraw from the AFLCIO if satisfaction on this score is not obtained. Many industrial unions have solicited the membership of white collar workers in the plants they have organized.
The Canadian Labor Congress, counterpart of the AFL-CIO, in mid-June expelled the Seafarers' International Union for refusing to cease raiding another affiliated union; however, the expulsion has no bearing on the AFL-CIO status of the SIU.
Jurisdictional agreement was reached by seven railroad crafts: the Machinists, Boilermakers, Car
DAVE BECK, betroubled ex-president of the Teamsters, on July 3 pleaded innocent in a Federal court to charges of having violated the TaftHartley Act in receiving $200,000 from Roy Frue hauf and another executive of the Fruehauf Trailer Co. Beck is also under sentence for income tax evasion and is appealing a conviction for misuse of union funds.
James R. Hoffa, Beck's successor, in late June made another appearance before the McClellan committee to explain among other items why he had not rid the union of officers with criminal records. He is scheduled for yet another session later in the summer.
At about the same time, Godfrey P. Schmidt, one of the three monitors appointed by a Federal district court to oversee the Teamsters, resigned and was replaced by Lawrence T. Smith. An appeals court, which had held that the monitors could request the courts to order compliance with cleanup directives, had also pointed (without prejudice) to clients of Schmidt who negotiated contracts with the Teamsters and who might cause a conflict of interest.
An award of $438,000 has been paid by the United Mine Workers to the Meadow Creek Coal Co. as damages for the closing of the company's mine as a result of the UMW's actions in 1948. Similar suits totaling more than $15 million now face the union.
An Indiana court has ruled that the State rightto-work law does not apply to the agency shop, a system wherein nonunion employees pay per capita fees equal to the dues scale of a union which has representation rights in a given concern. The statute, the court held, outlawed only compulsory union membership, not payments as such.
Vesting Provisions in Pension Plans
An Analysis of Vesting Provisions and Requirements
WALTER W. KOLODRUBETZ*
A WORKER building up pension credits under a pri
. vate pension plan need not, in all cases, wait until the normal retirement age (usually 65) in order to realize his equity in the plan. A pension plan may contain one or more of three methods of safeguarding the worker's equity should he be unable, for reasons other than total disability, to continue in a particular employment until he reaches the normal retirement age—-vesting, early retirement, and portable (transferable) pension credits (as under multiemployer plans). In the absence of such provisions, or if he cannot qualify, a worker loses all of his accumulated credits under a pension plan upon loss of his job. Each of these methods, in varying degrees, may have significant implications for the cost of pension plans and the mobility of workers. This article analyzes vesting provisions of 300 selected pension plans, including types of such provisions and the minimum requirements for benefits. This is supplemented by an analysis of the minimum requirements for early retirement. The significance of transferability of pension credits under multiemployer plans and its relation to vesting provisions is also examined.
Vesting is defined as a guarantee to the worker of a right or equity in a pension plan, based on all or part of the employer's contributions in the worker's behalf (in terms of accrued pension benefits), should his employment be terminated before he attains eligibility for regular retirement benefits. The vested right typically assures the worker a future retirement benefit, which commences when he reaches retirement age, wherever he may be at that time. In some instances, vesting
provisions give the worker an option of receiving an immediate cash benefit when his employment is terminated. In order to qualify for vesting, the worker usually must meet specific age and/or service requirements.
The primary purpose of an early retirement provision is to enable workers to withdraw from the labor force before normal retirement age on an assured income. However, such provisions may also be available to the worker who leaves and goes to work for another employer. He may begin receiving monthly payments immediately (usually in reduced amount) or may, in some plans, defer receiving benefits until the normal retirement age specified in the plan. Under these cir cumstances, early retirement takes on aspects of a vesting vehicle where vesting is not provided. Age and/or service requirements must be met, and, in some cases, the qualified worker can retire early only with the consent of his employer.
Vesting is often considered a form of pension insurance for the relatively young worker who is not near, nor thinking of, retiring, and for whom mobility may still be an important asset. On the ing that the worker remains in the labor market covered by the plan for his full working life.
of the Division of Wages and Industrial Relations, Bureau of Labor Statistics.
1 A more detailed analysis of vesting and early retirement provisions 18 presented in Pension Plans Under Collective Bargalning: I. Vesting Provisions and Requirements for Early Retirement; II. Involuntary Retirement Provisions, Late 1958, BLS Bull. 1259 (1959). Subse dent studies will deal with benefits pay
under provisions for early retirement and with disability retirement which is not covered in any respect in this study.
• Under contributory plans, the vested worker is invariably permitted to withdraw his own contribution, with or without interest, when terminated; however, withdrawal of contributions usually entails loss of benefits purchased by employer contributions,
Scope of Study
other hand, early retirement is commonly conceived of as a device by which the worker who is already thinking of retirement or is ailing but not totally disabled can hasten his departure from the labor force, sometimes encouraged by his employer. In practice, however, vesting and early retirement have more in common than these views imply. Under current plans, as this study shows, vesting requirements frequently limit the attainment of full vesting to middle-aged workers with substantial seniority, while early retirement may be available 10 or 15 years prior to normal retirement age. Although the overlapping is relatively small, in terms of minimum requirements, a description of equity safeguards available to workers would be incomplete if it were confined to an analysis of vesting provisions and neglected corresponding requirements for early retirement.
The portability of pension credits, the third device mentioned earlier, is virtually restricted to multiemployer plans. Under these pooled arrangements, the worker carries his pension credits from employer to employer and accumulates pension credits as long as he works for an employer covered by the plan. Vesting and early retirement provisions, although not incompatible with portability, are far less common in multiemployer than in single employer plans. In their absence, the worker's equity is not protected if he chooses, or is compelled, to seek employment outside the shelter of the employer participants in the pension plan. In some cases, a reciprocal arrangement among separate plans may extend this area of coverage. Although not a substitute for early retirement privileges, portability of pension credits probably accomplishes as much as vesting, assum
For the study from which this article was adapted, 300 selected pension plans under collective bargaining, in effect in late 1958, were analyzed.* All plans covered 1,000 or more workers. Other considerations in the selection of a sample were the union involved, type of bargaining unit, industry representation, type of plan, and geographical location. The 300 plans ranged in size from those with 1,000 to those with over 100,000 workers and covered approximately 4.9 million workers under collective bargaining agreements, or more than half of the estimated coverage of all pension plans under collective bargaining in the United States.
All major industries (excluding railroads and airlines) were represented in the sample. About 3 out of 4 of the plans (229) were in manufacturing industries and covered about 3.4 million workers. The 71 plans in nonmanufacturing covered approximately 1.5 million workers. Sixty-nine plans were established on a multiemployer basis;
8 See footnote 1.
• These plans included those established for the first time as the result of collective bargaining and plans established originally by the employer or the union but since brought within the scope of the agreement, at least to the extent that the agreement established employer responsibility to continue or provide certain benefits.
6 Many plans were extended uniformly to cover workers outside the scope of the collective bargaining agreement. However, the coverage figures used in this study represent only the number of workers under collective bargaining agreements covered by the plans.
TABLE 1. PROVISIONS FOR VESTING IN SELECTED Pension Plans UNDER COLLECTIVE BARGAINING, BY METHOD OF
FINANCING AND TYPE OF BARGAINING UNIT, LATE 1958
these plans covered over a third of all workers in the study. Fifty-one plans were financed by both the employer and the worker (contributory plans). The remaining 249 plans were financed entirely by the employer, and covered almost 85 percent of all workers in the study.
An earlier study by the Bureau of Labor Statistics of 300 pension plans in effect in 1952' provided a basis for a limited evaluation of major trends over a 6-year period. Of these 300 plans, 219 were included in the present study. The substitution of 81 plans was occasioned by (1) elimination of plans covering less than 1,000 workers, (2) mergers, companies going out of business, or plans terminated, and (3) lack of current information in some cases.
5 years.. 10 years. 15 years. 20 years.
25 years. Participation.
15 years Age.
Age 40 and 10 years..
Age 60 and 15 years.
Age 45 and 5 years.
Age 50 and 20 years..
25 years of service or 10 years of participation.. Service and participation.....
10 years of service including 5 years of participation.
15 years of service including 5 years of participation. Alternatives..
Age 45 and 10 years of service, or 15 years of service.
participation. Age 50 and 5 years of participation, or later of age
55 or 10 years of service (age plus service must
equal 65) Other 3
7.5 125.8 42.0
3.8 10.0 94.4 66.6 18. 8 9.0 6.5
6.5 1, 836.4
4.9 36.7 23. 2 1.5 9. 3 47.2
4.9 37.5 4.4 3.8 3.0 16.5 4.0 5.8 3.0 3.0 17.8 16.4
Prevalence of Vesting
Vesting was provided by 174 plans, or almost 3 out of 5 (table 1). Of the 231 single employer plans studied, more than two-thirds (162) contained vesting provisions, as against 12 of the 69 multiemployer plans. About 4 out of 5 contributory plans vested in the qualified worker all or part of the employer's contributions, and slightly more than half of the 249 noncontributory plans contained such provisions.
A significant increase in the prevalence of vesting provisions in collectively bargained plans is revealed by these figures. In 1952, only 25 percent of 300 plans studied contained vesting provisions; less than 10 percent of the noncontributory plans provided for vesting. Prominent among those adopting vesting since 1952 were automobile and basic steel companies, in agreements with the United Automobile Workers and the United Steelworkers, respectively.8
1 For coverage, see table 1.
: Service refers to the period of employment, while participation includes period of plan membership only. Periods may be identical or may vary if eligibility requirements prior to membership in the plan are specified.
* This plan required 15 years of vesting service, where 1 year is given for each year of service to age 40, 2 years for each year between age 40 and 50, and 3 years for each year over age 50.
Types of Vesting Provisions
vesting, and 1 immediate full vesting. Deferred full vesting constituted a somewhat larger proportion of the total than in 1952.
Under deferred full vesting, the worker retains a right to all accrued benefits if he is terminated after he attains a certain age and/or after he completes a designated period of service or participation in the plan. For example, one plan states that:
Of the 174 plans with vesting provisions, 154 provided deferred full vesting, 19 deferred graded
• Some plans permitted the workers to contribute to a supplementary plan to build up additional pension benefits. In these cases, only the basic noncontributory plan was analyzed.
* Pension Plans Under Collective Bargaining, BLS Bull. 1147 (1953).
* For details of individual plans, see Digest of One Hundred Selected Pension Plans Under Collective Bargaining. Winter 195758, BLS Bull. 1232 (1958).
An employee . . . who, upon termination of employment has attained the age of 40 and has 10 years or more of company service credit, is eligible for a pension benefit ... with payments starting upon receipt of written request of said employee to the company at or after he attains age 65.
Table 3. MINIMUM AGE AND SERVICE REQUIREMENTS FOR DEFERRED FULL VESTING, LATE 1958 1
up to 5 years. This preparticipation period, where required, must be taken into account in evaluating service requirements of vesting provisions."
Under deferred graded vesting, the worker acquires a right to a certain percentage of accrued benefits when he meets specified requirements. The percentage vested increases as additional requirements are fulfilled, until the worker becomes fully vested.
In contrast to these methods of deferring an equity or right in employer contributions until minimum age and/or service requirements have been fulfilled, under immediate full vesting the worker secures a vested right upon becoming covered by the pension plan. A preparticipation period of employment may, however, be required before the worker is covered by the pension plan; in the one plan providing immediate full vesting found in this study, there was no such requirement.
Preparticipation Service. Of the 300 plans studied, 73 established preparticipation requirements which, in most cases, withheld pension coverage from newly hired workers. Of these 73 plans, 61 had vesting provisions. In 26 of the 61 plans, the preparticipation service could be counted in determining eligibility for vesting, but only plan membership service could be credited in the remaining 35. Seven of the 35 plans provided deferred graded vesting; 28 plans provided deferred full vesting. To reflect total employment required for vesting under these 35 plans, their minimum service requirement as presented here (except in table 2) include both the preparticipation service and the plan membership service.
Requirements for Vesting
The emphasis on age and service, which are typically key elements in a pension plan, is quite apparent in vesting provisions. Age and, more particularly, service requirements are restrictive devices designed to serve several purposes, not the least of which is reducing the cost of vesting.
In some pension plans, length of plan membership rather than length of service is used. This substitution has significance for the present study when the worker is not covered by the plan immediately upon hire or shortly thereafter, but must serve a preparticipation period which may range
Deferred Full Vesting. The minimum requirements stipulated in the 154 plans providing deferred full vesting are shown in table 2 as they were expressed in the plans, that is, without adjustments in the 28 plans which excluded preparticipation service. As will be seen later, the wide variety of provisions, a feature also found in the 1952 study, reflects, in part at least, the ways in which vesting requirements merge into early re
* In plans with preparticipation requirements, such service is not usually used for computing accrued benefits, whether or not it counts toward determining eligibility for benefits.