Masonry Magazine May 1961 Page. 9
Pension Plans
(Continued from preceding page)
earlier. In fact, this president had formed his opinion because of experiences which he had heard about from friends in other firms.
Our explanation of the new flexibility now available in pensions cleared up this problem, but the clinching factor in his swing to pensions was how much more he had to gain, personally, by using a pension plan instead of profit-sharing. Here's why:
This man was 60 years old. Under profit-sharing, the maximum amount which could be deposited to his account was 15 per cent of his annual salary. This is all Internal Revenue will permit in any deductible profit-sharing plan. This same percentage must be applied to the salaries of everyone in the program. Since the president had only five years to go before reaching the normal retirement age of 65, he could only accumulate a profit-sharing base of less than one year's salary, plus any interest earnings. His younger employees, on the other hand, would have 30 to 40 years or more in which to build up their profit-sharing funds.
Compare this with the pension plan which the company actually installed. Under this program, all participants are to receive a pension, at age 65, equal to 30 per cent of their salary averages. The number of years these persons are in the plan is not the significant factor in how much they receive in benefits, because this figure is already established in the pension formula. But these years do determine how much the company deposits each year to provide these benefits. Obviously, the deposits will be low for younger persons; higher deposits for older ones. Thus, in the case of the president who had only five years in which to build his entire pension, the annual deposit to his fund was far more than the 15 per cent maximum he could get under profit-sharing. Since his objective was to get as much money out as possible, a pension plan was made to order for him.
Case No. 4
I have been stressing management pensions as opposed to union-type plans. There's good reason for this. Many companies have been more or less obliged to take on pensions for their hourly employees, while their salaried people have been passed over on retirement benefits.
Take the case of the Johnson Co., a small firm with 23 employees, 19 of them hourly workers who had received pensions in their last union contract. The four remaining persons were three office workers and the owner. The owner frankly admitted that the idea of pensions had never (Continued on page 17)
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