Masonry Magazine August 1962 Page. 4
THE AUTHOR Kennet
Keene is an Associate Actuarial insurance organization with Aetna Life Insurance Company home offices in Hartford, Connecticut. He completed undergraduate work at the University of Florida and has a master's degree from the University of Michigan. He is a Fellow in the Society of Actuaries and currently serves on its Education and Examination Committee.
Mr. Keene has been specializing in the group pension field. He is devoting an important part of his time to the design and operation of multiple-employer pension plans. His company administers group pension plans covering more than 600,000 employees and involving pension investments of almost two billion dollars.
Setting Up a Pension Plan:
What You Should Know
This is the first in a series of articles for MASONRY readers on the procedures in setting up a pension plan, the usual problems encountered and the method for solution. Part II of this series will appear in the September issue of MASONRY.
PART I
There has been increasing pressure on the part of unions in the construction trades for the adoption of pension plans to be paid for by the employers. While the idea for a pension program has usually been initiated by the union there have been many instances where the employers have made the first suggestions. The goal is to lend stability to the bargaining situation and to place emphasis on fringe benefits rather than cash wage increases. Most pension plans negotiated with masonry employers have arisen after a health and welfare plan has been in operation for some time. However, although this is the pattern it is not essential that the welfare plan be negotiated first. There are cases where the pension plan has been installed and there is no welfare plan.
Let us start out with a model plan stripped of all the frills. This plan could be as follows: Past Service Credit (work performed in the area before the plan starts)-$2 per month benefit for each year of past service, up to an ever-all maximum of $40. Future Service Credit (work performed in the area after the plan starts)-53 per month benefit for each calendar year in which the employee works at least 1,400 hours for which contributions are made to the fund. Retirement Age-any time after reaching age 65 at the option of the retiring employee.
The benefits will be payable for life. This can be a most valuable benefit. For example, a man age 65 may expect to collect benefits for about 170 months on the average. If the benefit is, say, $50 per month, such a man will receive total benefits of $8,500 from the plan plus whatever Social Security provides!
Since the plan is financed out of employer contributions received for current work, the past service benefits must be paid for out of current contributions. This means that past service should be given less emphasis than future service, in the interests of reasonable equity and sound financing. Past service incidentally is usually based on evidence of unbroken membership in the local union, although for Taft-Hartley reasons the formal rule is somewhat broader.
For the above model plan it is interesting to see what individual employees receive. Chart 1 has been prepared to show the monthly benefit, and its corresponding value to a man age 65 who lives out the average life expectancy, where each employee has 35 years of total service in the bargaining unit. The employees are identified as follows: employee A-34 years past service and 1 year future; employee B-25 years past service and 10 years future; employee C-15 years past service and 20 years future; employee D-5 years past service and 30 years future; employee E-no post service and 35 years future service.
The above model plan is a very simple one. It is the approach which is usually indicated when a plan is just getting its start. After a time though, while continued emphasis should be given to the pension benefits, it may be desirable to use developing surplus for other less essential benefits, e.g., more liberal vesting, pre-retirement death benefits, cash severance benefits, or disability benefits. There is of course only so much money to spend and it should be spent to satisfy the major objective, which is the pension benefit. On the other hand with favorable experience the other types of benefits may logically be added on a modest basis after several years.
The plan may be negotiated with just one local union or it may be negotiated with several locals on a city-wide basis. One other form is to provide for a multi-employer fund this has certain advantages from the standpoint of the employers but is not usually viewed favorably by the unions. It is important to recognize that there is less control on the part of each individual group and if several groups are involved if the basic interests of each group are diverse this may lead to conflict.
Although the negotiated contribution rate varies substantially in different parts of the country, most