Increased retirement benefit for executive level employees

sonny

There is a proposal going around that would give Senior Management up to an additional per cent on their retirement allowance. (Benefit accrual rate for average employee is 2.5%, their's would be 3.5) I am having some problems with this, but have been told it is not an uncommon practice. Could you give me some input? (Particularly those of you in public/government sector) While we are at it.. What is your life insurance program? Is it common to give lower paid workers a flat amount ($5,000) while higher paid people get salary +? Thanks in advance.

Jen D

When you say "retirement allowance" are you referring to some type of pension plan?

sonny

Yes, I'm sorry for not being clear. It is our pension plan. Employees get a % of their salary times years of service. Exec. (who are already at a higher wage) would also get a higher % in the formula. Hope this helps. I would really like some feedback on this.

Jen D

It really depends on how the plan is structured. Typically, though, under a qualified pension plan, if the plan is set up to give "highly compensated employees" a higher percentage of benefit, the plan will fail discrimination testing. Often, a company will have a qualified pension plan which gives the same benefit to all employees across the board (recognizing, of course, that if the benefit is based on a percentage-of-pay formula, those who earn more salary will earn more pension benefit as well); then they will supplement the qualified plan with a non-qualified plan which pays a benefit only to officers or highly compensated employees. Since the additional plan is non-qualified, it is not subject to discrimination testing.

Your actuary should be able to discuss the type of plan you have; the formula for benefits; and the effect on discrimination testing.

AnaFL

For whatever my input is worth, we have a qualified pension plan, i.e. profit-sharing plan, whereby all employees, regardless of position, get 15% (employer provided) of their annual pay deposited into their profit sharing accounts every year. So of course the higher paid employees receive a bigger amount based on their higher wages. Everyone seems to be very happy with this plan. The employees then also have a choice of taking up to an additional 9% of their pay out of their paychecks (post-tax funds) and put it in their profit sharing accounts. I have read that it is up to the employers' discretion how much they contribute, and how they do it, as long as they don't break any ERISA discrimination law, which apparently do not apply to government agencies.

Our life insurance plan is like yours, i.e. blue-collar workers get a max of $12,000 life insurance (Universal/Whole Life Plan), white collar/salaried/exempt can get up to their annual salary coverage, not to exceed to a certain amount. This does cause some resentment among blue-collar workers, and our management has always just told them that based on the fact that blue-collar/hourly workers can and do work overtime and are able to increase their pay by receiving overtime, the others have this benefit instead! I have my own personal opinion on the matter, but that's a moot point.....

sonny

Thank you both for your input. . have my opinions too.. also moot