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Of all the employee retirement plans, one of the most spectacularly successful has been the profit-sharing system of Sears, Roebuck & Co. Under Sears's 34-year-old plan, an employee may contribute 5%—up to $250—of his annual pay. The company, for its part, contributes anywhere from 5% to 9% of its net profits each year. The employee's contribution is kept in cash or Government bonds, thus guaranteeing that he will get back at least what he put in. The company's share is used to buy Sears any thus the employees benefit from dividends and any increase in the stock's value. (The pension fund owns 21% of Sears stock, and is the company's largest stockholder.)
As the company has expanded and dividends have increased, thanks partly to the employees' interest in making the company more successful, the payoffs to retiring employees have jumped sharply. Sample payoff last year: a $4,600-a-year clerk who had contributed $3,561 to the fund in 34 years got $95,626. The technical drawback to the plan is that most of the employees' pension eggs are in one basket. But under the circumstances, Sears and its employees are not worried: they do not know where they could find a more productive basket.
The biggest—and among the oldest—of the noncontributory plans are those of the Bell system—A.T. & T. and its subsidiaries—which roll sickness, accident, disability, death and pension benefits all into one jumbo package. Bell started the plans in 1913 on a pay-as-you-go basis, but in 1927 started setting up a reserve fund for pensions ("funding") because it thought the method sounder. (A.T. & T. now has more than $1 billion in its pension funds.) In computing Bell pensions, an employee's length of service is taken as a percentage (e.g., 20 years = 20%) and multiplied by his average annual pay for his ten highest-paid years (usually the ten years preceding retirement). The minimum pension, including Social Security: $100 a month.
Which Plan for Unions?
Although union leaders have fought bitterly to impose such noncontributory pensions on management, do the rank & file of unionists really want them? Last month the same C.I.O. steelworkers who had struck last fall for noncontributory pensions at Inland Steel Co. got a choice of a noncontributory plan and one in which they would contribute a small portion (never more than 4%) of their weekly salaries. By a vote of 3 to 1, Inland workers accepted the contributory plan. One reason: under the contributory plan, workers would get a vested interest, and most of them would get bigger pensions.
Experts on pensions, including some labor leaders, agree that there are five basic goals toward which management & labor should work in retirement plans :
¶ The benefits should be paid for in part by the employees (i.e., a contributory plan), because such a system generally provides bigger benefits, is less of a financial burden on the company.
¶ The plan should provide that an employee may withdraw at least part of the benefits he has earned if he leaves the company before retirement; such "vesting" gives the employee a real sense of security and participation.
¶ The plan should be conceived and administered by actuaries ; it should not be worked out by hit-or-miss bargaining.