Pension / grandfather clause question

[almost there]

2 employees join Mega corp Elect. Utility in 1982.
One employee is 20 (A), the other 30yrs old.(B)
(Same jobs / pay moving up through the yrs)

Fast forward to 2012 the 30 yr old is now 60 with a 750k pension.
The 20 yr old's pension is now 250k.
To get close to the same pension employee A would have to work 42 yrs with the Co rather than 30yrs like employee B.

Employees needed x amount points in 2000 to keep the old plan.
Age plus years of service. Mega corp Utility spends millions a year on lawyers, so I am pretty sure this was legal at the time.
Both employees signed up for the same plan, yet one employee's plan changed due to age?
Is this age discrimination?
Or are pensions a benefit that can change / disappear at the whim of the Co?
(Not trying to scare Gov. workers, teachers, or other state employee's)

 

[MichaelB]

To judge this more information is needed, and a background in law would help. This case sounds a bit like the AT&T and IBM pension complaints of a decade ago. You might search to read about them.

 

[noggin]

Is this age discrimination?

Most likely not because a lot of Mega companies did the same thing. Mine did. I barely squeaked in and was grandfathered. Those that were closed squawked a bit but the younger folks did not pay attention. There is no pension for them anymore, only the 401.

 

[noggin]

Wow, just realized I've been lurking here for two years and that was my first post.

 

[almost there]

Most likely not because a lot of Mega companies did the same thing. Mine did. I barely squeaked in and was grandfathered. Those that were closed squawked a bit but the younger folks did not pay attention. There is no pension for them anymore, only the 401.

Its still there for new employee's, they just get the neutered version of employee A.
(Shhh... they dont know it was neutered like the 30 yr employee that has the same plan)

 

[MichaelB]

Welcome to the forum, noggin. Why not tell us a bit about yourself here Hi, I am... - Early Retirement & Financial Independence Community

 

[youbet]

2 employees join Mega corp Elect. Utility in 1982.
One employee is 20 (A), the other 30yrs old.(B)
(Same jobs / pay moving up through the yrs)

Fast forward to 2012 the 30 yr old is now 60 with a 750k pension.
The 20 yr old's pension is now 250k.
To get close to the same pension employee A would have to work 42 yrs with the Co rather than 30yrs like employee B.

Employees needed x amount points in 2000 to keep the old plan.
Age plus years of service. Mega corp Utility spends millions a year on lawyers, so I am pretty sure this was legal at the time.
Both employees signed up for the same plan, yet one employee's plan changed due to age?
Is this age discrimination?
Or are pensions a benefit that can change / disappear at the whim of the Co?
(Not trying to scare Gov. workers, teachers, or other state employee's)

Precedents in both the public and private sectors point towards this practice being legal. I'm unaware if/when it's been formally challenged in the courts and the outcome. It happened at the MegaCorp where I was employed over a decade ago and still stands.

 

[rescueme]

Or are pensions a benefit that can change / disappear at the whim of the Co?

DW/my respective defined benefit (e.g. pension) were eliminated (two different private companies), so yes, they can be.

It would be harder under a union contract (public or private) but in our case, we were both non-union in a public company.

In both our cases, our respective companies replaced the pension with a 401(k). I received a bit of an adjustement via a cash balance plan; however, since I was not with the company for that long when the pension was eliminated, my "balance" was low and paid out upon my retirement, some 30 years later. DW's company was bought out (twice) and there was no adjustment given for time under the old plan.

As our respective annual benefit statements said, "benefits can be modified or eliminated at any time" (yes, they were).

 

[2B]

My DW left her job and was told she was "grandfathered" for retiree health benefits when she turned 60. As her spouse I was also included. A year later she was "ungrandfathered." She gets NADA.

Health insurance is a big expense for those not yet eligible for Medicare as you all already know. That was a blow to my planning.

 

[ERD50]

2 employees join Mega corp Elect. Utility in 1982.
One employee is 20 (A), the other 30yrs old.(B)
(Same jobs / pay moving up through the yrs) ...

Interesting, and yes Corps make forward changes to the way benefits are earned. But is this example really apples-apples? Wouldn't we need to know what kind of pension the 30YO earned from ages 20-30, and what the 20Yo would earn from ages 50-60? When we look at it that way, the 20YO entered the workforce 10 years later, and yes, pension formulas have become less generous over time.

I guess you are saying the formula is based on age, so therefore possibly discriminatory. Maybe. But in the same vein, if my MegaCorp had no changes in the earnings calc (they did make changes), we would still be subject to our pension being cut in half at 55 vs 65. So I could create a scenario that even with no changes could look like age discrimination (similar to your scenario). Then again, a pension at 55 will cost the company more to service than at 65, it's just an actuarial thing. Was that accounted for in your example?

I'm undecided, may need more info, but it might be more a case of being born at 'the wrong time' (in this regard), rather than pure age discrimination. I dunno.


-ERD50

 

[cashbalancetrouble]

Unfortunately, this has been proven legal in many court cases. The plans can be changed, and the age difference between the the two employees can be the only difference making big differences like this.

The one area most fought against was called 'wear away'. This is when the effect of the plan change, from a traditional defined benefit formula to a cash balance formula, causes longer term employees to not accrue additional benefits for period of time after the conversion. In your case, the older employee is grandfathered under the old formula and the younger employee is changed to the new formula.

To my knowledge, the only case that has moved forward over the last 15 years involved Cigna. The courts said Cigna was allowed to make the changes, however Cigna did not properly inform the employees, and in fact was shown to have misled them. I think this case is still going thru appeals.

I don't normally like to post links, but for you I will.

CIGNA Pension Class Action Suit: Lawsuit about Cash Balance Pension Plan Conversion


The Pension Protection Act of 2006 fixed some of the problems with pension changes that were being made, the big one was wear away. The problem with this correction was the Congress changed the way FUTURE conversions were to be made and left the prior ones for the courts. I would guess your conversion took place before that. Duke Power was one many utilities making this type of pension change.

More info can be found here: Pension Rights Center
Promises are only as good as ....

 

[almost there]

Thanks for all the info!
I had a feeling lots of time, energy & money have already gone into this subject.
In this case, employee A still has the annuity option or lump sum / cash balance plan.
The only difference is, its 1/3 of employee B's
With what I have seen over the past three decades, as good as the annuity looks I shouldn't trust it.
Too bad as it seems a better deal than I get anywhere else, but not adjusted for inflation or guaranteed. Just a very solid return.
(Much better than over the counter annuities I have seen)
But would have been a nice option for a multi layered plan.........
Thanks again for your time!

 

[cashbalancetrouble]

The other thing to keep in mind when comparing the values is the length of collecting the benefit. Each employee should be considered having the same life expectancy. If the both retire and begin collecting now, the younger employee will be collecting for an annuity payout ten additional years, actuarial calculation.

Keep in mind there are also other early retirement incentives that may come into play for the older employee and may have been eliminated or don't come into play until you are 55+.

Only reading all the specific plan documents will reveal all the small things.

 

[JmfromTx]

I think it's totally unfair but evidently legal. I worked in a power plant for thirty years. I started when I was 26 and retired lasted year at 56. When I was figuring out if I could leave I requested a benefit calculation. My cash balance annuity was 27% of my grandfathered annuity, (I just dug out the statement and it still amazes me).

 

[Delawaredave5]

Fast forward to 2012 the 30 yr old is now 60 with a 750k pension.
The 20 yr old's pension is now 250k.
To get close to the same pension employee A would have to work 42 yrs with the Co rather than 30yrs like employee B.

Yes age cutoffs or "point" systems are legal to use to determine if a person is grandfathered in DB plan.

What I don't think you are including: the person not grandfathered in to DB plan for all their years of service probably had a defined contribution / matching plan apply during years DB plan stopped.

The person with DB for whole career still ends up with higher pension.

 

[ERD50]

Is this age discrimination?

Or do you mean reverse age discrimination? The older guy is doing better, right? Usually, when I think of age discrimination, I'm thinking the older guy is getting the short end.

-ERD50

 

[almost there]

I think it's totally unfair but evidently legal. I worked in a power plant for thirty years. I started when I was 26 and retired lasted year at 56. When I was figuring out if I could leave I requested a benefit calculation. My cash balance annuity was 27% of my grandfathered annuity, (I just dug out the statement and it still amazes me).

So, what did it end up to be after 30 yrs?
A&B above are also at a power plant.
Hope you were grandfathered!
Some folks missed by days/weeks etc.

 

[almost there]

Yes age cutoffs or "point" systems are legal to use to determine if a person is grandfathered in DB plan.

What I don't think you are including: the person not grandfathered in to DB plan for all their years of service probably had a defined contribution / matching plan apply during years DB plan stopped.

The person with DB for whole career still ends up with higher pension.

Yes, it was tiny....... and added very little......... Another calculation based on points........
They were called " Make up credits" (A) had the max of around $100 per month for 7 yrs......

 

[Texas Proud]

2 employees join Mega corp Elect. Utility in 1982.
One employee is 20 (A), the other 30yrs old.(B)
(Same jobs / pay moving up through the yrs)

Fast forward to 2012 the 30 yr old is now 60 with a 750k pension.
The 20 yr old's pension is now 250k.
To get close to the same pension employee A would have to work 42 yrs with the Co rather than 30yrs like employee B.

Employees needed x amount points in 2000 to keep the old plan.
Age plus years of service. Mega corp Utility spends millions a year on lawyers, so I am pretty sure this was legal at the time.
Both employees signed up for the same plan, yet one employee's plan changed due to age?
Is this age discrimination?
Or are pensions a benefit that can change / disappear at the whim of the Co?
(Not trying to scare Gov. workers, teachers, or other state employee's)

In your example, when did the plan change And what happened to the plan

Let me give an example... say they both made $10,000 and their pension would give them 1% per year worked... so after 1 year both would get a pension of $100 when they turned 65.... the cost of that pension for B is higher than for A... this happens for years and years... then, they convert to a cash balance... B will have more money in his plan... which now will continue to grow faster than A's can....

I do not see how it can be 3 times higher as you indicate, but it might be...