Extra Years of Work Go Unrewarded : Older Workers in Pension Bind
At an age when most Americans have retired from the work force, Michael Duda spends his days toiling on the assembly line, helping to glue labels on bottles at a Newark brewery.
He doesn’t do it for love of work: The 68-year-old bottler says he can’t afford to quit and still live comfortably on a pension that would pay $350 a month, even with another $800 from Social Security. Yet, his continued service won’t earn him a fatter pension check when he ultimately says goodby to the Budweiser plant.
Duda’s dilemma arises from an employment practice that is now being challenged by the Equal Employment Opportunity Commission and by some in Congress. Under federal law, employers generally may not treat older workers differently from younger workers merely on account of their age. But a 1979 Labor Department interpretation said that employers did not have to upgrade the pension benefits of those who stay on past their company’s retirement age.
As a result, employers who would routinely enhance the pensions of younger workers over time are allowed to freeze the same benefits of their oldest workers.
“I’m in that bind,” said Duda of West Caldwell, N.J. “I’m 68 and my pension stopped at 67.”
Proponents of the current policy worry that a change would be costly. But others ask whether it’s fair to put workers in a “bind” such as Duda’s. They also question whether it’s wise to discourage older employees from staying on the job, in light of the growing cost of federal programs for retirees, most notably Social Security.
Analyzing Cost of Proposal
In March, the EEOC proposed regulations that would require employers to continue to treat the pensions of retirement-age workers the same as for those of younger workers. The agency is now analyzing what the proposal would cost pension plans. To take effect, the ruling would have to be approved by the Office of Management and Budget, which is awaiting the results of the financial analysis before commenting publicly.
“The commission believes that the action it is proposing will accord to our nation’s older workers the protections which the ADEA (Age Discrimination in Employment Act) was intended to provide,” EEOC Chairman Clarence Thomas said in testimony prepared for a Senate labor and human resources aging subcommittee hearing set for today.
Because the commission’s plans could take many months--an approval by the Reagan Administration is uncertain--some members of Congress have introduced legislation with the same objective, although none is under imminent consideration.
“Senior citizens who delay retirement for five years may lose up to half the value of pension benefits, “ said Sen. Charles E. Grassley (R-Iowa), one of the congressional sponsors and chairman of the Senate panel holding today’s hearing.
Anheuser-Busch, which owns the Budweiser brewery where Duda works, declined to comment on the subject, although one company official said that the pension restriction was part of a collective bargaining agreement with the Teamsters union at the New Jersey plant.
“You reach an age and you’re cut off. That’s age discrimination,” declared Duda, who has worked at the Budweiser brewery for 11 years.
“There’s so much talk about this country being equal for everybody. Where does this come in?” he asked.
Duda is not alone in this view.
“We throw the book at an employer who discriminates in hiring, firing, salary or promotion,” said Sen. John Heinz (R-Pa.), chairman of the Senate Special Committee on Aging. “It’s past time we added discrimination in pension accrual to our field of fire.”
A new study prepared for the American Assn. of Retired Persons by the Mercer-Meidinger consulting firm found that 213,000 employees age 65 through 69 forfeit $450 million yearly in pension benefits because their employers allow no increase in pensions beyond retirement age.
About half of employers voluntarily provide their covered retirement-age workers some credits toward pensions, according to the report. But for those who are unprotected, the cost can be severe.
Cost Remains the Issue
Consider a 65-year-old employee with a $25,000 salary and a pension that would be worth a total of $65,500, assuming the worker lives to an average life expectancy. If the employee continues to work to age 67, the projected amount the worker will ever receive drops to $51,800, according to the consultants. If the same worker remains on the job to age 70, the pension’s value drops to $36,150.
But what it would cost employers remains at issue. The EEOC’s preliminary estimates are that a change would cost pension plans $280 million or more a year. The AARP consultants found that the cost would be less, because the increased pension expenses would be offset by the longer-working beneficiaries’ shorter retirements.
The AARP consultants said that, if the improved pensions resulted in no increase in retirement-age workers, the aggregate cost to employers nationally would be less than 1% of total pension expenses, or about $51.5 million a year. The study found that employers would actually save money if the change prompted an increased number of workers to refrain from retiring, although the consultants did not predict how many retirement-age workers actually would stay on the job longer.
The AARP report also highlighted the savings to Social Security if more of the aging opted to stay longer in the work force. For example, the consultants projected that, if 10% more employees age 65 to 69 continued to work, the Social Security program would save $295 million in annual benefit payments. The report said a 25% increase in elderly employment would save Social Security $739 million.
“Here’s a perfectly humane and appropriate way to provide older workers what they’re entitled to, which will have the incidental effect of saving Social Security hundreds of millions of dollars,” said Chris Mackaronis, an attorney with the AARP’s worker equity department.
Despite such arguments, some defend the right of employers to operate under the current system.
“It isn’t a matter of discriminating at all,” said Harry McDonald, executive vice president of National Associates, a Los Angeles firm that administers about 7,000 pension plans, primarily for small businesses. “It’s a matter of finances. What can a corporation afford?”
Mark Ugoretz, executive director of a committee that represents major employers on pension issues, raised several questions about the proposed change, including its cost and its impact on collectively bargained plans.
“It’s kind of like the music of Wagner,” said the skeptical Ugoretz, paraphrasing Mark Twain. “It sounds better than it is.”
