# Does this pension plan sound like age descrimination **URL:** \ **Category:** Factual Questions\ **Created:** [May 3, 2006, 10:39pm UTC](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315 "2006-05-03T22:39:02Z")\ **Posts on this page:** 5\ **Page:** 2
**Author:** ![Tastes\_of\_Chocolate](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tastes_of_chocolate/32/3232_2.png) [@Tastes\_of\_Chocolate](https://boards.straightdope.com/u/Tastes_of_Chocolate)\ **Post date:** [May 8, 2006, 4:04pm UTC](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315/21 "2006-05-08T16:04:54Z")
[QUOTE=pkbites] Is this the ACTUAL rate, or just an example? Slight hijack, buy if it’s actual, am I the only one who thinks these rates suck, except for those over 60? [/QUOTE] Those are pretty close to the actual rates. I rounded a bit for brevity. And yes, as far as rates go, the ones for younger employees really suck. If you are under 21, you actually get ZERO contribution from the company. ---
**Author:** ![mrklutz](https://avatars.discourse-cdn.com/v4/letter/m/ebca7d/32.png) [@mrklutz](https://boards.straightdope.com/u/mrklutz)\ **Post date:** [May 8, 2006, 4:29pm UTC](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315/22 "2006-05-08T16:29:33Z")
More and more companies are phasing out their defined benefit plans (traditional pension) in favor of defined contribution plans (401(k)'s and suchlike). That contribution scale looks to me like they’re planning to phase out their DB plan over a very long time. Under that scheme, it seems to me that the younger employees will come to rely less and less on the DB plan for retirement. And yes, **pkbites** those rates suck if the DB plan is the only retirement plan the company has. If there’s a DC plan in addition, though, it doesn’t suck quite so much. My own company has both, and my DC assets are about triple my DB assets right now. ---
**Author:** ![Freddy\_the\_Pig](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@Freddy\_the\_Pig](https://boards.straightdope.com/u/Freddy_the_Pig)\ **Post date:** [May 8, 2006, 6:06pm UTC](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315/23 "2006-05-08T18:06:34Z")
There are three types of pensions: defined benefit, cash balance, and defined contribution. The first two are age-discriminatory; the third isn’t. Traditional corporate pensions were (and some still are) defined-benefit. They’re _inherently age-discriminatory_. They’re _designed_ to be age-discriminatory. When you reach retirement age, you get a monthly pension, for the rest of your life, based on the year you left the company and how long you worked there. A 64-year-old is accruing benefits that will begin paying in one year; a 24-year-old is accruing benefits that will pay in 41 years. The NPV of the former is vastly greater than the NPV of the latter. Nobody protested against such plans when they were created, because: (a) They were adopted before today’s egalitarian, you-must-treat-everybody-the-same mindset had taken hold; (b) They discriminate against young people and in favor of old people, so that even after anti-discrimination laws were adopted, no one was infringing against a protected class; (c) They were adopted during an era of corporate paternalism, when people expected to work for one company for a long time and reasoned that, if they “suffered” as young workers, they would benefit as old workers. Recently, many companies have switched from defined-benefit plans to _cash-balance plans_. These are the types of plans described by **Tastes of Chocolate** in the OP. If you leave the company before retiring, rather than wait until you’re 65 to collect benefits, you can take out the _cash balance_ from the plan and invest it on your own. To calculate the value of the cash balance, companies adopt a schedule similar to the one in the OP. **The schedule in the OP is not the least bit atypical**. Even under this skewered contribution schedule, CB plans are _still_ almost invariably more favorable to young workers than DB plans. _That’s how age-discriminatory traditional DB plans have been_. In fact, most litigation concerning CB plans has occurred after companies have switched from DB, by older workers complaining that the CB plan was _less biased in their favor_ than the prior DB plan. For example, see [here](http://www.benefitscounsel.com/archives/001092.html). For an age-neutral pension, you need a “pure” DC plan like a 401(k), where you contribute your own money with a company match that isn’t based on age. However, when companies adopt that as their only retirement benefit, people complain that traditional benefits are being taken away. You can’t win. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [May 8, 2006, 6:25pm UTC](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315/24 "2006-05-08T18:25:09Z")
[QUOTE=Tastes of Chocolate] Those are pretty close to the actual rates. I rounded a bit for brevity. And yes, as far as rates go, the ones for younger employees really suck. If you are under 21, you actually get ZERO contribution from the company. [/QUOTE] Are these matches or contributions? I read them as the latter. When I worked for AT&T and had a pension plan, I contributed nothing (directly) - the company contributed to the plan. Since pensions are now portable, I see the justification for this. Pensions are for loyalty, and no amount of pension at 21 is going to make someone stay. Better to not give them much to take with them when they leave, and have the money go to those over 40 who would be more likely to stay for the increasing payout. Kind of the opposite of the old practice of laying off the older, better paid workers. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [May 8, 2006, 6:27pm UTC](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315/25 "2006-05-08T18:27:58Z")
[QUOTE=picunurse] Really? Thank you. The information was from the HR person trying to get me to sign the authorization. :dubious: [/QUOTE] Did HR really say that you would have to cash out your IRA if you went with the plan? That seems excessively ignorant and counter-productive, since when you left your IRA went with you without penalty. [Previous page](https://boards.straightdope.com/t/does-this-pension-plan-sound-like-age-descrimination/355315.md?page=1)