PARTICIPATION REQUIREMENTS

Eligibility requirements for participation in pension plans vary considerably; some plans provide for immediate participation upon hiring, other plans provide that an employee must meet age and service requirements, and still other plans have either a minimum age or a minimum service requirement. The Subcommittee's analysis of these requirements are summarized, as follows:

Table 1-1 indicates that 35 percent of the plans covering about three-fifths of the employees have no age or service requirements that employees must meet to be eligible to participate in pension plans. Over a third of the plans covering nearly one-fourth of the participants have both an age and a service requirement for entry into the plan, 25 percent of the plans covering 10 percent of the participants have a service only requirement, and almost five percent of the plans covering five percent of the participants have only an age requirement for participation.

It is noteworthy that in the category of largest plans, with 10,000 or more participants, over 70 percent of the plans, covering over threequarters of the employees in that size category, provide for immediate participation in the pension plan.

The Subcommittee study indicated that for those plans that have pre-participation service requirements, most employees could become eligible to participate in the plan with three years' service. On the other hand, for those plans that have minimum age requirements, most plans provide that an employee must be over 25 years old to be eligible to participate in the plan.

TABLE 1-1-AN ANALYSIS OF AGE AND SERVICE REQUIREMENTS TO BECOME ELIGIBLE TO PARTICIPATE IN PEN

RETIREMENT PROVISIONS

Most private pension plans provide for both normal and early retirement benefits. Some plans also provide for disability and death benefits.

In order to be eligible for retirement benefits, employees must meet certain age and service requirements. The amount of benefits to be received is generally dependent on length of service and earnings. The Subcommittee study was directed principally at determining the prevailing eligibility requirements for normal and early retirement and the principal bases on which retirement benefits are computed.

Table 2-1 summarizes the age and service requirements employees must meet to be eligible for normal retirement benefits. Almost nine out of ten plans, applicable to about 85 percent of the employees, specify that an employee must be 65 years old to be eligible for normal retirement. In addition to the age requirement, almost 30 percent of all plans require that an employee must complete 10 years of service, and 15 percent of all plans require that an employee must complete 15 years of service. Although on the basis of the study, it was found that most plans contain a continuous service requirement, the Subcommittee did not determine how this requirement affects the service requirements to be eligible for retirement benefits.

Table 2-2 summarizes the age and service requirements employees must meet to be eligible for early retirement benefits. Over one-half of the plans applicable to 45 percent of the employees specify that an employee must be at least 55 years old to be eligible for early retirement. In addition to the age requirement, 15 percent of all plans require that an employee must complete 10 years of service, and over 15 percent of all plans require that an employee must complete 15 years

of service.

About one-fifth of the plans applicable to over 15 percent of the employees specify that an employee must be at least 60 years old to be eligible for early retirement. In addition to the age requirement, about five percent of all plans require that an employee must complete 10 years of service, and another five percent of all plans require that an employee must complete 15 years of service.

Table 2-3 summarizes the service and earnings formulas used for determining normal retirement benefits. Most plans base the benefits on a combination of length of service and earnings.

With respect to the earnings factor, about one-fifth of the plans applicable to 15 percent of the employees are based on career earnings, almost one-fourth of the plans applicable to 15 percent of the employees are based on terminal earnings over a specified number of years, and one-tenth of the plans applicable to 15 percent of the employees are based on the high five years' earnings.

Almost 30 percent of the plans applicable to approximately one-third of the employees base the amount of retirement benefits on length of service only.

TABLE 2-1.-DISTRIBUTION OF AGE AND SERVICE REQUIREMENTS TO BE ELIGIBLE FOR RECEIVING NORMAL RETIREMENT BENEFITS, BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.

TABLE 2-2.-DISTRIBUTION OF AGE AND SERVICE REQUIREMENTS TO BE ELIGIBLE FOR RECEIVING EARLY RETIREMENT BENEFITS, BY PLAN AND BY PARTICIPANT

Note: The sum of individual items may not equal totals because of rounding.