A GOLDEN HANDCUFF OR A PORTABLE PENSION? (1988)
Several years ago, one of my ACS Comments was entitled (in Latin) "Times Are Changing and We Are Changing with Them." Today, such change is even more evident in almost every aspect of our profession. At a recent ACS Presidential Conference on Professionalism, the promotion of truly portable pensions rated top priority. If you are younger than 35, you may be unfamiliar with the dilemma older scientists sometimes face: to continue in a safe, unchallenging position or to leave and thus risk receiving inadequate retirement benefits. It is a difficult choice, requiring that present professional advancement be weighed against future financial security.
Let me illustrate the problem by sharing a few comments from a retired chemist who responded to a previous Comment, "To Boldly Go Where None Has Gone Before." In that article, I requested that members suggest changes that the society should promote to enhance the value of ACS membership. The retiree, who had worked for just two employers during his long career, wrote that in return for 15 years of professional service to his first employer, he now receives a pension of only $45 per month. He urged that ACS "take a strong position in favor of a fair pension portability plan." He recognized that "any action taken now might be too late to improve the benefits of those like me." Nevertheless, he urged ACS to "assure that future generations need not suffer the same inequities we retirees are already experiencing."
This chemist's experience is not unique. Let us suppose that at age 45 you find new employment. Most probably, you wish to work for an additional 20 years.
During that time, inflation will drastically diminish the value of pension benefits accrued under your previous employer. Your pension will be 38 or 21% of its current value, adjusted for an inflation rate of 5 or 8%, respectively. If you are only 35 years old, the corresponding numbers will be 21% and 10%. If instead you choose to remain with your first employer, your salary will, hopefully, be adjusted for inflation and your pension will be based on your average salary during the three to five years prior to retirement.
Let us consider the real effect of job-changing on your total pension.
Example 1. If you work for the same organization throughout a 35-year career and if your salary at the time of retirement is $50,000 per year, your pension will be approximately $17,500 per year (35% of $50,000).
Example 2. Again assume that your salary at retirement is $50,000 per year, but that you serve 15 years in your first position and 20 in your second. Your pension from the second employer will be approximately $10,000 per year (20% of $50,000). The pension paid by your first employer will depend on your final salary in that position and is unlikely to have been more than $15,000 per year. Therefore, for those 15 years of service you will receive approximately $2250 per year (15% of $15,000) and your total retirement income from both sources will be only $12,250.
From these examples it is clear that by changing jobs only once, you effectively lost 30% of your expected pension. If you had changed jobs more frequently, or spent fewer years with your last employer, or if the inflation rate had been higher than 5% per year, your pension would be even smaller. The moral is that you are tied to your position by a golden handcuff.
Some may say that an employer has the right to reward 35 years of loyal service. True. But 30 years ago, a corporation and its scientists shared a mutual sense of loyalty and a scientist expected to retire at age 65 after serving 30 or more years with the same company. Multiple terminations and forced early retirements of scientific personnel were unknown. But times have changed! Today any scientist over 50 faces the danger of a forced early retirement on a substantially reduced pension.
Can this situation be remedied? One successful approach is used by most colleges and universities whereby pension contributions are channeled to a central independent organization, the Teachers Insurance Annuity Association (TIAA). Any academician receiving retirement payments from that fund receives the same annuity whether he or she works one year each for 35 universities or 35 years for the same institution, provided the contributions to the fund are the same.
A second approach would allow employees to rollover benefits into an appropriate IRA (Individual Retirement Account) upon leaving the firm. Currently, this is not possible because most large industrial organizations administer their own pension plans. If this alternative were available, many corporations might choose a TIAA-like organization to administer their pension fund.
Clearly, present retirement systems must be restructured to ensure a fair pension portability program. ACS must consider how best to accomplish that goal. We propose to I acquire and evaluate information from a variety of sources. We need accurate comparisons of such factors as the availability of existing alternatives and their costs. We must consult and cooperate with other professional organizations whose members face a similar dilemma. We must initiate open and frank discussions with concerned industrial representatives. ACS already has a mechanism for achieving this latter via its Corporation Associates, a committee composed of industrial executives.
The issues involved are complex and, ultimately, legislative action will be required. Unless we can provide guidelines and background information, any legislated solution may be unsatisfactory. The society must take this opportunity to shape the nature of any proposed legislation and hasten its adoption. ACS is the largest scientific organization in the world. Our recommendations could influence sympathetic legislators to support and sponsor a carefully researched and drafted plan.
Cooperative efforts by all can produce fair and equitable solutions to the dilemma of the golden handcuff. I welcome your suggestions and help on this vital issue. Although it is already too late for many, it is urgent that we act now. A truly portable pension guarantees more than future financial security for retired scientists. It would allow the free movement of scientific personnel into positions where their talents and skills would be most productively realized. A free exchange of personnel among industry, government, and academia could have far-reaching effects on the technological advancement of our country without jeopardizing the financial security of anyone.
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