as his beneficiary; 10 plans restricted the choice of beneficiary to either a spouse; spouse and child; spouse, child, and dependent relative; or spouse, child, relative, and estate.

Level of Benefits. The lump-sum benefit payable in case of death before or after retirement was usually the same for all qualified workers, regardless of their earnings, age, or service. A few plans, however, paid larger benefits to long-service workers, and one plan paid $2,000 if death occurred before age 70 and $1,000 thereafter.

Lump-sum death benefits provided by 31 plans ranged from $36 to $8,200 under certain assumed conditions including annual earnings of $5,000,5 30 years of future credited service, and retirement at age 65. Most plans provided a benefit of less than $3,000 (table 2).

6

For the 27 plans providing a lump-sum benefit after retirement, the average benefit (weighted by worker coverage) amounted to $2,116, or about two-fifths of preretirement earnings. Most plans provided less. The average for the 14 plans providing a death benefit before retirement was $2,765.

The length of the 18 payment-certain guarantees was uniform in each plan for all eligible workers. Two-thirds of these guarantees were for 60 months. The amounts payable depend, of course, on the size of the pension and the number of payments, if any, made prior to death.

The amount of survivor protection provided by payment-certain plans is limited. Even the most liberal guarantee may span only a part of a

Table 1. TYPE OF DEATH BENEFITS PROVIDED AND RETIREMENT STATUS REQUIRED FOR ELIGIBILITY IN 50 PENSION PLANS UNDER COLLECTIVE BARGAINING, WINTER 1960-61 1

1 See footnote 1, table 1.

Death at age 65, on the day before retirement.

Death immediately after retirement and before the receipt of the firs monthly pension payment. Includes 1 plan covering 4,200 workers that provided $4,500 for death occurring before retirement.

Includes 1 plan covering 3,000 workers that provided a payment-certair guarantee for 120 months for death occurring after retirement.

survivor's remaining years. Wives of men retiring at 65, for example, have an average life expectancy of nearly 20 years.' The amount of money paid out under such guarantees is conditioned by the fact that 4 out of 5 men who reach their 65th birthday live to see their 70th.

The initial (and maximum) protection available immediately after retirement through paymentcertain guarantees was considerably greater than that provided by lump-sum benefit plans. Nearly half the payment-certain guarantees provided at least $5,000 (table 3). The weighted average amounted to $4,884, or almost a year's pay.

Return of Worker Contributions

Instead of providing death benefits, as such, most contributory plans guarantee the return of worker contributions, with interest, either as

8

'Annual earnings of $5,000 were assumed to be constant throughout the worker's career in order to eliminate any difference between plans basing benefits on career earnings and those using a high or terminal period. Some plans would, however, pay the same benefit if average earnings in specified years or if career average earnings were also $5,000.

• It was necessary to assume that all service was credited as future service, since procedures for dealing with past service vary widely among the plans. The U.S. Life Table for 1958 shows a life expectancy of 19.2 years for white women at age 60-typically the age of women whose husbands are 65. See Vital Statistics of the United States, 1958 (U.S. National Office of Vital Statistics, 1961), p. 5-4.

• Assuming that a uniform amount is contributed each month for 30 years and that interest is compounded annually, accrued interest would amount to between a third and somewhat more than a half of the contributions, depending on whether it is computed at 2 or 3 percent a year.

• See Health and Insurance Plans Under Collective Bargaining: Life Insurance and Accidental Death and Dismemberment Benefits, Early Summer 1960 (BLS Bulletin 1296, 1961).

10 An additional 29 percent of the pension plans, covering 25 percent of all workers, provided only optional benefits for survivors of retired workers. "The analysis was limited to the 200 pension plans whose associated insurance plan was previously analyzed in Bulletin 1296. While the pension plans generally were companywide, the benefits of many of the health and insurance plans varied from plant to plant and from area to area. Those used here covered the largest group of workers under collective bargaining. Includes 12 plans that made only survivor options available.

TABLE 4. MAXIMUM WORKER CONTRIBUTIONS AND INTEREST UPON RETIREMENT FOR WORKERS RETIRING AT AGE 65 WITH AVERAGE ANNUAL EARNINGS OF $5,000 AND 30 YEARS OF FUTURE CREDITED SERVICE IN 42 PENSION PLANS UNDER COLLECTIVE BARGAINING, WINTER 1960-61 1

Less than $1,000.. $1,000 to $1,999.

2

12.8

2

12.8

$2,000 to $2,999.

$3,000 to $3,999.

$4,000 to $4,999.

$5,000 to $5,999.

41.6

$6,000 to $6,999.

$7,000 to $7, 999.

$8,000 to $8,999. .

1 See footnote 1, table 1.

66665

? Interest estimated for 3 plans not specifying an interest rate on basis of rate in similar plans in the same industry.

percent provided life insurance for active workers and 63 percent for retired workers. By contrast, only 20 percent of the pension plans studied. routinely provided any protection for survivors of active workers and 31 percent for survivors of retired workers.10

To determine how pension and insurance protection complement each other and to obtain some measure of the absence of any type of protection (including the optional forms of payment discussed more fully later in this report), 200 associated pension and insurance plans were analyzed." Of these programs, 55 routinely provided some pension plan protection for survivors of retired workers (table 5). However, pension plan and life insurance protections tended to complement each other in these programs. In all 55, pension plan protection for survivors replaced, at least temporarily and in part, life insurance reduced or discontinued at age 65 when the worker retired. Most of the remaining 145 programs only provided limited amounts of life insurance for retired workers. No protection of any kind was automatically provided by 35 programs. 12

Survivor Options

A more common method of providing some protection for pensioners' survivors is to offer workers a reduced annuity with specified benefits

for their survivors in place of the straight-life annuity normally paid by the plan. One or more types of annuities with benefits for survivors or "survivor options," were offered by about half the plans in this study: (1) joint and survivor, (2) period certain, (3) cash refund. Unlike death benefits, the cost of these options was typically borne solely by the retiree, because the optional annuity provided a smaller monthly benefit of the same actuarial value as the regular pension payable to him." The options were made available only to active employees meeting certain conditions of age, health, service, etc. These restrictions are designed to minimize the possibility of adverse selection against the plan by retirees who, in expectation of an early death, attempt to extend payments to healthier survivors.

Optional forms of annuities were included in 148 of the 300 plans and covered 2 out of 5 workers in the study. Of the 229 plans in manufacturing industries, 125 plans, covering 1 out of 2 workers, made an option available, while 23 out of 71 plans in nonmanufacturing, representing almost 1 out of 9 workers, contained such a provision.

Three out of five of the 231 single employer plans in the study contained provisions for optional annuities, while only 1 out of 11 multiemployer plans did so. Nearly 9 out of 10 contributory plans had optional features and only slightly more than 2 out of 5 noncontributory plans.

All but 1 of the 148 plans with optional annuities offered a joint and survivor option, with the exception offering only the period-certain option. Of those plans with a joint and survivor option available, 121 plans provided no other option, while 18 plans also provided a period-certain option; 6 allowed the worker an additional choice of any form of survivor option approved by the administrator of the plan; and the remaining 2 also allowed a cash refund annuity.

Only about half the plans with a joint and survivor option made it available for normal, early, and disability retirement. This low figure

13 Subsequent to the period covered by this report, the United Automobile Workers negotiated a new survivors' option with automobile companies which provides that the cost of the option will be shared by the companies and the pensioners electing it.

Joint and Survivor Option. The joint and survivor option generally may be elected without restriction up to a specified age or period of time prior to retirement.1 Most plans permitted the election of the option after the specified age or time provided the worker demonstrated that he was in good health, usually by a physical examination. In addition, advance notification of the worker's intention was required to prevent the worker in poor health from transferring his pension to a beneficiary immediately prior to retirement. Such adverse selections can of course be made at the time when the option may be elected without restriction, and to that extent represent additional costs to the plans.

Evidence of good health was required by 103 plans with options for normal retirement if the option was to be elected after the required time or age. For most plans in this group (81 plans covering about 7 out of 8 workers), such evidence was required if the worker elected the option within 5 years of retirement; for the remaining 22 plans, submission of evidence of good health was required within 1 to 3 years of retirement.

Only 21 plans permitted the worker to elect the joint and survivor option without restriction up to the time of his retirement or receipt of plan

14 Since all but 1 plan offered the joint and survivor option, this analysis is limited to that option. However, usually the same requirements and effective dates would be applicable to the other options.

15 See BLS Bulletin 1284, op. cit., p. 35.

benefits. Five other plans made the option available up to the time eligibility for retirement was established, or within 90 days of retirement. Sixteen plans withdrew the option entirely after periods ranging from 1 to 5 years before retirement or after ages ranging from 62 to 64. Eight of the plans with time restrictions allowed the worker to make an election anytime prior to actual retirement, so that a worker failing to meet the prescribed time limit could, by postponing his actual retirement until after normal retirement age, still elect the option.

Joint and survivor options were generally available to early retirees under the same conditions as for normal retirees. The chief exceptions were 29 plans that permitted the early retiree to select the option anytime before he was eligible for such retirement, but once the age and service requirements for early retirement had been met, the option was no longer available.

Options were available to disability retirees in 73 plans, but requirements similar to those for normal and early retirement undoubtedly become more restrictive in the case of disability retirement. Disability retirees usually cannot anticipate their retirement, and thus they may not be able to meet the same conditions of election imposed under normal and early retirement. Fiftythree plans contained an advance election criterion which the disabled retiree could not possibly meet. On the other hand, an additional 18 plans had no requirements other than election of the option prior to retirement or within 90 days of that date. For those plans specifying 90 days or less, the worker could qualify during the 6 months' waiting period usually required for disability retirement benefits. 15

Effective Date of Joint and Survivor Option. The valid election of a joint and survivor option does not immediately guarantee the worker and his beneficiary the protection of the option. The worker must also be living on the "effective date" of the option. In most cases, this is the date of his actual retirement, but for the worker retiring before the normal retirement age, many plans defer the effective date until he reaches normal retirement age. Prior to the effective date, changes can be made in the designation of the beneficiary or in the percent of the annuity that

is to be continued to the beneficiary, subject to the approval of the insurance company or retirement committee. However, the option cannot be canceled lest the advance notice requirements be made ineffective. Only the death of the worker or of his beneficiary after election of the option and prior to its effective date automatically cancels the option.

In all of the plans analyzed, the option continued in force once the effective date had passed, so that even if the beneficiary's death preceded that of the retiree, he continued to receive only the reduced income specified by the option.

More than three-fourths of the plans (113) set the effective date of the option at the time of actual retirement, i.e., the employee who continued to work after normal retirement age 16 was not covered until he retired. Included in this group were 27 plans which did not consider retirement to be formal until the fourth month after actual retirement. All of these plans were included in agreements of the Steelworkers union which defer regular pension benefits for 90 days during which a special payment of up to 13 weeks of vacation pay (less vacation pay received during the calendar year of retirement) is made.17

Because postponement of the option's effective date might deter the worker who had elected the option from continuing to work after age 65, an additional 18 plans made the option effective at normal retirement age regardless of time of actual retirement. Thus a worker more than 65 years of age would not receive a plan benefit until he actually retired, but one would be payable to the survivor upon the worker's death even if it occurred while he was still employed.

Under 43 plans, the option for the early retiree became effective only after the pensioner reached normal retirement age. Apparently, this kind of provision avoids a further reduction of the early retirement benefit, which is already reduced below the level of the normal straight-life annuity. Since no supplementary income (such as social security benefits 18) could generally be expected, such a reduction would make the option, already unattractive to many workers, appear even more unattractive.

The effective date of the option for the disability retiree was also postponed in many plans until the retiree attained normal retirement age

in about half of the 73 plans offering the option to the disability retiree. Postponement is likely to reduce the cost of adverse selection against the plan because of the possibility of a disability retiree's early death.

Amount of Joint and Survivor Annuity. In all but five plans, the survivor could receive payments equal to that of the annuitant. Sixty plans contained no restriction as to the fraction of benefit the retiree could select for payment, after his death, to his survivor; 11 plans allowed the selection of specified fractions ranging from one-half to equal payments; 65 plans restricted the choice to equal or one-half payments, while 10 plans restricted the choice to one fraction only— usually equal payments. Plans which restricted the choice of amount at a minimum level of one-half did so to assure the survivor a significant amount relative to previous payments.

The larger the monthly benefit payable to the joint annuitant the larger the actuarial reduction in the pensioner's regular annuity. For example, the reduction of a life annuity for a male pensioner age 50 to provide an annuity equal to his own for a wife 5 years younger was, as shown in the following tabulation, almost twice the reduction required to pass on an annuity equal to one-half his reduced annuity.19

16 Age 65 was the normal retirement age in virtually all of the 300 pension plans studied. See BLS Bulletin 1284, op. cit., p. 3.

17 This special payment is applicable to all retirees except those eligible for deferred benefits or disability retirement.

18 Under the 1961 amendments to the Social Security Act, reduced benefits are payable to qualified male workers retiring at age 62. The extent to which private pension plans have been amended to reflect this amendment is unknown.

19 For a given amount of annuity, the closer the female joint annuitant's age is to that of the male annuitant the smaller the actuarial reduction.