22
Factors Involved in Pension Legislation
For Governmental Employees
(Continued from page 9)
paid are to a considerable extent af
fected by the method used in fixing
the credits allowed employees for that
part of their service prior to the adop
tion of the retirement statute. A com
mon method is to state such credits for
each year of service as a fixed percent
age of some base salary (which may
be the salary being earned at the time
the act is passed, the average salary
over a period of years, or the actual
salary earned) and to pay interest on
such credits from the time such salary
is deemed to have been paid. This al
ternative, incorporated in the proposed
pension plan for state employees, has
several advantages, and is comparable
to the provisions made for future en
trants into the service. Other method?
are to pay the employee upon retire
ment a flat sum annually for each year
of prior service or to pay him annually
a fraction of base salary for each year
of prior service. This former is the pro
cedure under the retirement system for
federal employees.
Superannuation or Retirement Benefits
Two main considerations govern the
payment of retirement benefits. These
are age and length of service. Most re
tirement plans are now based upon a
combination of the two, or age as a
condition of retirement and length of
service as a determinant of the amount
of benefit.
The fixing of the age upon which an
annuitant becomes eligible for pensions
presents one of the difficult problems
of pension systems. Retirement based
upon the age consideration alone may
result in the same payments being made
to one who has been in the service for
only five years as are now made to one
who has served for 25 years or longer.
The inequalities are more evident if the
pension fund is one to which the em
ployees have contributed a fixed per
centage of their salary during the years
of their employment. Accordingly, the
standard practice in Illinois retirement
plans is to make eligibility to retirement
and the size of retirement benefits de
pendent more upon length of service
than upon age.
Early pension laws based eligibilty
to retirement and the size of benefits
almost entirely on length of service.
This had the disadvantage that those
who reached old age after a short per
iod of service had very small retire
ment benefits, so that they would not
voluntarily retire, while employees who
entered the public service at an early
age could retire with substantial bene-
fits at an age when they were still able
to render efficient service. The in
creased emphasis which current pen
sion theory places upon age of retire
ment, as opposed to length of service is
due to the desire to provide a certain
minimum subsistence for all retiring
employees, regardless of their length
of service, while at the same time re
taining the services of employees until
age has interfered with their efficiency.
Theoretically the age for retirement
should approximate the age which re
presents the limit of the employee’s use
ful service. Naturally, this limit is not
reached at the same point by all per
sons, and differences in types of em
ployment and sex are sometimes recog
nized by retirement statutes. Private
industry frequently fixes earlier retire
ment ages for women than for men,
but the lower compensation usually
paid women plus the longer life expec
tancy of Women makes such a proce
dure relatively expensive. The effects
of setting up a compulsory retirement
age, have been mitigated in some juris-