11
A Discussion of Retirement
By Jerry S. Sayler
Executive Secretary
Assuming good m anagISgnt. the
most important feature of a pension
system is the grouping of the lives,
reducing length of life to average,
thus guaranteeing to each annuitant
the highest I possible plane of flmrng
^ t mWS^rementj^e;Jmisgp&fciod. of life
thereafter short or long. Because of
the uncertainty o f ] ife, th isg u a r a n t e e
cannot be achieved by any individual
acting alone. This thought should have
wider acceptance.
Almost every retiring member^'iis
concerned about w h a « j S ^ ^ ^ K o ,|^i^
money if he does not live long enough
to recapture it. A ll of them seem to
feel that early death is imminent. None
ever worry about where the money
to pay his pension will come from if
h e lives longer than the average. Prac
tically all the annuitants lose the fear
of being cheated through early death
when they learn that the entire pen
sion may be optioned to include a
survivor. Somehow they get the I im-
pression that an optional settlement
guarantees them against financial loss.I
While we are glad to have them thus
reassured, we would like it even bet
ter if the peace of mind stemmed from
a more logical conclusion.
Rates Based on Averages
|its are based
on averages, a retiring member has
the same chance to reap a profit as
he does to sustain a loss. It is illogical
to assume that inclusion of a survivor
guarantee against loss, since it is ob
vious thaM both member and survivor
could and sometimes do die within
a very short period after the mem
ber’s retirement.
If every retired member should live
exactly the average length of^-h|«|
ffiter retirehieillt, then each would just
use up all contributions made in his
behalf plus interest earnings thereon.
It should be remembered that every
optional plan is the financial equiv
alent of every other. In othef^wordl^
the cost to the system is; the same
for each option available to the indi-
vidu^^B
Economy Stressed
Economy I of operation should be
stressed wherever retirement is dis
cussed. The rate structure assumes that
the retirement fund will earn EBBp.er
cent net interest and that adminis-
jtxSatMye^ expenses will not exceed 4
per cent ^q^Eontributions. Interest is
computed each year on the balance
in the membefi’s>afcW@wt. Expensegrare
computed Against the member’s an
nual contribution. In both cases the
actual interest ealmWm and the actual
expenses ar^jip^ ^ ^ ^ ^ ^ rdless^of' tR‘e-
assumptions. Currently, account bal-
ances are being credited with an ac
tual interest earning of 2.01 per cent
'‘and are being charged with 1.2*5 of
annual contribution for expenses. The
difference between the 4 per cent of
contributions allowed for expenses and
the 1.25 per cent actually being used
more than makes up the difference be
tween the interest earnings assumption
per. cent and the actual credit
o f 2.01 per cent.
Up to the present, and projected for
th S ie X t’tS^^jeh^Bon the present basis,
a member’s account balance is and
will be larger, under actual opera
tions, than it would have or will be
if the assumed percentages had been
or were to be used in the future. This
is possible only through strict econ
omy. I Before the system began opera
tions, many top-flight insurance ex
ecutives, including the state insurance
commissioner, were consulted as to the
number of employes likely to be need
ed to carry on the work of the sys
tem. The unanimous answer was one
employe for each one thousand mem
bers. The number of employes has
never exceeded 75 per cent f.,of this
Estim ate.
Simplified Operation Essential
If I the operating expenses ,* are to
continue at a low level, it is well
to bear in mind that simplified op-