I have a question pertaining to the pay used to calculate Retirement Plan benefits if an employee moved from a management classification to a bargaining unit classification within the same company. This company states that the provisions of the Internal Revenue Code and regulations dealing with pension plans require pension plan's to preserve an employee's earned pension benefit(Treas Reg. 1.411(d)). As such, this company's Retirement Plan ("Plan") provisions require that an employee's accrued pension benefit be preserved at the time he/she leaves a classification and be based on Plan provisions in effect at the time. They state this includes pension formula, service, and pay.

Essentially, the aforementioned regulation requires the Plan to provide at least a pension benefit that is equal to the pension amount produced under a blended formula (the sum of a two part calculation based on service time spent as a management employee and service time spent as a bargaining unit employee).

I could understand the theory of using the formula from the time of each segment, but it does not seem right that you would use a salary from that time also. I could understand using the current salary in the various formulas, but not the previous salary.

This blended pension results in a pension that is less than either the bargaining unit or management pension. The employee does however have an option to take the pension benefit under their current classification, be it management or union.

Any experience with this that anyone can share?

Could you be more precise in the formulas, especially the way the plan is accruing the benefit? The reason I ask is that I frequently see plans that mis-apply the pro-ration rules when this circumstance comes up. Also, are the benefits being provided from a single plan or from multiple plans (it matters a lot).

You indicate that this causes you concern. If you are new to the industry, then this is a good lesson. The client knows what they want, and they have the right to design incentives for specified behavior. If they only offer a specified benefit to union employees, remember that this was the negotiated provisions of the plan, which automatically makes them "fair and reasonable" by any normal standard.

I guess I'm not understanding why you say that the "blended calculates BELOW either the management and the bargaining unit." By definition, you say that the person who has transferred to union can determine their pension by using strictly the union formula. If that is so, how can it calculate "BELOW"? I note that the same provision applies in reverse. Again, you say that the person who has transferred from union can determine their pension by using strictly the non-union formula.

What am I missing?