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• • 3. What are some private industry approaches to cost-of-living adjustments for retired employees? The large majority of private companies involved in pension plans separate from Social Security have some type of system devised to deal with the general rise in cost of living. Al though automatic adjustments based on the Consumer Price Index (CPI) are not as prevalent in private industry, plans such as profit-sharing and variable annuities equal and in most cases surpass the percentage rise in cost of living. Private management, prompted by increasing union pressure, has begun to realize that the retired employee pension must have enough flexibility to cope with the ever increasing inflationary trends. As stated in the July 1966 issue of "Business Management", the AFL-CIO has already spelled out its goals in this area. Among them: pensions that are based on an employee's earnings as well as his years of service; that provide from 2~3 to 3~4 of low-paid employees' regular wages; that contain cost-of-living adjustments; anc~ that provide for survivor benefits and early vesting. One of the most popular plans currently being used in private companies is the variable annuities plan. Under this arrangement, retired employees receive part of their retirement pay in the form of a fixed annuity - a certain amount of money stipulated i.n advance, payable for life. They receive the other part in the form of variable anr.:uities. A company invests the variable annuity portion of its pension money entirely in corrLmon stocks. A retired employee then receives income that fluctuates from year to year in accordance with fluctuations in the market value of the stocks. The variable annuity usually makes up 25~ to 50~ of the total pension. The courts have declared that this system is not in violation of that portion of the Internal. Revenue Code that prohibits retirement plans from producing indeterminable benefits. A few of the companies involved in this plan are: Chemstrand, American Airlines, Boeing Company, General Mills, Pan-American World Airways, Rohm and Haas Company, Carnegie Corporation, Twrarner, Lambert Pharmaceutical Company and Kewanee Oil Company. In Chemstrand and Kewanee Oil, 95~ of the employees voluntarily signed up for the program at its inception, nearly 15 ,years ago, and the vast majority still remain today. Only one known company which started the .program has abandoned it. Following are the results of several variable annuity plans: Chemstrand Flan. An employee who retired on $200. ($133. fixed and $67. variable) in 1953 would today be making in excess of $260. The cost of living has increased 16p in this period, while the employee's total pension has increased 30~. Kewanee Oil Compan~~ Plan. An employee who retired on $200. ($100, fixed and $100. variable) in 1957 would today make in excess of $276. The cost of living has increased 13p while the pension 380. The companies that use a variable annuity plan hale found that it has several distinct advantages. First it provides considerable protection against inflation and increases in the standard of living. Second, it reduces the necessity for frequent or periodic -2- //