The cliff is even steeper if retiree medical benefits are considered, as shown in the red line of Chart 1. These benefits are not vested if an employee leaves prior to retirement. Retiree medical benefits are often worth substantially more prior to Medicare eligibility. Retirement plan design is fundamental in other ways, too. It also reflects an organization's concept of equity.
Equity is in the eye of the beholder.
Benefits are, in effect, a form of current compensation. If the contribution is the same for two equally paid employees, one 30 and one 55, the monthly benefit provided by those contributions at age 65 will differ dramatically due to the difference in the number of years until retirement. A pension equity plan reflects a dual equity. If they stay for 20 years, they will receive a benefit that is related to their final average pay, either as a lump sum or a monthly benefit. Adequacy is measured in terms of when they leave the organization, adjusting to varying time horizons.