I found it both interesting and reassuring that the President mentioned wage inequality between men and women in his State of the Union speech. Reassuring because simply mentioning the issue keeps it in people’s mind as an injustice that requires attention and remediation, and interesting because I’ve seen what it looks like in real life.
I watched the SOTU address with a few fellow Kossacks (which in-of-itself is a fun thing to do!) . When it had concluded, we got into a discussion of some of the points President Obama made as well as the non-substantive response by Congresswoman McMorris. I relayed the following story to the room and was encouraged to write a diary about it. Follow me below the fleur-de-kos for more.
As a Wealth Adviser, I deal directly with individual and family investments and financial planning. In the course of a normal business relationship, it is common for folks who are nearing retirement age to come to someone like me to generate a plan to help them with their income strategy for the rest of their lives, post-employment. For people who are retiring now from 30 years or more with the same large corporation, it is not uncommon for a pension distribution to be part of their retirement plan. For one of my married women clients (I work with her, not her husband), she is in the process presently of wrapping up a 33 year career with a large multi-national corporation. And although it no longer offers a pension for new employees (and stopped contributing for existing ones), she will have a choice to turn on a monthly income stream for the rest of her life (the very definition of a “fixed income”) or she can take out a onetime “lump sum” payment and essentially end her relationship with the company’s pension program. With the lump sum, she will roll it over into an IRA and manage the proceeds herself – or more accurately, I will do that for her.
Understand that I have many clients from this same corporation and many of them have chosen to take the lump sum option. So I have experience dealing with the program and could compare her situation to that of her colleagues to predict what the lump sum calculation should have been. Based on her tenure as well as her last few years of pay (she’s highly compensated), her lump sum should have calculated to approximately $550,000 to $600,000. And I told her that. We built up a nice withdrawal strategy using those numbers combined with her other savings and income from her husband’s pension. Retirement was looking very good.
Then she applied to the pension program and her plan was derailed. When they came back to her with the official report, the lump sum number was a little over $365,000. This made no sense to me. Every other pension plan participant who I had helped had much bigger payouts. She was incensed and so was I. I told her I’d get to the bottom of it and investigate why there was such a disparity.
After weeks of back-and-forth, and me pouring through the plan documents, the truth was discovered. The bottom line is that she was penalized for an early career of relatively lower wages as well as having children. Specifically, the algorithm for calculating the pension payout amount (both for monthly income OR lump sum) includes the TOTAL amount paid to the employee over the length of the career. To be fair, it does weigh the past 3 years more heavily, but the first part of the formula is all it takes to lower the end result. She got paid less than other men doing the same job in the beginning years AND she took two maternity-leaves where she wasn’t paid full time wages while absent.
Needless to say, this is the consequence of wage inequality staring us in the face. She is getting approximately 73% of what her male counterparts received. She is thinking of suing, but that is a long shot. I kinda doubt she will, but still. This is an outrage as the effects of years and years of unfair pay treatment rear its ugly head. Her retirement plan just got harder. She told me yesterday she plans on working for another 3 years to make up the difference.