Barbara Worrell and Rita Young are neighbors in Denver. Barbara works as a software engineer for Creative Games Corporation, a computer game company, while Rita works as an executive for United Manufacturing Company. Both are married, have two children, and are well paid. Before Barbara and Rita joined their respective companies, there had been some employee unrest and strikes. To counteract these problems, their firms had developed job enrichment and employee motivation programs. Of particular interest are the portions of these programs dealing with pensions and retirement. Creative Games Corporation, the company where Barbara works, has a contributory plan in which 5% of the employees’ annual wages is deducted to meet the cost of the benefits. The firm contributes an amount equal to the employee contribution. The plan uses a 5-year graded vesting procedure; it has a normal retirement age of 60 for all employees, and the benefits at retirement are paid according to a defined contribution plan. Although United Manufacturing, where Rita works, has a minimum retirement age of 60, it provides an extension period of 5 to 6 years before compulsory retirement. Employees (full-time, hourly, or salaried) must meet participation requirements. Further, in contrast to the Creative Games plan, the United Manufacturing program has a noncontributory feature. Annual retirement benefits are computed according to the following formula: 2% of the employee’s final annual salary for each year of service with the company is paid upon retirement. The plan vests immediately.
Which plan is more desirable and could you use each plan in developing a retirement program?