Early in my career as a lawyer, I represented employee benefit plans, both health care and pension plans. As such, I’ve long been interested in the specifics of what kind of pension benefits major league players earn and the terms of those benefits. It has been a surprisingly difficult question to get a clear answer on.
First, there are two key issues in any union-employer pension plan: (1) accrual of benefit; and (2) vesting of benefit. A pension benefit accrues based on the amount of money you earn over a period of time. Vesting of the benefit occurs after the completion of a designated period of work service, most often but not always in years, that entitles the worker to actually receive the pension benefits he has accrued.
For most union-employer pension plans, benefits accrue each year that the worker earns a certain minimum amount of money, and the specific amount of the pension benefit at retirement age is typically determined by the amount of money the worker has earned in his peak earning years and his or her number of years of service under the pension plan. However, a pension benefit typically does not vest until either (1) after five full years of service, at which time the accrued benefit becomes 100% vested, which is called cliff vesting; 0r (2) vests at a rate of 20% per year over three to seven years of service, which is called graduated vesting. In other words, for a graduated vesting plan, the worker vests in his benefit 20% after three full years of service, 40% after four years, 60% after five years until 100% vested after seven years of service.
At the time that the MLB players elected to form a truly independent labor union in 1966, the players had a pre-existing pension plan which vested after five full years of major league service. While that does not sound like a lot of service, many, many major league players did not meet this requirement, because if they were not stars, they often spent part of every season in the minor leagues where they did not earn any MLB service time.
Bobby Tiefenauer, who pitched in parts of ten different major league seasons through 1968, is an example of a player with an extensive major league career who still had not reached five full years of major league service as of his last major league game. However, before the 1969 season, the players’ association negotiated eligibility down to four full seasons retroactive for all major players back to 1947.
The four full-year service requirement lasted in the MLB players pension plan until 1985. As of 1985, a major league player vests in his pension plan after only one day of major league service, i.e., one day on a major league team’s 25-man active roster. However, that leaves open the question of when a major league player begins to accrue a benefit, such that he actually receives a pension benefit when he reaches earliest retirement age, which is some time between age 55 and 65, and most likely age 62.
This is a question I have been trying for years to get a clear answer on without great success. Many websites purport to state the requirements, but they frequently contain obvious errors which conflate or confuse the difference between vesting of benefit and accrual of benefit that have left me less than convinced of the accuracy of their representations. I have even written a couple of emails to the MLB Players Association to get an answer, but they’ve never responded to my emails.
The most likely answer is as follows. Players accrue MLB pension benefits for each quarter of a major league season they are on a 25-man roster or on the major league disabled list. A quarter of a major league season is 43 days. Therefore, in order to accrue a benefit, a player must earn at least 43 days of service time in order to earn their first quarter-season of accrued service time. According to a couple of on-line sources, including this article from mlb.com in 2011, as of 2010, a player who accrued the 43-day minimum service time would earn a $34,000 annual pension starting at age 62.
After ten years of major league service, a player can earn the maximum annual benefit under a defined benefit pension plan (the MLB players’ plan is a defined benefit plan, as opposed to a defined contribution plan), which under federal law is $210,000 in 2016, increasing to $215,000 in 2017. Whether many current MLB player retirees age 62 or older earn this amount is an open question, since salaries were obviously a lot lower for former players now in their 60’s. I would guess that Dave Winfield, who is now 65 and made a lot of money in his major league career, is earning the maximum permissible benefit under federal law, but how many others are I could not say.
A 43-day service requirement still means that a large number of players who have brief major league careers do not receive a major league pension. There is a pension plan for minor league players. However, for most minor league players who don’t manage enough major league service for a major league pension, the minor league plan at best provides only a few hundred dollars a month or less of benefits at retirement age. Better than a sharp stick in the eye, but hardly enough to retire on by itself.
However, even one day of major league service brings with it certain long-term benefits. According to this article from Business Insider, one day of major league service brings some level of lifetime health care benefits. Also, once a player has earned one day of major league service time, he cannot be paid less than about $83,000 currently for minor league service.
For 4-A players with long careers at the AAA level, this could mean fairly substantial minor league pensions, even if they never earn enough major league service time for a major league pension. For most such players, however, by the time they reach their early 30’s MLB teams cut them loose because it can find younger players with no major league service time for less than half the price.