After a three-year lull, debate on cash balance pensions heated up last week when workers and labor advocates asked the Internal Revenue Service and the Treasury Department to safeguard the pensions of older workers.
Labor supporters are asking the government to mandate employee protections for plan conversions. At stake are the pensions of thousands of older workers, who stand to lose promised benefits in the conversion from traditional plans to cash balance plans. Unlike a traditional plan, where workers accrue benefits more heavily in the later years of employment, cash balance plans favor younger, more mobile workers.
On April 7, the Treasury Department and the IRS announced they had rescinded a Clinton-era halt to cash balance pensions, a move that paves the way for companies to begin using the controversial plan, which had been popular in the mid-1990s. In 1999, the Clinton Administration put a moratorium on cash balance pensions, after a flood of employee protests.
In October 2000, the U.S. General Accounting Office supported the freeze, reporting that companies converting from traditional plans to cash balance plans had failed to provide adequate information to plan participants.
One group at the center of the dispute is the Pension Rights Center (PRC), a consumer organization dedicated to protecting and promoting pension rights. In March, the PRC sent a comment letter to the IRS and Treasury Department stating that pension conversion plans had resulted in companies realizing an "immediate and substantial saving on pension costs that significantly boosted the employer's bottom line."
The letter also stated that cash balance plans rob older employees of significant benefits. The group contends that plan conversions eliminate early retirement benefits or result in older workers earning no new benefits for a number of years.