A cost-cutting pension plan used by as many as 300 U.S. companies may be illegal because the plan violates age-discrimination laws, reports a Cincinnati office of the IRS. In effect, the plan violates Federal rules because the pension benefit accumulation is denied to middle-aged workers.

The pension in question is a cash-balance program designed for companies who want to cut pension expenses while also reducing future benefits to middle-aged employees. At the same time through the plan, companies offer their younger employees the benefit of taking a more substantial cash payout if they leave the company prior to retirement age.

Any change in a pension plan must first be approved by the IRS prior to implementation because corporate contributions to pension plans can be deducted under the U.S. tax law.