News Notes: Cash-Balance Retirement Plans Spark Controversy And Legislation

IBM¹s recent announcement that it was converting from a traditional pension plan to a cash-balance plan triggered angry employee protests and age discrimination allegations. Now, government agencies and federal legislators are vowing to take a closer look at the impact cash-balance plans have on older workers. Unlike traditional pension plans in which workers earn most of their retirement benefits in the last 5 to 10 years on the job, cash-balance plans set aside the same percentage of an employee’s pay each year – benefiting younger workers but cutting the pensions of existing older workers by as much as 50%. New legislation introduced in Congress would eliminate plan features that penalize current older workers and would require that long-term employees be given the option to remain in the prior plan. Plus, the Internal Revenue Service has decided to delay approving cash-balance plans, and the Equal Employment Opportunity Commission says it will study their legality. We’ll keep you posted.