Proposed rules protect employers from age discrimination liability
By Leigh Strope
WASHINGTON -- The Bush administration plans to propose new regulations today that would protect employers from age discrimination liability when a company converts its traditional retirement pension benefit to a different arrangement called a "cash balance plan."
Such conversions typically mean less money for workers closer to retirement age. Currently there is a moratorium on government approval of conversions. But that would be lifted if the regulations are approved after a public comment period and an April meeting of the Internal Revenue Service.
Cash balance plans usually consist of a percentage of pay by a worker plus interest that can be paid out as a lump sum if the worker leaves the company after working there for a certain period. Unlike a 401(k) plan, employees neither own the accounts nor make investment decisions. Unlike a traditional pension plan, the worker isn't guaranteed annual benefits after retiring.
Critics say the proposed rules favor employers by allowing them to establish all the terms of the plan, including the return rates paid and the value of a worker's current benefit in the old plan.
"This is deregulation of pension plans and it is going to cost employees dearly, especially employees over 40 years of age," said Rep. George Miller of California, ranking Democrat on the House Education and Workforce Committee.
Companies increasingly converted their costlier traditional pension plans to cash balance plans starting early last decade. The plans are cheaper to administer and attract younger workers because of their portability. Pension laws prohibit companies from reducing benefits that already have been accrued. But they can cut or eliminate future benefits.
Firms that end their traditional pension plans are subject to an excise tax of up to half of any surplus assets in their pension trusts. But to avoid the tax and still do away with a costly pension plan, many companies are choosing to convert to cash balance plans.
About 19 percent of all Fortune 1000 companies offered them in 2000, according to a General Accounting Office study. The GAO is the investigative arm of Congress.
But more than 800 claims of age discrimination have been filed with the Equal Employment Opportunity Commission over conversions to cash balance plans.