Pension Regulation Advances On Hill

Author: Albert B. Crenshaw

Published: November 14, 2003

Congressional negotiators have agreed on language designed to make it harder for employers to convert a traditional pension to a controversial hybrid called a cash-balance plan.

The language would bar the Treasury Department from writing new rules, which employers had been counting on to help them through legal challenges to cash-balance accounts. Unlike traditional pension plans, in which benefits accumulate more rapidly in later years, workers under cash-balance plans earn benefits more evenly. That tends to provide better benefits for workers who change jobs frequently but hurts older, longtime employees.

Several hundred companies have converted to cash-balance plans, and some have been sued by workers. Last summer a federal judge in Illinois ruled, in a case involving International Business Machines Corp., that such plans violate federal age-discrimination laws.

The Treasury Department had proposed regulations stipulating that the plans don't violate age-discrimination laws. They were withdrawn after employer groups found other problems with them. The agreement, part of the conferees' work on the fiscal 2004 Treasury funding bill, prevents the department from rewriting the rules.

It also includes language, backed by the White House, that would give the department 180 days to submit legislation that "would provide transition relief for older and longer-service participants affected by conversions of their employers' traditional pension plans to cash-balance pension plans."

The deal, reached late Wednesday night, drew strong applause from supporters, including Rep. Bernard Sanders (I-Vt.), the main sponsor, and strong complaints from employer groups.

"If this provision stands, it will be a major victory in the fight against these age discriminatory cash balance pension schemes," Sanders said in a prepared statement yesterday.

"What corporations need to do is heed where the Congress is and where the courts are," said Rep. Rahm Emanuel (D-Ill.), another supporter. "Unless you are going to do something [to protect] older workers, it's very clear now -- Congress is on record: No. It's not even a flashing yellow light."

"We are very disappointed," said James A. Klein, president of the American Benefits Council, an employer group that wanted the provision stripped from the bill. Klein called the agreement "a serious blow" to the traditional pension system because it will "give employers one more reason to freeze the benefits in their plans so as to avoid potential liability down the road."

Former Treasury benefits tax counsel J. Mark Iwry, now at the Brookings Institution, welcomed the transition relief provision.

"The key new element in the conferees' agreement is the explicit recognition that this issue should be resolved through legislation that provides transition protection to older workers in conversions," he said.