Cash-Balance Pension Plans: Who Benefits, Who Doesn't
may not earn additional pension benefits until the benefit under the cash-balance formula equals the benefit earned under the replaced "traditionial" plan.
On July 31, 2003, a federal judge ruled that IBM discriminated against older workers when it changed its "traditional" defined-benefit pension plan to a cash-balance plan in 1999; and, on February 12, 2004, another federal judge reaffirmed the original decision that IBM owes pension back payments to 140,000 older workers who suffered a loss as a result of the change. On another front, the U.S. Treasury Department proposed rules affection cash-balance plan conversions in December, 2002, but Congress barred implementation of the rules in November, 2003. Under a new Treasury Department proposal, pension benefits earned under the converted cash-balance plan must equal the benefit under the prior plan formula for five years following the conversion. To enforce the proposed rule, the Treasury Department will impose a 100 percent excise tax on the difference between the benefits required by the new rule and the actual benefits provided under the converted plan.
If Congress accepts the new Treasury rules, the savings available to employers converting to a cash-balance plan will be diminished, older workers will be afforded a degree of protection against loss of pension benefits, and younger workers will realize the advantages available to them under a cash-balance pension plan.
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