Human Capital & Careers

Cash Balance Regulations Withdrawn

The Treasury Department and the IRS will let Congress consider a legislative proposal included in the Bush Administration's budget for fiscal 2005.
Stephen TaubJune 17, 2004

The Department of the Treasury and the Internal Revenue Service withdrew proposed regulations on cash balance pension plans and cash balance conversions that many critics have asserted discriminate against older workers, who could be a potent voting force in the upcoming election.

The agencies said the regulations are being withdrawn to provide Congress an opportunity to consider a legislative proposal on cash balance plans that was included in the Bush Administration’s budget for the 2005 fiscal year.

Cash balance plans use a formula for computing future pensions that reduce those payouts by 20 percent for older workers, according to many experts.

The legislative proposal would require a five-year “hold harmless” period for current employees following a cash balance conversion, would ban benefit “wear-away” after a cash balance conversion, and would clarify the legal status of cash balance plans and other hybrid plans.

“We have proposed legislation that requires companies to deal fairly with their older workers when they convert to cash balance plans,” said Greg Jenner, acting assistant treasury secretary for tax policy, in a statement. “We want to work with Congress to enact these employee protections and remove legal uncertainty about cash balance plans.”

The regulations, which were proposed in December of 2002, would have applied the statutory age-discrimination rules to cash balance plans and cash balance conversions. The Treasury Department and the IRS added that they will not publish new age-discrimination guidance for cash balance plans or other hybrid plans while these issues are under consideration by Congress.

“The Treasury Department’s ill-advised plan would have seriously harmed millions of white collar employees nearing retirement,” Rep. George Miller (D-Calif.) reportedly said in a statement. Miller, the senior Democrat on the House Education and Workforce Committee, added: “I’m glad to see that, under pressure from Democrats in Congress and workers across the country, the Administration has decided to discard the plan.”

In response, committee chairman John Boehner (R-Ohio) fired off a press release stating that “cash balance pension plans are an important tool in the defined benefit system… .Unfortunately, the ongoing uncertainty about cash balance plan conversions is undermining the retirement security of American workers and jeopardizing employers’ willingness to continue offering defined benefit plans to their employees.”