<nobr>Feb 13, 2003</nobr>

ERIC Commends Treasury Secretary's Decision to Revisit Cash Balance Plans

Washington, DC - The ERISA Industry Committee (ERIC) today urged Treasury Secretary John Snow to take a fresh look at the controversial proposed age discrimination regulations issued by Treasury late last year. In a letter to Mr. Snow, ERIC affirmed its strong support for cash balance plans, pension equity and other defined benefit retirement plans.

"Much of the criticism of cash balance plans has been fueled by mischaracterization of those plans and their purpose," the letter states. "If it were not for cash balance plans, the decline in defined benefit pension coverage for employees in recent years would have been much more severe than it actually was." Moreover, the letter pointed out, "no one with a defined benefit plan has lost money as a result of the decline in the equity and bond markets.

ERIC's letter expressed serious concern about the way Treasury's proposed regulations attempts to modernize retirement security plans for a 21st Century workforce. It warns that the voluntary pension system is at stake if the Government does not allow employers to reform their pension plans.

The letter goes on to explain the benefits of cash balance plans in comparison to traditional pension plans and 401(k) plans. Unlike traditional pension plans, retirement benefits of cash balance plans are:

easier to understand by employees;
more available to a larger percentage of the workforce; and
more portable for employees who frequently change employers.

Unlike 401(k) plans, cash balance plans are:

funded entirely by employer contributions and federally insured;
places investment risk on the employer not the employee; and
provide a life annuity as a payment option.

The letter also rebuffs criticisms made by organizations and lawmakers who claim that employers convert to cash balance plans to save money. "Most employers convert to cash balance plans have done so to attract and retain the employees they need to compete and run a successful," the letter states. "The credible evidence reveals that most employers have not had a reduction in total retirement benefit costs."

Critics of cash balance plans also contend that employees should have the right to choose whether they want to convert their pension plan to a cash balance plan or remain in their existing plan. ERIC maintains that this argument is based on fallacy that "once a retirement plan goes into effect, an employee acquires a permanent entitlement to continue to earn additional retirement benefits under the provision of that plan." This notion is wholly at odds with ERISA laws governing pension plans.

Click here for a full text of the ERIC letter together with attachments submitted to Treasury Secretary Snow.

The ERISA Industry Committee (ERIC) is a non-profit association committed to the advancement of employee retirement, health, and welfare benefit plans of America's largest employers and represents exclusively the employee benefits interests of major employers. ERIC's members provide comprehensive retirement, health care coverage and other economic security benefits directly to some 25 million active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

Media Contact: Doug Baj, Director of Communications, ERISA Industry Committee, (202)789-1400, dbaj@eric.org.

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