<nobr>Apr 9, 2003</nobr>

ERIC Calls For Overhaul of Cash Balance Regulations; Rejects Calls for “Choice” Regulation

Washington, DC – The ERISA Industry Committee (ERIC) today called for overhaul of the proposed regulations on age discrimination under cash balance and other pension plans issued by the Department of the Treasury. At a Treasury hearing on the proposed regulations, ERIC urged the agency to abandon the existing regulations, citing flaws in both the regulations’ general rule for traditional pension plans and in the regulations’ special rule for cash balance plans.

ERIC recommended that, instead of adopting a special cash balance rule to compensate for the deficiencies of the general rule, the Treasury should improve the general rule so that it applies to all pension plans, including both traditional plans and cash balance and other “hybrid” plans. ERIC urged the Treasury to adopt a straightforward, generally applicable rule that states that a pension plan may not provide that a participant stops earning benefits, or starts earning benefits at a lower rate, once the participant attains a particular age.

“Having special rules for Government-approved plans puts the Government in the position of designing pension plans,” said John Vine, a partner in the law firm of Covington & Burling appearing on behalf of The ERISA Industry Committee. “But the Government should not be in the business of designing plans. The focus should be on getting the general rule right and letting the private sector design plans that best meet employee and business needs.”

Mr. Vine also took the opportunity to reject requests made by cash balance opponents who are pushing for a new regulation that would give employees the right to choose either to stay under their plan’s existing benefit formula or to move to a new cash balance formula.

ERIC contends that a “choice” proposal is based on the belief that employees have the right to earn additional benefits under their existing pension plans indefinitely. “Congress did not give employees the right to stay under the plan’s old formula – nor should it,” said Vine. “Few companies would be willing to offer a pension plan if the law required them to be bound to that plan forever.”

Other erroneous charges made by cash balance opponents include:

Opponents claim that cash balance plans cut workers’ benefits. In fact under existing law, it is impermissible for a cash balance conversion to reduce the benefits employees have already earned.

Opponents claim that employers adopt cash balance plans in order to save money. Independent research contradicts this claim. The Federal Reserve Board still found that in 25 of the 32 cases studied, the employer’s pension costs actually increased.

Opponents claim that cash balance plans weaken workers’ retirement security. In fact, The Federal Reserve Board that cash balance conversions increase pension benefits for the majority of workers. A recent Urban Institute study came to the same conclusion.

Opponents claim that cash balance plans discriminate against older workers.

But the federal courts have consistently come to the opposite conclusion, and the Urban Institute found that cash balance plans distribute pension wealth more equally across the population than do traditional defined benefit plans.

Click here for a copy of the ERIC written testimony.

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

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