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<nobr>Jul 6, 2004</nobr>
ERIC Praises House Ed and Workforce Drive to Get the Facts
About Cash Balance / Hybrid Plans
Washington, D.C., July 7, 2004 - The ERISA Industry Committee (ERIC) today commended The House Education and Workforce Committee for holding hearings on cash balance and other hybrid plans calling it a welcomed opportunity for Congress to develop an informed understanding about these plans. ERIC warned that if anticipated Congressional legislation errs in the treatment of these plans, employers are likely to abandon defined benefit plans at an accelerated rate.
“Congress has a responsibility to understand fully and study carefully the issues surrounding cash balance and other hybrid plans before they enact legislation,” said Janice Gregory, senior vice president for the ERISA Industry Committee. “The current absence of a regulatory framework and misguided lawsuits already have discouraged employers from offering these plans. We urge Congress to examine the facts and then act to eliminate the regulatory and legal chaos that has existed for employers that sponsor these plans and workers who receive these benefits.”
In a written statement to the Committee, ERIC maintained that defined benefit plan coverage is rapidly declining due to a buildup over the years of complex, rigid and inconsistent legal requirements. In recent years, federal law has not fostered the formation, continuation, and expansion of voluntary defined benefit retirement plans. Future legislation should insure that the formation, continuation, and expansion of voluntary defined benefit plans are viable options for employers.
ERIC also said that it is imperative that an employer’s ability to make prospective changes in benefit plan design be preserved if defined benefit plans are to flourish in the future. If employers lose the ability to change their benefit plans in order to respond to changing business circumstances, they will have an even greater incentive to abandon their benefit plans.
In addressing cash balance and other hybrid plans, ERIC dispelled arguments made by critics who have asserted that these plans are unlawful, inherently age discriminatory and inherently reduce benefits. ERIC maintained that cash balance plans have existed for nearly 20 years, and during that time, the Government has repeatedly confirmed the legality of these plans by creating cash balance safe harbors and issuing favorable determination letters to many employers. In addition, four federal district courts have considered whether cash balance plans are inherently age discriminatory - three have rejected the claim.
ERIC also said in its testimony that cash balance and other hybrid plans respond to a changing economy and workforce and these plans have been embraced by both employees and employers. Much like 401(k) and other defined contribution plans, these plans provide easy-to-understand account balances and portability for a mobile job force as well as for individuals moving in and out of the workforce. However, unlike 401(k) plans, employees bear no financial risk due to market volatility while contributions accrue automatically and are funded solely by the employer.
To arrange an interview with Janice Gregory, please contact Doug Baj at (202) 789-1400 or dbaj@eric.org.
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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.
Websites:
ERIC's written statement
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