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Conversion from a defined benefit plan to a cash-
balance plan may decrease pensions
by 50 percent
(WASHINGTON, Jan. 2, 2003)
– A Washington-based coalition of retiree organizations dedicated to
protecting the pension plans and retirement benefits of their members,
is urging the withdrawal of proposed Treasury Department regulations
pertaining to “cash-balance” pension plans.
“The proposed regulations
would enable thousands of companies to convert their traditional
defined benefit plan to cash-balance plans, resulting in a pension pay
cut for millions of older workers,” according to A. J. “Jim” Norby,
president of NRLN.
“The General Accounting
Office estimates that the annual pension benefits of older employees
can drop by as much as 50 percent after a company converts from a
traditional defined benefit plan to a cash-balance plan,” said Norby.
“Older employees who have worked for many years with one company and
who plan to continue working for additional years for the same
employer would realize the greatest negative effect from a switch to a
cash-balance plan,” he noted.
More than 800 age
discrimination complaints are currently pending before the Equal
Employment Opportunity Commission based on cash-balance conversions
that occurred during the 1990s. These complaints, along with
concerns voiced by the Pension Rights Center, the AFL-CIO and other
employee groups, led to a Treasury Department moratorium in 1999 on
pension plan conversions, said Norby.
In an announcement issued
in December of 2002, the Treasury Department deemed that cash-balance
pensions do not violate federal age discrimination laws.
“If this view is allowed to stand and the moratorium is lifted,
the floodgates will be open for companies to resume conversions to
cash-balance pension plans,” said Norby.
The NRLN supports an
initiative by several congressional members who have drafted a letter
to President George W. Bush urging the withdrawal of the proposed cash
balance plan regulations. The letter also requests new regulations
that clarify the rights of older workers to a secure pension.
“This position is
consistent with the NRLN’s commitment to protecting the pension plans
and retirement benefits of its members through legislative action.
This proposed regulation by the Treasury Department is just another
example of how retirement plans are being amended and watered down by
legal interpretations and regulations that do the average retiree more
harm than good,” said Norby.
Norby further said that the
NRLN believes that remedial legislation is essential to protect older
workers in cash balance conversions.
In 2002, the NRLN
championed the introduction of HR1322 – The Emergency Retiree Health
Benefits Protection Act of 2002 – and its companion bill (S2904) in
the Senate. That legislation remains the association’s priority
during in 2003.
“When enacted, the proposed
legislation will protect benefit plans from being changed after
retirement and provide some recovery for retirees already affected,“
said Norby.
Based in Washington, D.C.,
NRLN represents nearly 2 million retirees from Association of US WEST
Retirees, Association of BellTel Retirees, Prudential Retirees,
Monsanto Retirees, Raytheon Retirees, along with groups from Boeing,
GE, GM, IBM, Johns Manville, Portland Electric (Enron), SNET, Western
Union and others. For more information about the organization or
about HR 1322, visit the NRLN Web site at
www.nrln.org.
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