NRLN Press Release 
See complete text of testimony

NRLN Testifies Against Internal Revenue

Service Regulations On Cash Balance Plans

 NRLN’s President A.J. Norby Compares IRS Cash Balance Regulations to Enron-Like Accounting Games


          (WASHINGTON, April 9, 2003) – In testimony delivered today, an official of the National Retiree Legislative Network (NRLN) voiced strong opposition to controversial cash balance regulations issued by the Internal Revenue Service (IRS). The NRLN is a Washington-based grassroots coalition of retiree and older worker organizations dedicated to protecting the pension and health benefits of their members.


            “If these regulations are finalized as written, they will not terminate the cash balance controversy – they will prolong it.  In doing so, they will damage the future prospects of hybrid plans as well as the role of the IRS in administering the pension plan tax qualification procedure,” said NRLN president A.J. Norby during his testimony.


            In his testimony, Norby argued that the regulations rewarded companies engaged in “Enron-like accounting games” and promoted age discrimination in benefits and employment.  He explained that the regulations unreasonably legitimatize cash balance plans that fail to provide older workers with the opportunity to continue to accrue benefits under their prior traditional defined benefit plans.  Equally objectionable are plans that make employees wait until their traditional defined benefit accruals have “worn away” before the employer contributes on the employee’s behalf to their replacement cash balance plans.


            Norby pointed out that virtually all the cases involving challenges to cash balance conversions by older workers concerned companies sitting on large pension surpluses in their long established defined benefit plans.  If they converted those plans to 401(k) plans they would have to pay stiff penalty taxes under Section 4980 of the Internal Revenue Code.  However, if they converted to a cash balance plan they could avoid such taxes because the IRS treated such a conversion as only substituting one defined benefit plan formula for another.


            The result, according to Norby, was to enable such employers to radically reduce their future pension liabilities for older workers without penalty. This strategy made company financial statements appear more profitable, leading to higher cash bonuses and stock options to top executives on the basis of these manipulations.


            Norby criticized the regulations for doing nothing to discourage this process, which he described as a “scam” that discriminated against older workers in violation of both the Internal Revenue Code’s prohibition on age discrimination in benefits and the Age Discrimination in Employment Act.  He said that the result of these cash balance conversions was to force older workers to retire early because the better part of the economic value of their continued employment had been destroyed.  In addition, he contended that such cash balance conversions were for the benefit of the employer and, therefore, violated the Internal Revenue Code’s requirement that the cash balance plan is for “the exclusive benefit of the employees and their beneficiaries.”


            Finally, Norby also said that the corporate-led effort to base defined-benefit plan funding on a composite corporate bond rate instead of the current four-year weighted average 30-year Treasury bond rate would lead to dangerous, system-wide underfunding and was not justified as long as other forms of funding relief were available on a case-by-case basis.


            Norby advised the IRS that if the regulations were not revised to show greater fairness to older-workers, NRLN would seek comprehensive legislation that assures “that older workers, past, present and future, are protected against cash balance raids on their pensions.  “To read the testimony and learn more about NRLN, visit the NRLN Web site at http:/


            Based in Washington, D.C., NRLN represents nearly 2 million retirees from the 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.