Cover:PLANSPONSOR 2009 Ultimate Buyer's Guide: Cash
Balance: Chill Winds
Illustration By Ingo Fast
The stars seem aligned for cash balance plans now
that there is regulatory and legal clarity that the design is
not discriminatory.
The stars seem aligned for cash balance plans now that
there is regulatory and legal clarity that the design is
not discriminatory. Nevertheless, although the move away
from traditional defined benefit plans continues, rather
than convert to cash balance designs, large sponsors are
closing or freezing plans, says Alan Glickstein, Senior
Retirement Consultant at Watson Wyatt Worldwide in Dallas,
Texas. The micro-plan market, however, is a different
story.
It is a good time to set up or convert to a cash balance
program, says Glickstein, because there is now legal
clarifiÂcation. The Pension Protection Act (PPA) legally
acknowledged cash balance plans and laid down rules for
operation. Additionally, courts are almost unanimously in
agreement that cash balance plans are not
age-discriminatory.
Recent market events also underscored the advantages of
defined benefit programs to participants, says Glickstein.
However, while traditional defined benefit plans are not as
meaningful for younger employees, the cash balance design
allows participants to clearly see and appreciate their
accrued benefits.
Kravitz, an Encino, California-based firm specializing
in designing and adminÂistering cash balance programs, has
both a cash balance and a 401(k) program. "Kravitz
employees were excited to see their cash balance plan
statements where they got an increase, but were upset about
their 401(k) account statements where they saw
losses," says President Daniel Kravitz.
Yet, despite the legal clarity and financial advantages
to participants, large employers, for the most part, are
not showing much interest in converting or setting up new
plans, says William Sweetnam, a Partner in The Groom Law
Group in Washington. There have been some recent
high-profile conversions to cash balance plans, including
Federal Express and Coca-Cola, but no wholesale movement to
the cash balance format. Instead, for the most part, the
IRS in 2008 spent much of the time clearing up old
determination requests from older conversions, says
Sweetnam.