"If employers are pushed to abandon hybrid plans,
we will lose a retirement vehicle that delivers higher
benefits to the vast majority of employees and meets
workers' key retirement plan needs - for portability and
benefit guarantees - all while utilizing transition
methods that protect older workers," said the American
Benefits Council's (ABC) special counsel James
Delaplane. "How, exactly, is this good for
employees and their families?"
In his testimony before the Congressional committee
yesterday, Delaplane pointed to research that showed more
employers are freezing their cash balances plans in the
face of regulatory uncertainty.
"[Forty-one] percent of hybrid plan sponsors
said they would freeze their plans if the legal uncertainty
was not resolved within a year," Delaplane said, creating a
"hostile climate for hybrid plans."
ABC has pushed hard for the preservation of cash
balance plans in recent months.
Speaking about the need for reform earlier, ABC
President
James Klein called these plans "the one shining star
left in the defined benefit system."
But in order to ensure their continued availability,
Klein said, "These plans need Congress to make a
legislative statement verifying the legitimacy of these
retirement vehicles."
To further its point, ABC released
Pensions at the Precipice: The Multiple Threats
Facing our Nation's Defined Benefit Pension System in
May, which highlighted an assault on hybrid plans as one
of the major factors threatening to fling employers into
"the culvert where defined benefit plans simply are no
more" (See
ABC Points to Significant Threats
Endangering the DB System
).
More Support
Providing further support for the need to maintain
cash balance plans was
researcher Robert Clark, a professor at North
Carolina State University, and Nancy Pfotenhauer, president
of the Independent Women's Forum (IWF).
Clark said his evaluation of numerous pension studies led
to the conclusion that "
most workers will have higher lifetime pension
benefits in a world of cash balance plans compared to
traditional defined benefit plans." He also noted
"studies have shown that many senior workers also will gain
from a transition to a cash balance."
Pfotenhauer found reason to support cash balance
plans for the assistance they provide female
workers.
Because women tend to change jobs more often than
men, are more likely to leave the job market to handle
family responsibilities, and often do not stay at a job
long enough to be vested in a traditional plan, cash
balance plans provide a more equitable and generous pension
benefit for women, stressed
Pfotenhauer in her testimony.
"
We believe the emergence of hybrid plans is
encouraging news for many and a cause for particular hope
among women,"
Pfotenhauer said, pointing to a 1998 study done
by the
Society of Actuaries that found, "an amazing 77% of
women do better under a cash balance approach. They
are better off under a cash balance system because they
move in and out of the workforce in order to balance
family needs and because they cannot afford to take early
retirement."
To ensure the continued availability of cash
balance plans, the witnesses made recommendations to
Congress, saying it is important to:
-
clarify that the cash balance and pension equity
designs satisfy current age discrimination rules
-
provide legal certainty for the hybrid plan
conversions that have already taken place
-
establish rules to govern future transitions and
conversions to hybrid plans
-
reject benefit mandates that prevent employers
from modifying benefit programs or force employers to
leave the defined benefit system altogether.