Cash Balance Regs "On" Again – But…
>The move was in response to proposed regulations issued by the Treasury Department last year for cash balance conversions (see New rules offer hope for cash balance proponents ). “President Bush created a firestorm when he announced his intention to allow companies to freely change their pension plans, even if those changes would result in a loss of half of their employees’ pension benefit,” said Congressman George Miller (D – California) in a news release.
>Initially, Congressional Democrats proposed legislation to cut-off the Treasury Department’s proposal at the knees – or more accurately, its pocketbook (See Emotion Charged Cash Balance Plan Amendment Passes US House ). The amendment to the Transportation/Treasury Appropriations bill (HR 2989) by US Representative Bernie Sanders (I-Vermont) required that government regulations affecting defined benefit plans comply with the recent Cooper v. IBM Personal Pension Plan . In the Cooper ruling, a federal judge ruled that IBM’s cash balance pension plan violates the provisions of Employee Retirement Income Security Act (ERISA) prohibiting age discrimination in retirement programs (See Murphy’s Law: IBM Loses Cash Balance Ruling ).
>The new negotiations will lift the funding ban on the Treasury Department’s proposals, provided that new legislation is brought to the legislative table within 180 days on the best route to take to convert traditional pensions to the cash balance plans, without the imposition of the Cooper restrictions in the House version.
However, the measure also provided that, “…none of the funds made available in this Act may be used by the Secretary of the Treasury or his designee to issue any rule or regulation which implements the proposed amendments to IRS regulation set forth in Reg-209500 and Reg-164464-02, or any amendments reaching results similar to such proposed amendments” – the very regulations put forth by Treasury earlier in the year whose finalization had been blocked by the earlier appropriations amendments.
“On behalf of these employees, we have won,” Miller said proclaiming victory. “We have defeated the President’s plan to cut millions of older workers’ pensions in half. Senator Harkin and Representative Sanders and hundreds of other members of Congress refused to back down on this issue. And we have won.”
Industry Reaction
>Retirement plan industry groups were not happy with the actions taken by the House Committee, saying the move will end up hurting of majority of cash-balance plan participants. “What Congress has done is jeopardize the retirement security of seven million hybrid plan participants in order to accommodate the questionable but vocal complaints of a few. The vast majority of hybrid plan participants appreciate and depend on these plans. When a scalpel would have been appropriate, Congress instead used a chain saw,” the ERISA Industry Committee (ERIC) said in a statement in response to the amendment.
>Echoing these sentiments was American Benefits Council President James Klein, who said in a news release, “Congress will unwittingly deal a serious blow to the retirement security of millions of Americans with the passage of the Treasury-Transportation appropriations bill.”
“At best, this provision is an inappropriate abuse of political power over the regulatory process. At worst, the provision and the legal precedent on which it is based is ‘substantively and constitutionally unsound,” Klein said, referring to a report conducted by University of Chicago law professor Richard Epstein to back up his contention (See Law Prof: Cash Balance Amendments ‘Constitutionally Unsound’ ).
“I still remain cautiously optimistic that Congress and the Administration will act to fix even temporarily the inappropriate 30-year Treasury bond interest rate used for pension funding purposes. However, if Congress and the Administration are willing to let confusion reign for the next year over the future of pension plans by supporting the cash balance provision, they may be willing to leave employers and pension plan participants in the lurch by going home for the holidays without completing work on the interest rate issue, too. If the Bush Administration and Congress want to prove my fears are unfounded, then they should complete work on interest rate reform now,” Klein concluded.