Cash Balance Regulations Off Again….Again

June 15, 2004 ( - The torrid on-again, off-again relationship between the Bush administration and regulations governing cash balance regulations is off-again.

>The Treasury Department and the Internal Revenue Service (IRS) are deferring to the U.S. Congress for regulations on cash balance plans, withdrawing their proposed regulation on the plans and plan conversions.    In a news release, the agencies said the regulations were being withdrawn to “provide Congress an opportunity to review and consider a legislative proposal on cash balance plansthat was included in the Administration’s Budget for Fiscal Year 2005.”

“We have proposed legislation that requires companies to deal fairly with their older workers when they convert to cash balance plans,” said Greg Jenner, Acting Assistant Secretary for Tax Policy.  “We want to work with Congress to enact these employee protections and remove legal uncertainty about cash balance plans.”

Legislative History

>T he most recent proposal, put forth by the Bush Administration on February 2, called for a five-year hold-harmless period after each conversion, during which time the benefits earned by any worker under the cash balance plan would have to be at least as valuable as the benefits the worker would have earned under the traditional plan if the conversion had not occurred. Targeting one of the most controversial aspects of cash balance conversions, the proposal would ban any “wear-away” of retirement benefits, so that all workers would earn benefits immediately after the conversion, according to a government announcement (See  Bush Administration renews cash balance fight ).

Additionally, the proposal sought to clarify that cash balance plans do not violate the age-discrimination rules that apply to pension plans as long as they treat older workers at least as well as younger workers.    This became a particular concern of plan sponsors in the wake of last summer’s ruling in Cooper v. IBM Personal Pension Plan(See   Murphy’s Law: IBM Loses Cash Balance Ruling).

The fact that the Bush Administration got as far as it did with the most recent proposals was somewhat of a miracle in and of itself.    Back in December 2002, the Treasury Department proposed regulations that sought to clarify once and for all that cash balance plans were not inherently age discriminatory — so long as pay credits earned by older workers were the same as or better than those earned by younger workers (See  New rules offer hope for cash balance proponents). 

However, that position was challenged by cash balance critics, who, led by Senator Tom Harkin (D-Iowa) and Representatives Bernie Sanders (I-Vermont) and George Miller (D-California), used an appropriations bill 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 Sanders required that government regulations affecting defined benefit plans comply with the Cooper ruling .   To put another nail in the coffin of cash balance regulation, 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.”

U.S. House of Representatives   Education & the Workforce Committee Chairman John Boehner (R-Ohio) promised to pick up and carry the torch for cash balance reform, announcing plans to  look at solutions to ensure cash balance pension plans remain "a viable retirement security option for workers and employers."

"American workers deserve retirement security, and cash balance pension plans are an important tool in the defined benefit system for ensuring they have this security in a changing economy," Boehner said in a news release.  "Unfortunately, the ongoing uncertainty about cash balance plan conversions is undermining the retirement security of American workers and jeopardizing employers' willingness to continue offering defined benefit plans to their employees."

As the old adage goes, the journey of a 1,000 miles begins with a single step. That first step, which according to Boehner, will be an Education & the Workforce Committee hearing to examine cash balance plans, is tentatively scheduled for July, the first such congressional hearing exclusively on this issue in years.

"We look forward to working with all parties, including the Treasury Department, in a productive manner to implement responsible solutions and preserve the integrity of the defined benefit system," Boehner added.

The Chairman of the U.S. Senate Health, Education, Labor and Pensions (HELP) Committee Judd Gregg (R - New Hampshire) is not nearly as optimistic about the future of cash balance reform now that it is in the hands of Congress.    "The withdrawal of those draft regulations is regrettable because it now shifts the sole responsibility to Congress," Gregg said in a news release.   "The draft Treasury regulations, while not perfect, had opened the public debate and given individuals, pension plan sponsors, and regulators the opportunity to address serious concerns about the viability of the defined benefit system. "

>Looking forward, Gregg promised action on his side of Capital Hill.    "I intend through hearings to work toward resolving the technical questions of age discrimination, cash balance conversions, and so-called 'whipsaw' liability," Gregg said.  

However, one prominent Democrat applauded the Administration's move. "The Treasury Department's ill-advised plan would have seriously harmed millions of white collar employees nearing retirement, and I'm glad to see that, under pressure from Democrats in Congress and workers across the country, the Administration has decided to discard the plan," said Miller. "The Treasury Department's announcement does not resolve the controversy surrounding cash-balance pension plans, however. No worker approaching retirement age should lose the benefits he or she has earned and has planned for after a life's career.  Yet, rather than acting to reassure older workers that their benefits will be safe, the Department has instead created more controversy and uncertainty. Now the Administration should push the Congress to enact legislation that protects older workers."

An industry trade group issued a call for lawmakers to swiftly deal with the cash balance issue. "Cash balance plans are the one shining star left in the defined benefit system and the 7 million Americans who participate in these plans need Congress to make a legislative statement verifying the legitimacy of these retirement vehicles. These workers' financial futures depend upon it," said American Benefits Council President James Klein in a statement.

A copy of the Treasury and IRS announcement is available at .