Led by Congressman George Miller (D-California), senior Democrat on the House Education and the Workforce Committee, 24 Senators and Members of Congress filed their official comments to the Department of the Treasury Friday at the close of the 90-day public comment period on a proposed change to federal pension regulations (see New Rules Offer Hope for Cash Balance Proponents ).
The new proposed regulations, put forth last December by the Treasury Department and Internal Revenue Service, deal with the application of the pension plan age discrimination rules to cash balance plans. Under the proposed rules, each employee following a conversion to a cash balance must start with a cash balance account calculated on an age-neutral basis. “Assuming that is the case, a “wear-away” period, during which cash balance benefits catch up with benefits under the traditional plan, would not run afoul of the proposed rules,” Treasury noted at the time. A public hearing will be held on the regulations on April 9.
The letter from the Democratic lawmakers calls on Treasury to withdraw the proposed regulations pertaining to cash balance pension plan conversions, and to re-issue revised proposed regulations that “protect the pension promises made to long-serving employees.”
Specifically, the letter calls for addressing the following concerns:
- No Loss of Benefits : Acknowledging that employers should be able to make changes to their pension plans, the letter says "those changes should not be permitted to reduce benefits already earned or to reduce accruals on the basis of age, and in the case of "unclear" cash balance pension plan and similar hybrid conversions," the lawmakers say that companies should be allowed to convert to cash balance plans "if they grandfather current vested participants by allowing them the choice of the better of the two plan benefit accrual formulas."
- No Wearaway of Benefits : Acknowledging that the proposed regulations prohibit the wearaway of workers' earned benefits (periods in which workers earn no new benefits), the lawmakers term that a "half step." The lawmakers say, "Banning wearaway is the least that Treasury should do in its regulations."
- No Whipsaw : The lawmakers say that the proposed regulations should "clearly state that interest rate assumptions for purposes of calculating opening account balances, discounting annuity benefits, and any other purpose should be based on the IRC section 417(e) rate." Noting that, "as a matter of policy, interest rate assumptions should be conservative and as uniform as possible to prevent abuse," the Democrats say employers should not be able to "game employees' benefits" by using different interest rate assumptions in projecting and discounting future pension benefit amounts (for more on the Whipsaw issue, see Avoiding Whipsaw's Whiplash ).
- Rate of Benefit Accrual Definition : Claiming that "Treasury is treading on very weak and dangerous ground," the letter says: "Treasury takes the enormous step of determining that the rate of benefit accrual under cash balance pension plans would be treated as they are under defined contribution plans, not defined benefit plans." The letter says such a move would require either "express Congressional authorization," or be made "in the context of comprehensive rules that fairly balance the needs of employers and promises made to employees."
- Opening Account Balances : The letter says that Treasury should require that opening account balances be set at the present value of participant accrued benefits determined as under the former defined benefit plan or the section 417(e) rate.
- Pending Litigation : The lawmakers cautioned that Treasury should be extremely careful not to affect or undermine any pending litigation pertaining to cash balance plans and the ADEA, and make clear in any subsequent regulation that nothing in the regulation shall be interpreted to affect pending litigation.
Finally, the lawmakers say that Treasury also should require employers to provide more detailed information to the IRS and other agencies on the terms and effects of cash balance conversions, claiming that currently "employers do not provide clear information either to participants or the IRS on existing and cash balance pension plan formulas and how different categories of workers would be affected by the conversion."
The comments were signed by 19 House members and five Senators, all Democrats. Signing the comments were: Rep. George Miller; Rep. Bernie Sanders; Sen. Tom Harkin; Sen. Richard Durbin; Rep. Rob Andrews; Rep. Dale Kildee; Sen. Edward M. Kennedy; Sen. Barbara Boxer; Sen. Russ Feingold; Rep. Major Owens; Rep. Donald Payne; Rep. Lynn Woolsey; Rep. Rueben Hinojosa; Rep. Carolyn McCarthy; Rep. John Tierney; Rep. Rush Holt; Rep. Susan Davis; Rep. Danny K. Davis; Rep. Ed Case; Rep. Chris Van Hollen; Rep. Raul Grijalva; Rep. Denise Majette; Rep. Tim Bishop; and Rep. Timothy Ryan.