Emotion Charged Cash Balance Plan Amendment Passes US House

September 10, 2003 (PLANSPONSOR.com) - The US House of Representatives has okayed a controversial legislative amendment that would block any new government rules about controversial cash balance plans that were contrary to a July federal court ruling.

>The amendment to the Transportation/Treasury Appropriations bill (HR 2989)   by US Representative Bernie Sanders (I-Vermont) passed 258 to 160, with 65 Republicans and 192 Democrats in favor, according to news reports. The provision requires that government regulations affecting defined benefit plans comply with the recentCooper v. IBM Personal Pension Plan . Amendment co-sponsors included Representatives Gil Gutknecht (R-Minnesota), George Miller (D-California), Maurice Hinchey (D-New York).

>In the Cooper  ruling, a federal judge ruled that IBM’s cash balance pension plan violates the provisions of ERISA prohibiting age discrimination in retirement programs (See  Murphy’s Law: IBM Loses Cash Balance Ruling ).   Cash-balance plans are controversial because they can mean lower pensions for older workers – a development that has generated strong opposition from a variety of forces.

“The court found that IBM knew that older workers would lose up to 47% of their pensions under the cash balance conversion.  This ruling was a welcome outcome for the 130,000 IBM employees who were represented in the case – and for the millions of other Americans whose employers have already converted to one of these age discriminatory plans or might in the future,” wrote Sanders and the his co-sponsors in a statement.   “(But) despite this court ruling, it appears that the US Treasury Department is still moving ahead with proposed regulations that would give the green light to the very cash balance pension plans that the court ruled are illegal. This is wrong.  That is why our amendment would specifically prohibit the IRS from issuing regulations that would conflict with this federal court ruling.”

The Loyal Opposition

>A number of retirement services industry groups waged a spirited PR campaign to defeat the Sanders measure with one, the ERISA Industry Committee (ERIC) – charging that the amendment would delay implementation of final government regulations dealing with age discrimination in retirement plans, which would in turn create more uncertainty for plan sponsors.

In an interview with PLANSPONSOR.com, ERIC vice president Janice Gregory reveled in the fact that Tuesday night’s Sanders’ amendment vote was significantly closer than it was in previous Sanders’ anti-cash balance efforts – a development she attributed to effectiveness in the lobby opposing the measure.

“While we hate to lose a vote, we noted that the margin was decreased considerably from last year,” Gregory told PLANSPONSOR.com.  “I think there was a large number of (House) members who voted for the Sanders amendment last year who voted against it this year (because) we got in there to explain that (cash balance arrangements) are good plans and about the bad effects of the amendment.”

Gregory also charged that the amendment would effectively preclude any further litigation on the matter including an appeal of the Cooper ruling. “The Sanders amendment abrogates the federal court process,” wrote Gregory in a letter to House members. “The district court decision, which conflicts with the decisions of other courts, will be appealed. The Sanders amendment has the effect of asking Congress to express views favoring one decision without the benefit of consideration of other courts’ views.”

Added Gregory in the PLANSPONSOR.com interview: “They jumped in it way early.”

Gregory also charged that:

  • the amendment would impair the government’s ability to resolve age discrimination issues applying to hybrid pension plans as well as to traditional defined benefit plans through the regulatory process
  • the amendment sought to address a technical pension policy issue through an appropriations bill and without benefit of hearings

>Although the final regulations haven’t been issued, the Treasury Department is widely viewed as sympathetic to employers in pension matters, and in December issued proposed regulations that said cash-balance plans wouldn’t be subject to age-discrimination rules. Hundreds of large employers have adopted cash-balance plans, which usually save companies money by cutting pensions for older workers, and indirectly boost earnings by cutting pension liabilities.

>Senator Tom Harkin (D- Iowa) also is expected to introduce a limitation amendment aimed at preventing the Treasury Department from issuing cash-balance regulations. If the reconciled amendments ultimately pass, the final regulations on cash-balance plans won’t come out for another year.