Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.
FASB Releases Cash Balance Definition
Accounting rulemakers this week adopted a new definition
of cash balance programs that keep track of workers’
benefits in so-called “notional” accounts, where no money
is actually kept. It was the latest move by the Financial
Accounting Standards Board (FASB) in the group’s formal
review of cash balance rules, Dow Jones reported.
“A cash-balance pension plan is a defined-benefit pension
plan that defines the promised employee benefit by
reference to a notional account balance,” FASB staff said
in the definition that was later adopted by the board. “An
employees’ notional account balance is increased with
periodic notional principal credits and notional fixed or
variable interest or investment credits, and may be
increased for other notional ad hoc credits.”
The FASB review of cash-balance rules follows an abortive
move by the rulemaker last spring to require companies with
cash-balance plans to value benefits using government
bonds, rather than the high-grade corporate bonds other
pensions rely on. FASB delayed the initiative after an
outcry.
Employers have embraced cash-balance plans, but a growing
controversy has cast doubt on their future. At issue are
concerns that the pensions don’t pay older workers their
fair share of benefits. Worries that they discriminate
against older workers prompted the Internal Revenue Service
to stop approving new cash-balance plans in 1999, but
companies have maintained and adopted the pension
nonetheless.
A major development was a court ruling in July against
International Business Machines Corp. (IBM) in a
class-action lawsuit claiming its cash-balance pension
discriminated against older workers (See
Murphy’s Law: IBM
Loses Cash Balance Ruling
).