FASB Sets Cross Hairs On Cash Balance Rules

September 19, 2003 (PLANSPONSOR.com) - The Financial Accounting Standards Board (FASB) is mulling over placing cash balance pension plan accounting rules on its formal agenda for review.

An ultimate decision on adding the cash balance review to the agenda by the nation’s accounting ruling making body is expected next week, when FASB’s board is scheduled to meet.  If tacked on to the schedule, the initiative would be “a limited-scope project to interpret” how employers measure “obligations under so-called cash-balance pension plans,” according to an item posted on FASB’s Web site, reported by Dow Jones.

The FASB scrutiny only highlights a huge amount of controversy surrounding cash balance plans recently, that puts a giant question mark about how these plans will be run in the future.   Recently, a federal judge ruled in Cooper v. IBM Personal Pension Planthat 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).

This decision set off an avalanche of criticism on both sides of the aisle that stretched to the halls of Congress.   Last week, t he US House of Representatives okayed a legislative amendment that would block any new government rules about controversial cash balance plans that were contrary to the aforementioned federal court ruling (See  Emotion Charged Cash Balance Plan Amendment Passes US House ).  

“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 Representative Bernie Sanders (I-Vermont) a co-sponsor of the bill.  “(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.”

Specifically, Sanders refers to the US Treasury Department’s toiling overregulations that would resolve the age discrimination questions.   The agency has said it expects to issue a rule soon outlining how employers calculate benefits payments to retiring workers.

Pension Accounting

Pension rules have attracted attention in recent months with a maelstrom of pension underfunding problems (See    America’s Pension Crisis) and the possible addition of cash balance regulations to the formal agenda would represent the latest move the Norwalk, Connecticut-based rulemaking body is taking to review the policies of the country’s defined benefit plans.   In a separate issue earlier this year, FASB took on the rules governing the amount of information companies report about their traditional pension plans(See  FASB Agrees To Look At Pension Accounting ), and just last weekoutlined new rules for pension plan reporting set to take effect on December 15, 2003 (See  FASB Throws Down Pension Reporting Gauntlet ).