Industry Reps Applaud Release of Proposed Cash Balance Regulations

December 10, 2002 ( - While representatives of financial services industry groups hadn't yet had time to study 75 pages of proposed cash balance regulations, they gave government officials widespread kudos for recognizing that the cash balance plans needed their own separate regulatory framework.

The industry group representatives said many plan sponsors were left with little more than confusion in the past when they tried to fit the hybrid plans into regulations designed for a different retirement savings program. Cash balance programs share traits with both defined benefit and defined contribution plans.

“That’s huge. That’s just huge,” Janet Gregory, vice president of the ERISA Industry Committee (ERIC), told “People have been trying to squeeze cash balance plans into a defined benefit regulatory model and it’s just not worked very well. Now we have a place to have the conversations (about cash balance plans) that we need to have.”

The industry representatives also applauded the indication in the proposed rules that cash balance plans are not inherently discriminatory. They said many plan sponsors have been scared away from cash balance programs by frequent allegations that they discriminate against older workers – particularly when converting from a traditional pension plan.

“A lot of employers have been in the dark with a lot of uncertainty that’s now starting to lift,” John Scott, director of retirement policy for the American Benefits Council, told

Discrimination Test

The proposed regulations would apply to cash balance plans the same age discrimination rule that applies to defined contribution plans.  Consequently, a cash balance plan would generally satisfy the age discrimination rules if the pay credits to an employee’s account are not less than the pay credits that would be made if the employee were younger.

The proposed regulations also require that a plan must be age-neutral before a cash balance conversion, age-neutral after the conversion, and age-neutral in the process of the conversion, the government said.

James Delaplane, Jr. a Washington attorney specializing in employee benefit regulatory and legal issues, said the clarification of age-discrimination issues with cash balance plans is a good thing – particularly if it helps convince employers to convert to a cash balance arrangement instead of abandoning a retirement plan altogether.

“I see this as good news for everyone who is interested in the health of the defined benefit plan system,” Delaplane told “By giving greater legal certainty to the cash balance design, it will help keep plan sponsors interested in the DB system. This (cash balance) is a design that will work for a somewhat shorter-term, more mobile workforce.”

Uncertainty Particularly Hurt Small Plans

Brian Graf, executive director of American Society of Pension Actuaries (ASPA), echoed several of the industry representatives in pointing out that significant issues remain unresolved with cash balance plans including the so-called “whipsaw” problem during which interest rate swings cause fluctuations in participant benefit levels.

Graf said in a statement that small companies are particularly reluctant to kick off a cash balance plan or convert a traditional pension program until the legal terrain is significantly more settled.  

“Unfortunately, most small businesses are reluctant to establish these defined benefit pension plans because of the legal uncertainties,” Graf said in the statement. “Unlike their larger firm counterparts, small businesses cannot afford high-priced lawyers to provide legal opinions allowing them to sort through the various unanswered questions. Small businesses will not provide these valuable defined benefits for their employees unless these legal uncertainties are resolved in a clear and unambiguous way.”