According to the October 30 announcement, under the new cash balance formula, eligible employees will receive an annual contribution from the company at a specific percentage of eligible pay based on an employee’s combined age and years of service that grows at a guaranteed rate of interest until retirement or termination of employment.
Effective January 1, 2007, all new employees will accrue benefits under the cash balance formula. Current employees will transition to the new cash balance formula on January 1, 2008, and those age 40 and over will have the option to remain in the current pension formula or transition to the new formula, the announcement said. The changes do not affect MeadWestvaco’s current US retirees, former employees with vested benefits or employees who retire prior to December 31, 2007.
The company said the changes are being made to provide employees with a more portable and flexible retirement plan and create a program with more stable and predictable growth.
According to Business Insurance, MeadWestvaco is the first major company to implement a cash balance arrangement since the Pension Protection Act was passed – providing protection for cash balance plans from age discrimination lawsuits (See Cover: The Pension Protection Act: This Changes Everything ).
A 7 th US Circuit Court of Appeals decision last August overturning a decision that IBM’s cash balance plan was age discriminatory was also consider to be a boost for cash balance programs (See Appellate Cash Balance Ruling Applauded for being Succinct, Clear ).