>The rules in question involve the conversion of a traditional defined benefit pension plan to a cash balance plan, and the two Congressmen are pressing for enactment of legislation that would require companies to give employees 40 years and older, or employees with ten years or more service, the choice to stay in the traditional plan or switch to the new one.
>Led by Congressman George Miller (D-California), senior Democrat on the House Education and the Workforce Committee, 24 Senators and Members of Congress filed their official comments to the Department of the Treasury in mid-March at the close of the 90-day public comment period on a proposed change to federal pension regulations (see New Rules Offer Hope for Cash Balance Proponents ).
>However, critics of the proposal, including the American Benefits Council (ABC) and the ERISA Industry Committee (ERIC) are concerned that the bill would put additional burdens on an already pressured defined benefit system. ABC cautioned that “Mandated choice” measures would seriously discourage the introduction of new defined benefit plans like cash balance plans, placing countless American workers at risk.”
>ERIC notes that a “choice” proposal is based on the belief that employees have the right to earn additional benefits under their existing pension plans indefinitely. However, “Congress did not give employees the right to stay under the plan’s old formula – nor should it,” said John Vine, a partner in the law firm of Covington & Burling, testifying on behalf of ERIC at Treasury hearings on cash balance plans earlier today. “Few companies would be willing to offer a pension plan if the law required them to be bound to that plan forever.”
>In announcing the legislation, Miller said, “We are not proposing that all employers must have a traditional defined benefit plan for all employees. We are not saying that, nor could we. We are saying very clearly, however, that if you promised an employee a certain pension, pay that employee the pension you promised.”
>Sanders and Miller also noted that the US General Accounting Office found that cash balance conversions can cut the annual pension benefit of an older employee by as much as 50%, though the applicability of the findings of that report have been questioned by some (see New GAO Report: The Skinny ).
>As proposed, the bill would:
- require pension plans that seek to convert to cash balance or similar type plans to provide all participants that have either reached age 40 or older or who have worked 10 years or more for the company to be offered the choice to receive the greater of the benefits under the traditional defined benefit plan or the cash balance plan (to be determined at retirement);
- require the Department of Treasury to withdraw their proposed cash balance regulations (see New Rules Offer Hope for Cash Balance Proponents ) and re-issue new regulations that comply with the choice requirements of the Sanders/Miller bill; and,
- prohibit pension plans from permitting the “wearaway” of workers’ pension benefits in cash balance conversions – periods in which workers, generally older workers, earn no new pension benefits at all (see Whipsawed?, or Avoiding Whipsaw’s Whiplash ) .
>Joining Miller and Sanders in support of the bill were the AFL-CIO, the AARP, the Communication Workers of America, and the Pension Rights Center.