Study: Companies Ease Cash Balance Woes with Transition Protections

October 18, 2005 ( - Despite traditional allegations that conversions from a traditional pension to a cash balance plan might hurt older workers, a new study has concluded that such conversions are not so bad.

A news release from the AARP, the nation’s powerful lobby for issues affecting older Americans, said that its study found that more than 90% of major employers have provided transition protections for older workers when undergoing a conversion as of 2003.

The new report, conducted for AARP by researcher Daniel Beller on 2003 Department of Labor filings of the 25 largest cash balance plans, found that 23 plans (92%) offered such protections. Not only that, but the study likewise found a discernible trend among more recent cash balance conversions toward transition provisions grandfathering in participants under the old final pay formula.

Other types of transition protections include granting older workers a benefit based on the greater of the two plan formulas or, less often, supplemental pay-based credits to some or all participants in the prior plan, the study found.

“These combined trends appear designed to reduce the controversy over conversions by maintaining the benefit structure that was in place for employees in the existing plan when they were hired,” the report asserted.

In discussing the report, AARP Director of Federal Affairs David Certner said: “This study shows that the large majority of employers that have converted their plans not only recognize the importance of older workers to the current and future economy, but have been able and willing to ensure protections for employees facing cash balance pension conversions.”

The new report comes as Congress is considering pension legislation that may address the cash balance conversion issue (See Latest GOP Pension Reform Bill Includes Advice ).

More information on the issue is here .