Sweetnam Testimony Backs Cash Balance Plans

June 7, 2005 (PLANSPONSOR.com) - A former US Treasury Department tax counsel offered a spirited defense of cash balance and other hybrid pension plans during Congressional testimony Tuesday.

>William Sweetnam Jr., now principal and chair of the Groom Law Group’s Public Policy and Legislation Practice Group, told the  US Senate Health, Education, Labor and Pensions (HELP) Committee’s Subcommittee on Retirement Security and Aging that lawmakers needed to clarify that cash balance and other hybrid plans do not violate age discrimination rules.

“Congress must make clear that the isolated legal interpretation holding these designs discriminatory merely because the accounts of younger workers have more years to earn interest is unfounded, ” Sweetnam testified. “Congress should also offer legal protection for past hybrid conversions and remedy a number of hybrid uncertainties that have frustrated pro-employee plan design features. Finally, Congress should avoid imposing benefit mandates on hybrid conversions that would guarantee future retirement plan benefits and prevent employers from changing their benefit programs. Such legal enshrinement of mere expectations would be a fundamental departure from the rules of our voluntary benefits system and would only drive employers out of system.”

Sweetnam left his post as b enefits tax counsel in the Office of Tax Policy of the Department of the Treasury earlier this year.

“We must throw off our false notions about these plans and take advantage of the good they can do for American workers and their families,” Sweetnam asserted in his testimony offered on behalf of the American Benefits Council.

Sweetnam reminded the panel that hybrid plans are defined benefit plans that also incorporate features of defined contribution plans. “While offering the security of employer funding and federal insurance guarantees,” he testified, “hybrids show account balances, are portable, and provide a more even benefit accrual pattern across a worker’s career. Nearly 80% of employees build higher retirement benefits under a hybrid than a traditional defined benefit plan of equal cost, but this is a statistic you rarely hear quoted.”

Sweetnam also had harsh criticism for the federal judge who first ruled in a case involving IBM about cash balance plan’s alleged discrimination against older workers (See    Murphy’s Law: IBM Loses Cash Balance Ruling ). “While the Cooper decision is an isolated one, and clear and significant authority contradicts it by concluding that hybrid plans are age appropriate, Cooper has spawned copycat class action lawsuits and exorbitant damage claims against other employers, who are now extremely anxious about the crippling effects of such lawsuits with their potential billion dollar damage awards,” he testified. “Absent congressional action, hybrid plan sponsors are likely to find these risks unbearable and will freeze or terminate their plans. What a disastrous result for the more than seven million employees and their families who rely on these plans.”