Nowhere is there more sturm und drang these days than in pensions. Will Congress extend relief for under-funded pension plans? Which benchmark will be chosen to replace the 30-year Treasury and when? Will the U.S. adopt European accounting rules that favor fixed-income assets?
One arena in which the debate has been seething of late is over attempts to lift the moratorium on cash balance plans. These pension plans have become the darling of the New Economy workforce–free-agent employees not looking to spend a career with one employer. Companies, for their part, no longer see defined benefit plans that provide the biggest payouts to employees with years of service and approaching retirement age as an inducement for younger, smarter hires. Employers want to keep the new blood flowing and prevent older workers from simply hanging on. Corporate lobbyists claim that hundreds, if not thousands of companies are waiting to convert.
Unfortunately, no one can seem to come up with regulations that will make these plans fair from the point of view of all employees, employers and the government. Treasury and the Internal Revenue Service tried, only to be told that their proposed regulations might place most corporate pension plans in violation of the regulation's age discrimination standard. Treasury withdrew one section of the regulations in early April in response to the criticism.
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The latest fix has been proposed by Reps. Bernie Sanders (I-Vt.) and George Miller (D-Calif.)–a duo that most in Corporate America would not consider particularly business friendly. Their solution would have companies allow employees who are 40 years old and older or have worked for a company for 10 years or more to choose between cash balance and traditional plans. The assumption: Most older workers will stick with traditional plans, but over time companies can still move entirely to cash balance plans.
Perhaps not surprisingly, business is not enthralled, with lobbyists arguing that it's a bad idea to impose any additional requirements on the already stressed private pension system.
Ironically, however, providing older employees choice when switching to cash balance plans was the solution several large companies voluntarily selected in the 1990s, after some of the first conversions were criticized for penalizing those closest to retirement or with the most years in the pension plans. Eastman Kodak Co., one employer that offered choice, says now it wasn't necessarily the easiest route, requiring Kodak to offer comparative information about both plans and then maintain, administer and communicate with employees about both plans as well. "Kodak was willing and able," says a company spokesman. "But it may not work for others."
Ari Jacobs, an actuarial consultant at Hewitt Associates, says choice will be the "hottest item, and the one that will see the most discussion." Given all the differences in opinion, Jacobs says that "there's probably a long way to go before this thing is resolved."
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