On the surface, cash-balance plans
look a great deal like 401(k) and other savings plans, but there are some important differences.
Larry Sher, a principal and director of research at New York-based Buck Consultants, says the new regulations offer a number of "safe harbors" for companies that want to convert to cash-balance plans
, but says he is uncertain they will allay the concerns of critics who claim the plans discriminate against older workers.
Eric Lofgren, global director of the benefits consulting group, Watson Wyatt Worldwide, on the debate surrounding cash-balance plans
versus traditional pension plans.
The survey was based on interviews with 100 CFOs from North American organizations with defined-benefit or cash-balance plans
with assets of $20 million or more; the average DB plan had assets of $344 million.
Unfortunately, high-profile litigation several years ago surrounding some conversions from traditional to cash-balance plans
limited their popular appeal.
The company has added plan-design options, including cash-balance plans
and how they can complement 401(k) plans, said Gradeless.
For "hybrid" or cash-balance plans
, which combine features of DB and DC plans, the PPA has been a blessing: it specifically affirms their status, defines them and concludes that they are not age-discriminatory, which had been a common complaint, Glickstein notes.
The technology giant's move is the latest in a growing trend among large employers--once the bastion of defined benefits in the private sector--to freeze defined-benefit and cash-balance plans
According to Ippolito and Thompson's (1999; Industrial Relations, 39: 228-245) excise tax avoidance hypothesis, a number of firms have switched to cash-balance plans
because conversion allows the firm to avoid excise taxes on its excess pension assets.
The proposed regulations are well-intentioned and offer some positive news for plan sponsors, including a rejection of the charge that cash-balance plans
inherently violate age discrimination," he says.
are reflections of changing economic realities.
Qlder employees, however, may receive reduced benefits under cash-balance plans
because their final years of high earnings are no longer a major factor in their benefit computation.