Cash Balance Plans Provide Significant Benefits
October 16, 2003
TO MEMBERS OF THE U.S. SENATE:
In the past decade there has been an increase in cash balance plans as employers try to remain competitive by responding to changing workforce demographics. Cash balance plans provide significant benefits such as guaranteed retirement income and pension portability. There are, however, critics of cash balance plans who claim that these plans are age discriminatory – despite the judicial and regulatory precedent to the contrary. At a time when the number of defined benefit plans is steadily decreasing, we feel it is important to recognize the vitality and significance of cash balance plans in providing a secure retirement for millions of workers. Therefore, we urge Congress to carefully consider all issues concerning cash balance plans.
The current opposition to these plans is based on an assumption that cash balance plans are inherently age discriminatory and comes on the heels of a highly controversial court decision. However, a federal court, in that same district, has previously ruled that cash balance plans do not violate age discrimination laws. In addition, no federal agency with jurisdiction over pension and discrimination issues – the Department of Treasury, Internal Revenue Service, Department of Labor, or the Equal Employment Opportunity Commission – has determined that cash balance plans, or conversions to them, violate federal age discrimination, ERISA, or tax laws. On the contrary, in December 2002, the IRS issued proposed regulations clarifying that cash balance plans are not inherently age discriminatory under ERISA. After receiving public comments supporting this view, the IRS has indicated that it will issue final regulations to this effect in the near future.
We have attached discussion points that explain the importance of cash balance plans in the defined benefit plan system and the necessity for Treasury regulations in this area. We urge you to consider these points as you examine this important issue.
We thank you for your attention to this very important matter and will be happy to address any concerns or questions that you may have.
R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce00
Attachment Sent with Letter:
The Basics of Cash Balance Plans and Why They are Important for Providing Guaranteed Pensions