Chamber Urges Conference Committee to Reject Amendments that Would Prohibit the IRS From Using Funds to Regulate Cash Balance Retirement Plans

The Honorable Richard Shelby
Chairman
Subcommittee on Transportation, Treasury, and General Government
Committee on Appropriations
U.S. Senate
Washington, DC 20510

Dear Chairman Shelby:

As you begin the conference on H.R. 2989, the FY 2004 Transportation, Treasury, and General Government Appropriations Act, the U.S. Chamber urges you to reject the amendments in the bill that would prohibit the Internal Revenue Service (IRS) from using funds to regulate cash balance retirement plans or which would otherwise limit the ability of employers and workers to utilize this legitimate employee benefits program.

During separate floor consideration of H.R. 2989, the House and Senate adopted amendments offered by Representative Bernard Sanders (I-VT) and Senator Tom Harkin (D-IA) that would have the effect of denying funds to the IRS to finalize long-sought regulations that would provide guidance to employers on the administration of cash balance pension plans.

Much of the opposition to these plans is based on an assumption that cash balance plans, or conversions to 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, and 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.

This area of the law is extremely complex, and has involved countless hours of study and analysis by experts from each federal agency. Prohibiting the IRS from continuing its work, as the Sanders and Harkin amendments would do, would cause great harm to the employer-sponsored pension system, and may result in employers choosing to freeze or terminate their plans. Such an outcome would not be in the best interests of employees or employers who offer retirement plans.

Further, any restrictions on the use of cash balance plans would jeopardize a significant retirement benefit for millions of workers. Cash balance plans, which are a type of defined benefit plan, allow employers to provide a guaranteed retirement benefit that responds to the changing demographics and mobility of the workforce. Under a cash balance plan, benefits accrue evenly over a worker's career and therefore such plans can provide a greater benefit than under a traditional pension plan. Most importantly, in a cash balance plan, contributions are primarily made by the employer, all the investment risk stays with the employer, and the Pension Benefit Guarantee Corporation insures the benefits. Thus, workers are able to receive a secure and fixed retirement benefit that rewards them for all phases of their careers.

Accordingly, the U.S. Chamber urges the conferees for H.R. 2989, the FY 2004 Transportation, Treasury, and General Government Appropriations Act, to remove all language that would hinder the IRS from regulating cash balance plans or would otherwise restrict the ability of employers and workers to utilize this legitimate employee benefits program. I thank you in advance for your consideration of this request.

Sincerely,

R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce