The Changing Face of Pensions
Money (04/03) Vol. 32, No. 4 p.91; Gibbs, Lisa

Companies' conversions from traditional, "final average pay" pensions to cheaper cash-balance plans are leaving thousands of older workers scrabbling to find enough savings for their retirements. A manager at AT&T, Jane Banfield, saw her pension benefits get cut in half when the company converted to a cash-balance plan in 1997. Some companies are citing skyrocketing pension costs--the nation's largest companies recorded a $323 billion pension shortfall last year--as their reasons for converting to cash-balance plans. While cash-balance plans are great for younger workers, because they accrue more evenly than traditional pensions and their balance can be rolled over into an IRA when the employee leaves the company, conversions to the new plans are injuring older workers who are watching their retirement savings, which were traditionally based on salary and years of service, shrink. Further, older workers may experience a "wear-away" or a waiting period before they can even start earning additional benefits under their new plans. Several companies that have converted from traditional pensions now face class-action age discrimination suits, but the Internal Revenue Service is set to release new rules that would declare the conversion to cash-balance plans legal and not age-discriminatory. Experts advise that workers seeking to protect themselves from the pension losses that come with conversion educate themselves about their retirement plans, demand concessions from their companies, and re-evaluate their savings' strategies for retirement.

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