To Convert or Not to Convert Treasury & Risk Management (05/03) Vol. 13, No. 5 p.7; Kelly, Susan
Cash balance pension plans have become increasingly popular, especially among younger workers who do not intend to remain at the same job throughout their careers. Companies seeking to convert to cash balance plans are wondering whether they should completely replace their older defined benefit plans with new plans, or offer employees a choice. Although the Treasury Department and the Internal Revenue Service had once tried to construct regulations to help make conversions to cash balance plans more fair, debate over whether regulations would have proved discriminatory to older employees killed regulators' efforts. Reps. Bernie Sanders (I-Vt.) and George Miller (D-Calif.) have proposed legislation that would allow companies to give their employees over age 40, who have provided the company with 10 years of service, to choose between retaining their old defined benefit plan or converting to a new cash balance plan. By offering a choice, the law would enable companies to gradually shift to cash balance plans without penalizing any current participants in traditional pension plans. But some businesses say that the current pension system is sufficiently regulated and argue against the imposition of any new pension requirements. One example of a company that offered its employees a choice between plans, in order to avoid discriminating against either older or younger employees, is Eastman Kodak Co.