Cash Balance Plans Pass Muster With Treasury
Pensions & Investments (12/09/02) Vol. 30, No. 25 p.1; Anand, Vineeta

The Treasury Department has proposed regulations that assert that cash balance plans do not discriminate against older employees, and when its proposal is finalized, the agency plans to lift the ban on determination letters for plan conversion from traditional to cash balance. This guidance will help big companies to move from defined benefit plans to cash balance ones, and may encourage smaller employers to set up hybrid plans. American Society of Pension Actuaries executive director Brian H. Graff says that the decision is probably the most important to strengthen defined benefit plans since ERISA. Companies will be able to incorporate pension plateaus, or wearaways, for some employees during conversion--freezing the traditional plan accounts and setting up new ones with opening balances that are worth less than the old plan's benefits. Treasury's guidance requires employers to be sure that the opening account balance in the new plan equals at least the current value of the old plan's benefits, using "reasonable and age neutral" interest rate assumptions. "Reasonable" is not defined, but companies using interest rates that are inordinately high will probably have to deal with the Internal Revenue Service. Those representing employees who lost benefits in previous switches say they will go on fighting hybrid plans.


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