It's a No-Win Situation for Cash Balance Pensions & Investments (06/25/01) p.1; Anand, Vineeta
The Internal Revenue Service (IRS) is cracking down on cash
balance plan sponsors for giving their employees the option to choose
their retirement packages. The IRS has reinterpreted the rules
governing cash balance plans and has begun penalizing companies that
automatically give some of their older, longer-tenured employees the
most profitable plans. The action comes shortly after some employers
converted traditional defined benefit plans to cash balance plans, which
significantly reduced retirement benefits for mid-career employees. The
IRS contends that companies that allow their employees to choose between
the two options must ensure the combined plans pass a difficult test,
the purpose of which is to make sure that employers do not "backload"
benefits by offering premium benefits at the end of their employees'
work careers and give little in the earlier years.