IBM's Move To Cash-Balance Pensions Sparks Congressional Scrutiny
September 15, 1999
Employees of International Business Machines (IBM) are sharply divided over whether a new pension plan is a rip-off or a welcome innovation. The controversy has sparked the interest of Congress and the administration. Some critics say it amounts to age discrimination and is a violation of federal law.
Here is how IBM's "Cash Balance" plan differs from traditional pension arrangements:
- Traditionally, retirees get monthly payments based on their years with the company and the highest pay in the five years before retirement -- with the value starting low, but rising sharply toward retirement.
- Under the cash-balance plan, employers generally pay the equivalent of 4 percent to 7 percent of an employee's pay into an account.
- The amount is guaranteed to earn an annual interest credit -- in IBM's case, tied to the 1-year T-bill plus 1 percent.
- The money accumulates steadily over time, and employees can take lump-sum payments if they leave the company.
Some midcareer employees claim they stand to lose up to half of their pensions, while others say they stand to gain.
In August, 40 members of Congress sent letters to the Internal Revenue Service, the Equal Employment Opportunity Commission and the Department of Labor urging an investigation into whether pension plan changes such as IBM's violate the law.
A Senate committee hearing on pension plans is scheduled for Sept. 21. On Tuesday, a delegation of lawmakers met with EEOC Chairwoman Ida Castro to discuss whether plan conversions break age-discrimination laws.
In the face of worker discontent at IBM, unions have launched sizable recruitment efforts.
Source: Stephanie Armour, "IBM Takes a Beating," USA Today, September 15, 1999.
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