Companies Re-think New Pension Plans As IBM Reverses
September 20, 1999
IBM has announced significant revisions to its proposal to adopt a so-called cash-balance pension system. About 300 companies have adopted such plans. IBM's reversal came amid an uproar of complaints from its older workers.
It also followed involvement by Sen. James M. Jeffords (R-Vt.) and his Health, Education, Labor and Pensions Committee, the Internal Revenue Service, the Equal Employment Opportunity Commission and the Labor Department.
IBM said any employee age 40 or older with at least 10 years of service could remain in the old plan.
- Traditional "defined benefit" pension plans allow employees to earn as much as half their ultimate benefits in the last five to 10 years on the job.
- Under cash-balance plans, employees accrue benefits at a steady rate throughout their years of employment.
- The switch from the traditional to the cash-balance system angered older IBM workers who stood to lose anywhere from 20 percent to 50 percent of the value of their pensions.
- Cash-balance pension plans were devised in the late 1980s and began really catching on in the 1990s as a way to modernize companies' plans for today's highly mobile work force.
The IRS is trying to determine whether the plans qualify for favorable tax treatment. Although it has approved favorable treatment for several hundred plans in the past, the agency last week put a moratorium on the approval of any more until it sorts out the issues.
Efforts are also under way to determine if cash-balance plans amount to violations of federal age-discrimination laws.
Source: Ellen E. Schultz, Jon G. Auerbach and Glenn Burkins, "Controversy Besetting New Pension Plan Rises with IBM's Retreat," Wall Street Journal, September 20, 1999.
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