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Pensions

In the past two years, American families have seen devastating blows to their retirement security.

An historic budget surplus has been turned into a $200 billion deficit that is still growing and threatens our Social Security system. A faltering economy, rising unemployment rates, and increasing health care costs are undermining family financial security.

Corporate scandals have rocked an already shaky stock market, wiping out hundreds of millions of dollars in 401(k) plans and other retirement savings accounts. And today it is being announced that unfunded private pension liability has soared to $300 billion, the highest unfunded liability ever and some 10 times higher than the average unfounded liability in the past decade.

As if all of that is not bad enough, now comes a new threat to Americans’ retirement security.

This morning, we are issuing a warning to the tens of millions of baby boomers and to other employees. In addition to the steep losses you have suffered in your 401k accounts, your traditional pension benefits are now at risk too.

The Bush Administration is fast-tracking new pension rules that will make it easier for companies to convert the traditional defined benefit pension plans of long-standing employees to a less generous cash balance plan. Companies will save hundreds of millions of dollars a year by converting to cash balance plans. But converting is devastating for older employees and these rules offer those long-time employees no protection whatsoever. The pensions of millions of men and women may be cut by a third, or even a half, according to the non-partisan General Accounting Office, with no possibility to recover the lost retirement income on which they had depended.

The new rules specifically protect the companies from age discrimination lawsuits by employees affected by cash balance conversions. There are currently over 800 age discrimination lawsuits pending before the EEOC resulting from cash balance conversions.

Today, we are joining together to blow the whistle on this pension raid of hard working employees.

We are releasing a letter signed by 217 members of Congress, from both parties and from both sides of the Capitol, calling on President Bush to withdraw this ill-conceived regulatory change. The letter was signed by 26 Senators and 191 House members, eight of whom are Republican.

We are asking him instead to submit a revised plan for congressional approval that guarantees that employees will not suffer losses in the pension benefits they wee promised when they joined the company, pensions they earned through their hard work and loyalty.

The President’s plan does nothing more than allow companies to steal the hard earned pension benefits of Americans workers.

Large profitable companies, like AT&T, IBM, Verizon, and others, converted their employees’ traditional pension plans to cash balance plans in the hope of saving hundreds of millions of dollars a year. But those savings do not come from increased productivity, higher prices, or greater sales - they come right out of the retirement pockets of managers and rank and file employees.

Today, I am pleased to be joined by some of the employees affected by conversions.

Other people from across the country have contacted me about this issue.

Like Hank Tiller, an insurance salesman in Chatanooga, TN, who wrote that “cash balance plans clearly discriminate against older workers… The baby boomers are following you closely on this one.”

An employee with 30 years of service at McDermott Industries in Lynchburg, Virginia, called to say he is worried his company might take advantage of the new rules. He successfully lobbied his member of Congress, Rep. Virgil Goode, to sign onto our letter.

John Healy, an accountant for 23 years at a major financial institution in New York City that is in the process of converting to cash balance wrote that, “Employees with years of service with an institution are having their pension benefits eroded under the ‘conversion formulas’ that are being established… These are benefits, which I feel I have earned.”

The list goes on. And the point remains the same -- the new rules will undermine pension security.

The cash balance proposal is far from the only initiative of this Administration to undermine the economic security hard working Americans.

This is the same administration that:

• overturned the ergonomics protection rule upon taking office

• refuses to raise the minimum wage

• allowed unemployment insurance benefits to expire at Christmas time, leaving a million people without benefits

• responded to serious corporate scandals with a weak set of reforms, only to be forced to sign into law a tougher Democratic plan from the Senate

• still failed to collect hundreds of millions of dollars in 401(k) investments lost to employees at Enron, Worldcom, Global Crossing and other companies whose CEOs had cooked the books and defrauded the public.

• opposed basic pension reforms, like allowing 401k participants to be represented on the board managing the participants’ money.

And this is the same Administration whose answer to our ongoing economic downturn is more tax cuts for the rich that have failed to turn our economy around.

As many of you know, the Treasury Secretary nominee, John Snow, if confirmed, will oversee the implementation of these new rules, if they are not blocked.

He is well aware of the benefits of a traditional defined benefit plan. Not only did he tell the Senate this week that it is a powerful tool for recruiting and keeping top-level executives, but he himself won an enormously favorable $2.4 million annual pension from his former employer, CSX, Corp, which added years of service to his pension before he retired.

We believe that Mr. Snow should give his commitment that he will not implement any plan that will allow companies to steal their employees pension benefits.

Working together, members of Congress, employees, and organizations, we are determined to see these rules overturned and to have instead a set of fair rules that truly protect Americans’ pension security.

Devastating impact to older workers:

Lynda French hired an actuary to find out how she had fared when IBM converted to a cash balance plan in 1999 and discovered she would lose 45 percent of her pension if she stayed with IBM. French, who was a software analyst, was just shy of 55.

Janice Winston, a 29-year Bell Atlantic veteran, calculated that her traditional defined pension benefit would have been $400,000 as opposed to the $184,000 in her cash balance plan -- a 54% reduction. Winston filed a complaint with the Equal Employment Opportunity Commission and successfully fought back within her company to retrieve her lost benefits. More than 800 claims of age discrimination have been filed with the EEOC resulting from cash balance plan conversions.

David Finlay, a 55-year-old, senior engineer at IBM in Colorado, calculated that he would retire at age 65 with a $57,700 annual pension, compared with $71,200 it would have been without IBM’s revisions of the 1990s.

Larry Cutrone, a 54-year old former AT&T employee, after working for AT&T for 28 years, woke up one day to find that his pension benefit had been slashed by more than 50% as a result of AT&T's cash balance conversion in 1997. The value of his pension benefit was reduced from $350,000 to just $150,000.

Adversely impacts younger workers too:

In 1999, IBM told Jeffrey Zitz, a 38-year-old senior engineer, and a 15-year company veteran at IBM’s East Fishkill facility that the average employee would lose 20 percent of their pension benefit. Zitz made his own computer model and learned that his loss would be closer to 65 percent. Using IBM’s own numbers, he figured his monthly pension at age 65 would drop from $14,465 to just $4,542, and more recent changes have driven the figure even lower.

After conversion to cash balance, companies continue to pare pension benefits:

For instance, six years after Interpublic Group of Cos. Converted to a cash balance pension plan, the ad agency went further and froze the plan. CBS Inc. adopted a cash balance plan but closed it to new employees. MCI Communications converted to cash balance but later, following its merger into WorldCom Inc., stopped providing contributions to the hypothetical accounts in the plan. Retailer Casual Corner Group changed the compensation formula in its cash balance plan to exclude bonuses.

EMPLOYER CLAIM: Employers are adopting cash balance plans because they are easier to understand than traditional defined benefit plans.

False. Cash balance promoters are disingenuous when they argue that cash balance plans are easier for employees to understand. To the contrary, cash balance proponents have argued in favor of these plans because they make it more difficult for employees to understand that their benefits are being slashed.

Cash balance promoters have been very open amongst themselves about the ability of these plans to mask benefit cuts. In a July 27, 1989 letter from Kwasha Lipton to Onan Corporation, the consultant notes, “One feature which might come in handy is that it is difficult for employees to compare prior pension benefits formulas to the cash balance approach.” Similarly, Joseph Edmunds stated at a 1987 Conference of Consulting Actuaries, “[I]t is easy to install a cash balance plan in place of a traditional defined benefit plan and cover up cutbacks in future benefits.”

A significant reason that corporations convert to a cash balance plan is to cut the pension benefits of older workers - workers who comprise a larger and larger percentage of the workforce. Kyle N. Brown, a retirement and pension lawyer with Watson Wyatt Worldwide said at a Society of Actuaries Conference in October of 1998: “What that means is that for your older, longer service workers, that their rate of accrual is going to go down. There is going to be a reduction in their rate of accrual.”

EMPLOYER CLAIM: Cash balance plans have been adopted in response to a more mobile workforce.

False. Watson Wyatt’s Insider dispels one of the other myths advanced by cash balance proponents, namely, that these plans are a response to an increasingly mobile American workforce: “Contrary to popular belief, Americans are not changing jobs faster than ever before. According to an in-depth study of employment records by Watson Wyatt, as baby boomers are driving up the average age of the workforce, job mobility is decreasing.”

Worker mobility is not the rationale for converting to a cash balance plan, money is. As 11,000 people a day turn 50, which Watson Wyatt posits will turn us into a “Nation of Floridas,” employers need to find ways to retain them. Instead of creating incentives to retain older workers, companies have turned to cash balance plans, which make it much more likely that older workers will have to delay retirement. Employers who convert to a cash balance plan thus see a two-fold benefit. Companies retain older workers who can no longer afford to retire and the benefits the employees do receive at retirement will be significantly lower.

In fact, most cash balance pension plans still retain 5 year vesting requirements, thus ensuring that most workers will never earn any benefits under the cash balance plan.

EMPLOYER CLAIM: Cash balance plans combine the best features of defined benefit and defined contribution plans.

When employers convert from traditional defined benefit plans to cash balance plans, older workers will lose as much as 50% of their expected benefits unless the employer includes special protections for them. The proposed IRS regulations would permit employers to convert to cash balance plans WITHOUT special provisions to protect the benefits promised to older workers.

EMPLOYER CLAIM: Employers have provided transition assistance to older workers.

Not true. Some employers have included protections for older workers, but not all. That is why over 800 claims of age discrimination have been filed with the EEOC and dozens of lawsuits are pending in the courts, including challenges to AT&T and IBM's conversions. The IRS proposed regulations would legalize conversions without provisions to protect the benefits of older workers. The proposed regulations also would affect the pending legal challenges.

EMPLOYER CLAIM: Congress addressed concerns about cash balance plans by imposing notice requirements in the 2001 Tax Act.

Congress only passed improved notice requirements as part of the 2001 Tax Act. Comprehensive protections for older workers were not included because agreement had not been reached. Numerous legislative proposals to regulate cash balance conversions have been introduced in Congress. This further demonstrates why the IRS regulations should not be finalized at this time.

EMPLOYER CLAIM: The IRS proposed regulations set strict conditions for how conversions must be structured.

False. The IRS proposed regulations include no provisions to protect older workers pensions in all conversions. In fact, the regulations would give employer greater flexibility to convert and reduce older workers pensions.

EMPLOYER CLAIM: The IRS regulations are the result of careful deliberation with all interested parties.

False. The proposed regulations were substantially revised after complaints by employers to a compromise proposal with worker advocates. The proposed regulations are opposed by the AFL-CIO, AARP, Pension Rights Center and numerous other worker advocate groups.

Statement by AARP Federal Affairs Director David Certner in Opposition to Proposed Treasury Department Regulations on Cash Balance Pension Plans

AARP joins the more than 200 Members of the House and Senate in urging the President to withdraw the Treasury Department's proposals for cash balance pension plans. If enacted, these regulations would undermine the retirement security of millions of midlife and older workers.

The proposed regulations would be devastating to the pensions and retirement plans of older workers. Employers who convert from a traditional plan to a "cash balance" plan would be able to significantly reduce future benefits as well as discontinue crediting the pension accounts of their older workers for long periods of time.

AARP urges the Treasury Department to withdraw the proposed cash balance regulations and adopt new regulations that bring these types of plans into compliance with the laws against age discrimination and protect the pension benefits and retirement security of older workers.

A few years ago most workers had never heard of cash balance pension plans. It is apparent that few reporters or even legislators knew much about them either.

Times have changed. Many employees have complained loudly about being lied to and having their pensions cut in half. These complaints have not gone unnoticed by the press or Congress.

Many reporters now have a good understand of how cash balance pension plans take earned pension money from the employees. They see how unjust they are, and they are spreading the word.

Congress has also become educated about the occult methods employed by these plans to deprive employees of their pensions, earned by years of labor. Congress has become so much aware of this injustice that over 200 senators and congressmen have protested to President Bush.

Specifically, they protested the attempt of the Treasury Department to legalize age discrimination inherent in the plans. Read the names of all who signed the letter. They are your friends. These legislators took action to try to save your earned pensions.

Those who only provided lip service about pension protection and did not sign the letter, should not be allowed to serve another term. Think about it. If they cannot defend something as simple and basic as an earned pension, what possible good can they be on any other issue?

If you find the name of one or more of your legislators on the letter, be sure to thank them. Give them your praise and your vote.

Let those who did not sign the letter know how disappointed you are in them. And, consider voting for their opponent in the next election!

Congressional Pension Letter to Bush

In a press release, employee activists from Verizon, IBM and AT&T announced that they are joining Representatives George Miller and Bernie Sanders and Senator Tom Harkin to protest the Treasury's proposed regulations on "cash balance plan conversions" at a news conference on Thursday, January 30, 2003 at 10:15 a.m. at HC-9, the U.S. Capitol.

"These regulations are devastating to older employees," declares Janice Winston, a 29-year former Verizon employee who protested her company's conversion and was successful in reversing it. "We're calling on the Administration to withdraw these regulations because they legalize pension theft in corporate America."

The proposed Treasury regulations lift the moratorium on cash balance conversions, a controversial practice that can cut the expected benefits of older workers by over 50 percent.

The Administration's pick for Secretary of Treasury John Snow certainly does not need to worry about his pension. He left CSX with a pension worth $2.47 million based on 44 years of work - even though he only worked 25. CSX also threw 250,000 shares of stock into the pension as an extra bonus.

"Employees should not be left under a dark cloud, wondering whether their company will replace expected pensions with puny cash balances. President Bush needs to make secure pensions a part of his plan for recovery - the proposed regulations do just the opposite," says Janet Krueger, a former IBM employee who has led efforts to stop this practice. "John Snow stated during his confirmation hearings that until Americans have trust in their long term horizons, short term economic recovery will be delayed - clearly he would agree that pension security must be added to the economic stimulus plan!"

"It is shocking that CEOs like Snow can retire with pensions that are worth far more than they earned while long term, hard-working employees get so much LESS than what they earned," says Winston. Krueger added "We are continuing this protest; we won't stop until cash balance conversions are relegated to the history books along with these ill-conceived regulations."

SUSIE GHARIB: Congress holds a confirmation hearing on Tuesday for John Snow, President Bush's choice for Treasury secretary. If approved, Snow will oversee controversial new rules governing the nation's corporate pensions. As Stephanie Woods reports, those new rules might hit some workers in the pension pocketbook.

STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Janice Winston had worked for Bell Atlantic for 23 years in 1995 when the company converted her traditional pension plan to a cash balance plan. At the time, she didn't think much about it.

JANICE WINSTON, FORMER BELL-ATLANTIC EMPLOYEE: I just kind of looked at it and kind of put it to the side and never thought no more about it because at the time I wasn't even close to retirement.

WOODS: It was four years later, after reading a newspaper article about the impact of a cash balance conversion on workers at IBM, that Winston figured out the change would take away more than half her pension.

WINSTON: I really felt as though me and my coworkers were really betrayed by this type of plan and that something needed to be done about it.

WOODS: After protests, the company, now Verizon (VZ), gave employees a choice between the traditional and cash balance plans. Some IBM workers were given a choice, too. But employees at other large firms, including AT&T (T) and Duke Energy (DUK), are still fighting to save their traditional pensions. Other workers may soon find themselves in the same situation as Winston. The IRS and Treasury Department recently proposed rules making it easier for companies to switch to cash balance plans. Traditional defined benefit pension plans are back loaded, that is, the biggest value kicks in during the final years of employment. In cash balance plans, employees accrue benefits more evenly over a career. James Delaplane advises companies on pension plans. He says cash balance plans work better for most companies and their employees.

JAMES DELAPLANE, ATTORNEY, DAVIS & HARMAN: They're looking at a workforce that's mobile, that is looking to build meaningful benefits from their first day on the job, that wants to be able to take a significant benefit with them when they leave and a cash balance plan really does that better than a traditional pension.

WOODS: Mark Iwry worked on pension issues at the Treasury Department during the Clinton administration. He agrees cash balance plans work better for younger workers, but says the law should help older workers in transition.

MARK IWRY, FORMER TAX COUNSEL, TREASURY DEPARTMENT: Congress could reasonably step in and ask companies to mitigate the short-term pain as a toll charge for moving over to these plans.

WOODS: But Delaplane says companies need flexibility when designing pension plans.

DELAPLANE: For those firms that are struggling and look at their competitors that don't offer any sort of pension plan at all, they want to do right by their folks. But it may be a matter of competitiveness.

WOODS: For Winston, it's a matter of fairness.

WINSTON: The fact that they wanted to cut our compensation for retirement and we did not see anyone, no exec -- any executives taking a cut in their compensation or any changes in their retirement benefits.

WOODS: Winston plans to travel to Washington in April when the Treasury Department holds hearings on cash balance plans. She wants to personally argue her case for protections for older workers. Stephanie Woods, NIGHTLY BUSINESS REPORT, Philadelphia.

Janice Winston beat the cash balance conversion and had her full pension restored. Click the link below to read about it:

Cash Balance Can be Beaten

We are asking the President to withdraw his devastating pension proposal and resubmit a plan for Congress' consideration that would protect the retirement interests of older employees.

The President's proposal will open the door for large companies to cut in half the value of older workers traditional annual pensions.

The President's proposal will legalize age discrimination.

While there is some disagreement as to whether "cash balance plans" are good or bad for younger workers, there is absolutely no disagreement that "converting" to cash balance plans in mid-stream under the rules proposed by this Administration will devastate the annual pensions of millions of older employees. There is no disagreement on this point.

The President's proposal comes at a time when employees have already experienced huge losses in their 401k retirement accounts. On top of those losses, the President would now allow companies to cut in half the value of their traditional pension plans. The President's plan is unfair to employees who have worked hard, are trying to send their children to college, and prepare for their retirement. In mid- stream, the President is changing the rules. Without any consultation with the employees or their elected representatives in Congress.

Now -- Now, is the time to raise your concerns with your Member of Congress and Senators.

The Senate might consider legislation…soon…that would prohibit the Administration from moving forward on his plan to cut in half the value of older employees' traditional pensions. Ask your Senator to support the Harkin-Feingold amendment on cash balance plans.

And ask your Member of Congress and Senators to sign on to the letter by Congressman George Miller and Congressman Bernie Sanders to President Bush calling on the President to withdraw his ill- advised IRS pension proposal and to propose an alternative plan for Congress' consideration that is fair to employees who have worked hard and played by the rules.

Published on 1/9/2003 in the United Auto Workers website by Rep. Bernie Sanders

As we begin the second half of President Bush’s first term in office, his assault on the economic wellbeing of working Americans is accelerating. He is expanding our disastrous trade policy that has contributed to the loss of almost two million decent paying manufacturing jobs in the last two years. He is refusing to raise the horrendously low minimum wage. He has unnecessarily delayed extending unemployment compensation benefits. He is launching a major attack against the job security of federal employees. In the midst of all of this, he is cutting back on Medicare, veterans’ needs and education so that he can provide huge tax breaks to the richest people in the country.

And now, new regulations proposed by Bush’s IRS threaten to destroy one of the most valuable benefits that working men and women, through their unions, successfully fought for in the 20th century, namely the traditional defined benefit pension plan.

For millions of workers, traditional pension plans were the key to a secure retirement. Once they reached retirement age, they were to receive a monthly pension benefit based on a formula that included their longevity on the job and the compensation they received.

But about ten years ago corporate America decided that it was “too expensive” to keep the promises they made to older employees. They preferred to give out hundreds of millions in stock options to their CEOs. So, some high-paid pension consultant came up with a gimmick that would lower the amount corporations have to pay for their workers’ pensions by cutting benefits by as much as 20-50 percent. These new plans, called cash balance plans, were designed specifically to prevent employees from being able to figure out what they were getting, and to avoid federal age discrimination laws that protected older workers.

I first became involved in this issue when hundreds of IBM employees in Vermont notified me that the pensions they had been promised were going to be slashed because IBM was converting to a cash balance plan. Together, through an effective organizing effort, we were able to force IBM to scale back that decision which would have affected over 30,000 workers.

In September of 1999, members of Congress were able to get the IRS to announce that it would no longer approve the tax-exempt status of cash balance plans until they reviewed the age discrimination implications of those plans. During that period, over 800 workers filed age discrimination complaints about cash balance plans with the federal Equal Employment Opportunity Commission (EEOC). Also, a number of court decisions ruled against companies that had made these conversions because they discriminated against older workers. Of course, throughout this process corporate America has been spending tons of money on lobbyists and lawyers to get the federal government to give its blessing to cash balance plans.

Now, the Bush IRS is proposing new government regulations that would end that moratorium and give companies the green light to move ahead with cash balance plans that could slash retirement benefits for some eight million workers in this country. This is unacceptable, and we’ve got to fight back.

And, to make sure the job gets done right, Bush has picked a new Secretary of the Treasury who has a well-established history of looting workers’ retirement benefit packages. Bush’s choice, John W. Snow, former CEO of CSX Corporation, will be the nation’s lead pension policy maker if he’s confirmed by the Senate. Snow’s actions at CSX prove he is no friend of working Americans.

Under Snow’s leadership, CSX cut the retiree health benefit package for most of its employees while Snow benefited from an outrageously inflated pension scheme. According to published reports, Snow is receiving a $2.47 million per year retirement benefit for life. This amount was calculated through gimmicks that give him credit for working 44 years when he really only worked 25 years and by factoring in stock benefits he received as regular income, instead of just salary, as is the common practice. Those reports reveal that CSX is also cutting the health benefits of its future retirees. This is exactly the kind of leadership American workers DON’T need: another privileged CEO who made his mark by cutting employee benefits.

If Snow wants to be confirmed by the Senate, he must show that he is going to abandon the corporate greed and excess he took part in when he was a CEO. An important first step would be for him to commit to withdraw the proposed IRS regulations that would allow companies to get tax-favored status for their age-discriminatory cash balance plans. This would at least show that he understands that American workers are suffering as a result of unfair and illegal pension cuts that take place when companies convert to cash balance plans. If he does not take even this small step, it will be clear that he cannot provide the leadership the nation’s economy and working families so desperately need. In that case, given Snow’s own track record as CEO of CSX, the Senate should refuse to confirm him as Treasury Secretary.

Actuaries Want Safe Harbor

Traditional pensions are going the way of the dodo. They bore young workers and multiply the cost of maintaining an aging work force

Jan. 20 issue — I hope you’re getting a really good tax cut because you’re going to need the money. More bad news is trickling in from the retirement front. You already know that your 401(k)—slashed by falling stock prices—won’t be worth as much as you expected. Now traditional pensions are slipping, too. Most workers can count on getting the pension benefits they’ve earned so far. But future benefits won’t grow as fast as you expected. Companies over promised, and are dialing back.

THIS IS EXACTLY the problem Social Security is going to face 10 years from now—a bulging and costly retiree class. In this respect, private pensions are like canaries in the coal mine, because the change in the environment affects them first. Unlike Social Security, corporations have to set aside money for pensions in advance. They’re saying they can’t pay it—an early warning that government will be dialing back on future benefits, too.

Traditional pensions—known as “defined benefit” plans—aren’t as prevalent as they used to be. Still, they cover some 23 million workers in the private sector. They are funded entirely by the company. At retirement you get a lump-sum payment or monthly check, usually based on how long you worked and how much you earned in the final years of your career. Most plans include a subsidy for early retirees.

But these types of pensions are going the way of the dodo. They bore young workers and multiply the cost of maintaining an aging work force. Besides, it’s bad policy to encourage early retirement, given the labor shortage likely in the years ahead.

Cutting costs grew more urgent after the stock-market decline. Pension funds lost big money on their investments, while the price of providing pension annuities rose. At the end of 2001, 261 companies had $111 billion less in their plans than they needed to meet their obligations, reports the Pension Benefit Guaranty Corp. (PBGC), which insures private pensions. The true shortfalls are probably worse, because shifty accounting can mask a loss.

Most plans will eventually haul themselves back into balance. Between September and December, “more money went into pension plans than in the past 10 years,” says Sheldon Gamzon of the consulting firm PricewaterhouseCoopers. But a few plans won’t make it. Ethan Kra, chief actuary at Mercer Human Resource Consulting, predicts that the combo of underfunding and recession will drive a handful of companies into bankruptcy this year.

The PBGC bailed out 150 bankrupt plans in the past year, compared with 104 the year before. The size of your insured benefit depends on when you retire and what kind of pension you take. Workers can get up to $3,665 a month if they quit at 65 with a single-life pension. But if you retire at 55 with a lifetime annuity for your spouse, your maximum drops to $1,484. The PBGC does not insure state and local government pensions, where underfunding may be twice as bad as in the private sector. Taxpayers blindly defer this cost.

While corporations have to fund for pension benefits already promised, they don’t have to keep those benefits going. So they’re solving their problems by converting traditional pensions into something called a “cash balance” plan.

Cash-balance plans give you a visible, annual pension account that grows with time. But they favor the young over senior employees. Workers who quit after just a few years get more money to take away than the old plans paid, while workers in their 50s typically get less. They lose early-retirement options plus the higher benefits formerly promised for their last few years of work. At 55, “you might find the pot of gold at the end of the rainbow looted just before you get there,” says University of Alabama law professor Norman Stein.

The Treasury put a moratorium on conversions to cash-balance plans in 1999, when older workers shouted that they were unfair. Last month the plans got a green light, subject to certain regulations. About 500 companies already offer them, and many more are in the pipeline.

The Bush Plan

There’s nothing inherently wrong with a cash-balance plan, says Mark Iwry, a former Treasury official and benefits specialist. The question is whether companies treat older workers fairly in a conversion. Some do, some don’t. In many cases you may have to work for several years before adding anything to the pension benefits you previously had, Iwry says. (For more info, check cashpensions.com.)

Even if you retire without a hitch, how do you know you’re being paid correctly? Have your annuity or lump sum checked by the National Center for Retirement Benefits (ncrb.com or 800-666-1000). You pay zero for the analysis and 20 percent of any extra money you can collect. The NCRB’s Allen Engerman finds underpayments more than 30 percent of the time.

Note that pension cutbacks are strictly for the peons. Halliburton Oil gave CEO Dick Cheney early-retirement benefits when he left to run for vice president, even though he hadn’t earned them. CSX Corp. credited CEO (and Bush’s future Treasury Secretary) John Snow with 44 years of service, even though he worked only 25. You got the message: it’s good to be the king.

Reported by Temma Ehrenfeld and Dori Perrucci

(1/2/03) - Imagine your retirement on the horizon. You anticipate a comfortable pension accrued over 30 years working for the same company. But the company converts your pension into a new cash-balance plan -- and your pay-out shrinks dramatically.

Proposed new pension rules make this scenario possible -- but shouldn't. Instead, federal rules should ensure that older workers aren't battered financially by pension changes. The IRS temporarily banned conversions to cash-balance plans in 1999 after numerous age-discrimination lawsuits and employee protests, most notably at IBM. Federal rules proposed last month aim to address the age-discrimination concerns -- but don't do so adequately.

In cash-balance plans, employers contribute a percentage of wages into a retirement account and guarantee an annual rate of interest, typically the same for each employee. The plans are portable. That generally favors younger employees who can build up a cash-balance account faster than they would a traditional pension plan. They can take their accumulated nest egg when they leave the company, rather than at retirement. Companies also can save millions in pension costs.

But older employees converting to cash-balance from traditional plans stand to lose the benefits that accrue in the years before retirement. The proposed rules do little to protect them from that loss. For starters, the rules would allow older workers to go years without accruing any pension benefits after conversion. That's not acceptable. Offering older workers a choice of the old or new plan would be more equitable.

The rules also would allow employers to calculate the value of a worker's accumulated benefit at conversion using any ''reasonable'' interest-rate assumption. A company looking to save money need only use a slightly higher interest rate to dramatically lower the value -- and their obligation. This, too, would hit older employees the hardest. Why rely on a firm's reasonableness? The rules should require using the 30-year Treasury bond yield as their assumption, just as current pension law mandates for figuring the present value of traditional plans.

Pensions aren't required by law, and employers may take them away at any time. Certainly we saw employees lose pensions and 401(k) retirement accounts as companies went belly up in 2002. But smart firms that want to attract and keep good employees know that it pays to give people what was promised. And our government should encourage fair pension practices.

The public needs to weigh in on the issue now because the ban on cash-balance plans will end once the rules are finalized. The flurry of pent-up conversions likely to follow may affect many of the 42 million workers covered by traditional plans in 1998.

• Send comments to: CC:ITA:RU (REG--209500--86)
Room 5226
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station, Washington, D.C. 20022

or via the website www.irs.gov/regs

The deadline is March 13.

The December 2002 Benchmark Alert had some interesting comments about limiting the liability of actuarial and pension consulting firms.

You know what rats do when a ship starts to sink. The rats must feel some tremors, because they want out!

In this case it is the actuarial firms clambering for safe harbor. Big firms, such as, Milliman, Towers Perrin and Watson Wyatt are coercing their clients to let them off the hook by limiting liabilities.

The author asks “What do these professionals know that has them running scared? Why are they so worried now?”

Could it be because of the lawsuits some of these consulting firms are facing? Watson Wyatt was ordered to settle with the Connecticut Carpenters Pension Fund to the tune of $40 million. Towers Perrin is facing a $2 billion lawsuit from the Los Angeles County Employees Retirement Association (LACERA).

It is high time that this house of cards was torn down.

The author’s opinion is: “No fiduciary should ever agree to a limitation of liability (LOL). The fiduciary’s response to such a proposal should be to laugh out loud (LOL).”

We could not agree more wholeheartedly. No one should get off the hook on this one. Government officials who have tried to twist the laws, consulting firms selling flaky plans, and CEO’s with dollar signs rolling in their eyes should all pay the full price for their greed and predatory manipulations of the American workforce.

The Bush administration is trying to bail out the pension perpetrators through the back door, by effectively legalizing cash balance age discrimination. Have you sent your comments to the IRS yet?

(12/31/02) - Imagine you are a 56-year-old worker. You've put in 20 years at Widgets Inc., forsaking other jobs because you trusted in the company's promise to pay you a decent pension at age 65 based on your long, loyal service to the firm. And then the company announces it is changing your pension plan in a way that will reduce the pension you receive at retirement by 30 percent or more.

Unimaginable? Unfortunately not. The Bush administration -- a government of the CEOs, by the CEOs, for the CEOs -- this month announced rules on pension conversions that will again open the way for firms to reduce their pension costs (and raise their stock prices and CEO compensation) by pulling the rug out from their older employees. Only a change of heart by the administration, or action by Congress, stands in the way.

At issue in the Treasury rules is the practice of converting traditional pensions to so-called cash balance plans. Conversions became all the rage in the corporate world in the late 1990s, until the Clinton administration placed a moratorium on the practice in 1999. The Bush rules would end that moratorium.

Converting was a way to make companies more attractive to younger workers while cutting back on expensive promises to older ones. To understand why, consider the differences between a traditional pension and a cash-balance plan.

Under a traditional pension, workers accumulate pension wealth under a formula that multiplies the number of years served times a fixed percentage, say 1.5 percent, of final or highest-five-years wage. Since two elements of that formula -- service time and wages -- typically go up with age, workers in traditional plans accumulate most of their pension credit after age 55 and very little in their younger years.

In a cash-balance plan, however, the employer contributes a fixed percentage of a worker's wage, say 4 percent, to a cash-balance account and then guarantees an interest rate return on that balance. The worker takes the cash balance at retirement or can roll it over when changing jobs. Because the cash-balance formula doesn't have a length-of-service factor, pension wealth builds up at a steady pace over time, and companies with a large share of workers nearing retirement don't have to make outsize contributions to fund their pensions.

There's nothing inherently wrong with cash-balance plans. Because they provide a steady pension buildup and portability, they may be better suited to today's economy, where workers switch jobs more often.

The problem comes, though, when companies convert. Older workers who stayed with a company and based their retirement savings plans on the promise of a traditional pension plan that builds most of its benefit in the final years of a career can suddenly find themselves in a cash-balance plan where they are accumulating little or no extra pension benefit. They face the prospect of a pension far smaller than they had planned and little time to make up the difference.

That's unfair. Congress needs to require companies converting to cash-balance plans to let older workers have the choice of staying in the traditional pension plan. Loyalty is a two-way street, and it's wrong to sacrifice it to temporary profits.

(12/28/02) President Bush may or may not go to war against Iraq, but we do know that he has already declared war against the economic well-being of the middle class and working families of this country.

While he cuts back on Medicare and the needs of veterans, he wants even more tax breaks for the very richest people in this country. While he pushes efforts to privatize Social Security, there is no attempt to raise the minimum wage above its paltry $5.15 an hour. While he expands our disastrous trade policies that have already cost us millions of decent paying manufacturing jobs, he is proposing to slash the pay and benefits of federal employees through a massive and dangerous contracting-out scheme. While our healthcare system disintegrates and prescription drug costs soar, his Administration proposes legislation written by and for the pharmaceutical industry.

And now, in the midst of all of this, there is a new economic assault being waged by the Bush Administration against older American workers. The Bush Administration has recently proposed IRS regulations that would allow corporations to undertake a major raid on the pension benefits that older workers have accumulated. These new proposals, if adopted, would allow companies to avoid federal anti-age discrimination laws, and convert traditional defined benefit pension plans into so-called "cash balance" plans. Under the Bush proposal, the promises made to older workers about pension plans that increase retirement benefits based on longevity would be undermined. While corporations would save billions in pension expenditures, some 8 million older workers could see their benefits reduced by 30-50 percent.

Cash balance payment plans have rightfully been condemned by a variety of groups, including the AARP, the Pension Rights Center and the AFL-CIO, because they target the benefits of older workers in violation of current federal law. The Equal Employment Opportunities Commission (EEOC) has received over 800 complaints related to cash balance conversions. And, since September 1999, the IRS has withheld approval of these plans because of concern about their age discriminatory effect. Now, however, the Bush Administration wants to allow these conversions to go into effect.

Enter John W. Snow, President Bush's nominee for Secretary of the Treasury. As Treasury Secretary, Mr. Snow would be the most important pension policymaker in the country. Will he stand up for the pensions of millions of Americans or will he continue the Administration's green lighting of corporate America's cash balance pension raids?

If Snow's conduct as CEO of CSX Corporation is any indication, employees across the nation should be very concerned about the financial security of their retirements. Under his leadership, CSX cut the retiree health benefit package for most of its employees while Snow benefited from an outrageously inflated pension scheme.

According to published reports, Snow is receiving a $2.47 million per year retirement benefit for life. This amount was calculated through gimmicks that give him credit for working 44 years when he really only worked 25 years and by factoring in stock benefits he received as regular income, instead of just salary, as is the common practice. Those reports reveal that at the same time CSX is cutting the health benefits of its future retirees. If these are the types of policies that will serve as a roadmap for how he would handle pension policy then his fitness to be Treasury Secretary must be called into question.

American employees don't need the fox guarding the pension hen house. For Snow to show he deserves being confirmed, he needs to distance himself from the corporate excesses that have cost investors and employees of major American companies billions of dollars - corporate excesses that include his own exorbitant retirement deal at CSX. An important and necessary first step would be a commitment on his part to withdraw the proposed IRS regulations that would allow companies to get tax-favored status for their age-discriminatory cash balance plans. This would at least signify a recognition on his part that American workers are suffering as a result of unfair and illegal pension cuts that take place when companies convert to cash balance plans.

If he does not take even this small step, it will be clear that he cannot provide the leadership the nation's economy and working families so desperately need. In that case, given Snow's own questionable conduct as CEO of CSX, the Senate should refuse to confirm him as Treasury Secretary.

A BUZZFLASH SPECIAL GUEST COMMENTARY