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(2/25/03) - AUSTIN, Texas -- You ain't no John Snow when it comes to pensions. Snow, our new treasury secretary, was CEO of the railroad company CSX Corp. and got a platinum parachute when he bailed. He gets $2.47 million a year for life in retirement benefits. This package was based on the premise that he'd worked for the company for 44 years, even though he'd been there only 25. Now that's creative accounting. Plus, CSX decided to let him factor in the stock benefits he had received as regular income, instead of just salary, as is normally done. At the same time CSX was giving Snow this lovely deal, it was cutting the health benefits in its retirement plan for lesser workers. Since Secretary Snow is now in charge of pension policy at the Treasury, can we look forward to similar deals for ourselves? Yep -- but we're in the class that gets the cuts, not the parachute.

The Bush administration has a plan (those are rapidly becoming the six most chilling words in the English language) to de-improve your pension. It allows companies to switch from traditional fixed-benefit retirement plans to what's called the cash-balance pension plan. You will be unsurprised to learn that corporations just love it because it saves them millions of dollars a year, as much as $100 million in the case of huge companies.

Under the administration's proposed rules, companies can eat away at the retirement benefits they owe workers by using "reasonable" interest rates and mortality rates to calculate the value of a pension as the company converts to the cash-balance scheme. Presto: Hey, look honey, I shrunk your retirement package.

The cash-balance plan is particularly harmful to older workers, so if you've got any gray hair, you might want to take a look at what they're about to do to you. Under fixed-benefit plans, retirement is based on the employee's salary and years of work at the company. This gives older workers a chance to rack up benefits. When companies started switching to cash-balance plans, the AARP, the Pension Rights Center, the AFL-CIO and other groups set up a mighty holler. The Equal Employment Opportunity Commission received over 800 age-discrimination complaints. As a result, the IRS stopped approving these conversions in 1999.

But the Bush administration, operating on its cardinal principle -- Whatever Bill Clinton Did Was Wrong -- has naturally decided to reverse course. If Clinton did it, it can't be good (and what splendid results they've gotten so far), so the new rules will give companies that convert to cash-balance plans a tax advantage, as well as giving them protection from age-discrimination suits. Don't you love it? The perfect Bush plan: They get to screw workers and get a tax break, and nobody is allowed to sue.

More than 200 members of Congress have written Bush asking him not to let the proposed rules become law. The General Accounting Office did a study showing that annual pension benefits of older workers can drop by as much as 50 percent under the new plan.

There is a 90-day period for "public comments" on the proposed rules, and it might well behoove you to put pen to paper over this one. The public comment period ends March 13. You can call the Treasury Department at (202) 622-6090 (or 6030) to find how to submit a comment. The Communication Workers of America website also has some how-to advice: It's here.

Rep. Bernie Sanders, the Vermont independent, has a bill to require companies that are going to convert to allow their employees to choose which plan works best for them. The bill requires companies to provide workers detailed information that allows them to make an apples-to-apples comparison.

If you're wondering why you haven't heard much about this, let me suggest two reasons. One is that TV news is in its one-story, Dead Diana mode: All they have time for is Iraq and the occasional nightclub fire. The second is the consequence of having all the media owned by a few giant corporations. It is not in the interest of these corporations to have such news widely reported.

Am I suggesting (gasp!) censorship? Nope, just that even though this affects millions of people, those millions are not a large percentage of the total television audience, and pension de-form is not as gripping as war or nightclub fires. That's the way media gigantism affects news. You can't save your pension with duct tape, so get on this.

(2/22/03) - Over the next six months, about 137,000 FedEx employees will receive some intensive lessons in the complex world of pensions.

And you should be paying attention even if your paycheck doesn't read ''FedEx.''

Your firm could be next.

More and more companies are expected to follow FedEx's example, just as the $22 billion global transportation company followed the corporate footprints littering the path before it.

Over the next few months, the temperature will rise on the hot topic of retirement security as the Treasury Department debates rule changes that would further allow companies to switch away from traditional plans, which typically favor older workers, to cash balance plans that typically favor younger workers. FedEx's new option, called the FedEx Portable Pension Plan, is a cash balance plan.

And while FedEx is following its counterparts in doing so, the company is confident it will avoid their missteps because employees will have a choice, said Sandra Munoz, a FedEx spokesman.

"It helps to have a choice," adds Janet Krueger, director of the IBM Employee Benefit Action Coalition, (www.cash pensions.com), an advocacy group created after IBM converted to a cash balance plan in 1999.

At the time, IBM didn't give its employees a choice, and its older employees revolted.

FedEx said no benefits accrued by its workers will be lost, regardless of whether eligible employees decide to stay with the current defined benefit pension plan or take the new option. The new option also allows them to retain the previous plan.

An eligible employee is one who completes at least 1,000 hours of service a year. The option is available to employees as of May 31.

The election begins June 2 and ends Aug. 29.

FedEx is not converting to a cash balance plan. But after June 1, future employees will be under one. Retirees are not affected by the new plan, and FedEx currently has no plans to change its traditional benefit pension plan.

A cash balance plan is "like a mermaid. Half-fish. Half-human," said Robert Burleigh, president of Burleigh Consulting Group in Memphis. It's a hybrid of defined benefit and defined contribution plans.

When considering between a defined benefit and a cash balance plan, experts said the following should be considered, among other things:

How long do you plan to stay with the company?

If you leave early, a cash balance plan might be better because higher pension benefits can accrue earlier in the career.

If you stay a long time, the traditional pension benefit might be better because benefits accrue at a faster rate closer to retirement.

When will you die?

"A lump sum at retirement looks big, but in order to determine whether it's a big enough lump for you to retire on, you have to determine when you'll die," said Krueger.

"Unless you have a really good crystal ball, it's hard to know whether the decisions you make today will be the best for you 20 years from now."

The Web address in the article included an extraneous space. The correct address is:

CashPensions.com

MEMPHIS - FedEx Corp. employees have been offered a choice of pension plans as the package delivery company works toward changing the way it funds retirement accounts.

"They don't have to switch if they don't want to," company spokeswoman Sandra Munoz said.

The decision to give employees a choice comes after other large employers, including IBM, changed from a defined benefit plan to a cash balance plan without offering workers an option. At IBM, that decision prompted protests, and the company later decided to allow older workers a choice.

Munoz said FedEx learned from watching the mistakes of other companies that it's how the company makes a pension change that counts.

About 137,000 FedEx workers in the United States and U.S. citizens working abroad can choose between the new cash balance plan or the current defined benefit pension plan. They can make the switch beginning June 2 and must decide by Aug. 29.

The offer doesn't cover FedEx pilots, independent contractors or employees not covered by the current pension plan.

The change aims to save money and comes after FedEx made an extra $241 million pension contribution last year to recoup the fund's stock market losses.

Cash balance plans are less costly for companies because they are more predictable and less susceptible to stock market fluctuations.

In such a plan, an employer pays into the retirement fund a percentage of a worker's wages, typically 5 percent of annual salary. The employer also decides what interest rate it will pay and does not have to base it on market performance. Unlike 401(k) plans, workers don't own an actual retirement account nor do they make investment decisions. Unlike a traditional pension plan, the worker isn't guaranteed annual benefits after retiring.

Traditional pension plans are less attractive to younger workers who tend to switch jobs more often, but older workers favor them because benefits accrue faster as the participant reaches retirement age.

Critics of the cash-balance option say it favors employers by allowing them to establish all the terms of the plan. The plans also have been the target of age-discrimination lawsuits.

At FedEx, the benefits in the traditional pension plan will remain there, future pay increases will still be applied and that money will be distributed as a monthly lifetime check upon retirement, the company says. FedEx's normal retirement age is 60.

By offering retirement plan options, Munoz says FedEx hopes to attract younger workers while protecting its older employees.

(2/11/03) - We're moving from a defined benefit to a defined contribution world. Don't let the boring human resources jargon fool you. This is a shift that is going to have a big impact on your life, even if you don't know what the words mean. A traditional pension is a classic defined benefit plan. If you work a certain number of years at a certain salary you are guaranteed a certain monthly payment for the rest of your life. Social Security and Medicare are both defined benefit programs. When you turn 65 and qualify for both, you get the benefit package that comes with them.

A 401(k) is a defined contribution plan. You put money in; so does your employer. You get to keep the money. What you don't get is a guarantee. If your investments work out well, good for you. If they don't . . . well, better luck in your next life.

It is not hard to see why employers and the government are leery of defined benefit plans. They come with a fair amount of risk. When stock markets go down and health care costs go up, the payer is on the hook. General Motors recently said its earnings would fall this year because it will have to make a $3 billion contribution to its underfunded pension plan. General Electric last month said that its annual costs for medical benefits climbed 45 percent between 1999 and 2002. With the outlook for markets and medical costs uncertain at best, it is no surprise that companies are looking for an alternative.

''This is a game they don't like to play,'' said Alicia Munnell, a retirement specialist at Boston College.

On the pension side, corporations have already moved a long way toward a defined contribution system. Munnell estimates that 60 percent of American households have only a 401(k)-style pension. On the health side most companies still do what they have always done -- pay a percentage of the cost of a traditional insurance policy. But that too is changing. Susan Connolly, a principal with Mercer HR Consulting, a benefits firm, says economic pressures are pushing employers in the direction of making fixed payments toward the cost of insurance.

''Defined benefits make things more predictable for business,'' said Connolly.

The federal government still plays by the old rules. The Bush administration would like to change those rules. The president has endorsed private accounts for Social Security, a defined contribution approach by another name. Potentially more interesting is what the White House wants to do to the two big government health insurance plans, Medicare and Medicaid. The first pays medical bills for seniors; the second covers the poor. Over the past few weeks the administration has floated proposals to reform both. Bush's aides have talked about modernizing the two programs and making them more flexible. Who could be against that? But if you read between the lines you get the sense the administration is looking for a way to limit its exposure to two big uncontrollable programs that are blowing holes in the budget.

In a memo about Medicare he wrote to clients recently, Robert Laszewski, a health care consultant based in Washington, said, ''Clearly this administration is headed down the same road most employers are headed with their health benefit programs -- a defined contribution approach.'' Just how that would be accomplished is unclear.

Details about Medicaid reform are equally skimpy. Secretary of Health and Human Services Tommy Thompson talks about giving states ''carte blanche'' to cover some portion of the Medicaid population. Critics suggest the White House's goal is to turn an entitlement into a block grant, Washingtonese for shifting from a defined benefit to a defined contribution plan.

It is important to remember what such shifts don't do: eliminate risk. The world will remain a risky place. Stock markets can still go down and stay down. Medical costs can still rise much faster than incomes. What will change is who bears the risk. In the old system it was the employer and the government. In the new system it is you and me.

Whether you're in a pension or 401(k) plan, you simply can't ignore the new threats to your nest egg. Here's what companies and the government are doing -- and how you can fight back.

(2/7/03) - Does it feel like your retirement is under attack?

Well, it is. And not just because declining stock prices have eroded the value of your retirement nest egg. Changes in company policies and in government regulations are working to make whatever losses we investors have inflicted on ourselves even more painful.

All in all, I think this adds up to a war on retirement.

Think I’m exaggerating? Well, let me show you the trends one by one and see how you add them up.

Smaller contributions, stingier payouts

There’s no doubt that companies that still offer defined-benefit pension plans are feeling the pain. The cost of meeting fixed corporate pension payouts and contractual health-care obligations to retirees continues to climb as the workforce rapidly ages at many mature companies. And this is going on just as the bear market in stocks has cut the returns that companies earn on their pension assets.

For example, the average age of an autoworker in Detroit is 49, and average seniority is 24 years. That means, according to Sean McAlinden, an economist at the Center for Automotive Research in Ann Arbor, Mich., that half of hourly auto workers in Detroit could retire in the next five years. And after three years of a bear market, General Motors (GM, news, msgs) faces a $19 billion funding deficit in its pension plans. The company contributed $4.3 billion to its pension plan in 2002 and estimates that it will have to contribute $15 billion more over the next five years.

General Motors isn’t alone. In the U.S. workforce as a whole, as the baby boom generation retires, there are fewer and fewer workers supporting each retiree. And a long list of companies including IBM, Avon Products, and Kimberly-Clark have each put big hunks of cash and company stock into their defined-benefit plans.

Reduced benefits

But companies with defined-benefit plans have also responded to this crunch by trying to reduce benefits to cut costs.

One tactic is to change the formula used to set the level of retirement benefits that a worker receives. Traditional defined-benefit pensions provide a monthly retirement payout that’s based on a worker’s age, years of service and final years of income at the company. But the payout from a cash-balance plan is based on a company’s annual contribution to the plan of a fixed percentage of a worker’s salary (not on the age or income of the worker) and on the rate of return the company has guaranteed. For older and higher-income workers, than can mean a big drop in retirement income. For companies, it means big savings.

Converting an existing defined-benefit plan to a cash-balance plan has been off limits thanks to an official Internal Revenue Service moratorium on the conversions imposed roughly three years ago. But newly issued IRS regulations would lift the ban on conversions.

Critics of the plans have claimed that the conversions discriminate against older workers by cutting the higher benefits they get for years of service and the higher income that usually comes at the end of a working career. The IRS regulations would deal with that charge by essentially turning it on its head, in my opinion. Plans would have to be age-neutral and avoid discriminating against either older or younger workers by applying the same formula across all age groups. Plans would not be able to increase the percentage contributed for older workers, for example. An estimated 300 companies have applied to the IRS to convert their plans.

Small shifts, big differences

Why is converting to a cash-balance plan so potentially lucrative? Figuring out how much money each employee is owed by the old pension plan uses a complex calculation that relies on turning the future value of benefits into a present cash value that the company will put into the new cash-balance plan. The higher the discount rate (meaning the projected rate of return on present retirement balances), the less money a company has to put into the new cash-balance plan. Pension law currently requires that companies use the 30-year Treasury bond yield as a discount rate. But the proposed rule will let companies use any reasonable discount rate.

And even a small shift in rate can make a difference. Using a 5% discount rate, a company has to put $165,000 in already-earned benefits into the new cash-balance plan of a 50-year-old entitled to a $2,000 monthly retirement benefit at 65 under an existing retirement plan. Raising the assumed discount rate to 7% cuts the present value of the person’s earned benefits to just $122,000.

As unfair as converting from one pension formula to another in midstream may seem, it’s actually not the most aggressive tactic showing up in the current crunch. That distinction belongs to companies that have proposed junking their pension plans entirely, often through bankruptcy or the threat of bankruptcy.

The bankruptcy threat

For example, on Jan. 31, bankrupt US Airways Group filed notice that it would terminate the pension plan for its pilots rather than put up money required to fully fund the plan, which is estimated to be about $3 billion short. The pilots, whose union has said it will sue to stop the company from terminating the plan, faces two rather unappealing choices if the company goes ahead.

If US Airways terminates the plan and the pension fund is taken over by the federal government’s Pension Benefits Guaranty Corp., the pilots would see their retirement payouts cut to $28,000 a year, the maximum payout from the Pension Benefits Guaranty Corp. That’s a 60% reduction from the $70,000 guaranteed to pilots by the existing plan at mandatory retirement.

If the pilots accept an alternative plan proposed by the airline that would set up a new retirement fund to supplement the insurance benefits paid by the government, the payout on the new plan wouldn’t be guaranteed, as it is under the current plan. It would depend on the performance of the financial markets. It’s not clear if this split plan passes legal muster, but the benefits to US Airways are very clear: Instead of putting $3 billion into the existing plan, the airline would have to contribute just $850 million.

The 401(k) concerns

About 42 million workers were still covered by traditional pension plans as of 1998, the last year for which data is available, even though the number is shrinking.

Maybe you aren’t one of them and instead you’re feeling that this war on retirement doesn’t have anything to do with you.

But think again. Even aside from the investment losses that the bear market has inflicted on the value of most 401(k) accounts over the last three years, workers depending on 401(k)s face their own version of exactly the same challenges as pension-plan participants.

Companies that offer 401(k)s are cutting back their matching contributions or changing their contributions from cash to company stock.

Companies decreased the percentage of total annual payroll going to 401(k) matches to 2.5% in 2001 from 3.3% in 1999, according to the Profit Sharing/401(k) Council of America’s 2002 survey. Company contributions as a percentage of total net profit also fell to 11.8% in 2001 from 14.1% in 1999.

Companies have also changed the formulas they use to calculate the match for each worker. The most common fixed match remains 50 cents on each employee dollar contributed, but only 45.6% of companies reported this 50% match in 2001, down from 48.9% in 1999.

Melting matches

And more companies have moved to using graded matches that reduce the percentage of an employee's contribution the company matches as the size of an employee's contribution increases. The biggest increase in graded matches took place among smaller companies. Some 15% of companies with 50 to 200 workers offered graded matches in 2001, up from just 6.1% in 1999.

The trend toward reduced matches looks like it continued or even accelerated in 2002. In December 2001, General Motors reduced the company match for salaried employees in its 401(k) to 60 cents on the dollar from 80 cents. Then in January 2002, the company slashed its contribution to 20 cents on the dollar. (Last month, General Motors increased its match to 50 cents, still lower than the 2001 level.)

Ford Motor went even further: In January 2002, it discontinued its matching contribution entirely. Since then, Goodyear Tire & Rubber and DaimlerChrysler have also eliminated their 401(k) matches. Government rules add to the problem

New rules from the federal government cut retirement benefits, too. I’ve already mentioned the proposed federal regulations that would ease the conversion of traditional defined-benefit retirement plans to cash-balance plans. But that’s not the only proposal on deck in Washington that would cut into the retirement benefits of millions of U.S. workers.

The biggest change is buried in the details of the new savings plans that President Bush included in his recent budget. The new Employer Retirement Savings Accounts, while not very different in most respects from existing 401(k) plans, have one very important wrinkle. By eliminating rules that prevent companies from discriminating against lower-paid workers, they’d make the plans cheaper for companies while cutting the benefits offered to the average worker.

Here’s how the change would work. Currently, in return for getting the tax breaks that come from offering a 401(k), a company must offer the plan to the vast majority of its workforce and not just to company managers and its best paid workers.

To make sure this happens, 401(k) plans have to meet certain nondiscrimation tests. Contributions by highly paid workers are, in effect, capped by the contributions of other workers. The more the average worker contributes, the more higher paid workers can put into the company 401(k). For example, under the current rules, if a company wants its more highly compensated workers and managers to be allowed to contribute 8% of their pre-tax pay, the average worker must contribute 6% to the plan.

This has led companies to offer incentives, such as higher company matches for initial employee contributions, to push up contributions by the average worker.

Big changes at small companies

Under the new proposal, the average worker would have to contribute just 4% to enable the most highly paid employees to contribute more. That’s likely to change how companies think about the incentives they offer to encourage the average worker to contribute.

The biggest change in current nondiscrimination rules, however, will affect workers at small companies. Current rules say that if 60% of the retirement plan balances are owned by company officers or owners -- a real possibility at a small, privately owned company -- then the company has to contribute 3% of pay to the retirement plans of other workers. The goal was to prevent small-company 401(k) plans from turning into little more than tax shelters for company owners. The Bush administration proposals simply do away with those rules.

Workers at small companies face another potential danger to their retirement plans from the Bush's administration's proposal for new savings accounts. With couples able to shelter up to $30,000 outside an employer-sponsored plan ($15,000 per individual), some small-business owners are sure to drop their company-sponsored plans altogether.

Those are the trends I see in the economy and in government regulation. To me they add up to, at best, a huge shift in the retirement rules in what is, for many workers, the middle or late innings of the game. At worst, the changes constitute an attack on the very ability of many workers to retire in reasonable comfort.

How to fight back

Let me be clear on this: The negative effect of these changes on retirement nest eggs isn’t something that most individual investors can fix by saving more or picking better stocks. The fix, whether to the IRS regulations on cash-balance pension conversions or to the worst details in the regulations for the new savings plans, requires collective action by everyone who’d like to retire in reasonable comfort one day.

At his confirmation hearing, then-Treasury Secretary nominee John Snow, after prodding by Sens. Richard Durban, D-Ill., and Tom Harkin, D-Iowa, agreed to review the proposed IRS cash-balance regulations. The Treasury Department, the IRS’s boss, will accept public comments until March 13. A public hearing is set for April 10. Final rules will be issued after that. And until then, the moratorium on conversions stays in place.

Snow also agreed that before making a decision, he would meet with senior-citizen groups and with workers, such as the IBM employees who have been fighting a cash-balance conversion at that company for years. More than 100 members of the House of Representatives have gone on record opposing the new cash-balance rules. Contact your senator or representative for more information, to learn how to comment, or to register your opinion.

That’s politics -- at its best.

(2/1/03) - WASHINGTON - To many, it may have looked like little more than congressional politicking last week as Democratic Sens. Dick Durbin of Illinois and Tom Harkin of Iowa temporarily held up the confirmation of John Snow as Treasury secretary.

But in Bethalto, Ill., longtime IBM employee Kathi Cooper viewed it as one more step in her personal battle to protect her pension - and those of older workers across the nation.

"I can't get in enough people's faces to make people understand," said Cooper, 52, who is starting her 25th year as an IBM employee and her fourth year as lead plaintiff in a lawsuit against the technology giant's conversion to new pension plans in the 1990s. That type of switch - from a traditional plan to what's known as a "cash-balance plan" - sparked so many age-discrimination complaints that the IRS stopped approving them in 1999.

But the Treasury Department, home to the IRS, recently proposed new rules that, once final, would allow such conversions to begin anew.

"If those Treasury regs go through, the raping and pillaging of pension trusts - taking from the old and giving to the young - will take place among 23 million baby boomers," Cooper said.

More than 300 corporations are waiting in the wings to make the pension switch, according to IRS spokesman Bruce Friedland. And that's what worries people like Durbin and Harkin - who elicited Snow's assurances Thursday that he'd be fair to older workers in reviewing the rule. Snow said he'd give the proposal a fair hearing, the senators dropped their objections to a vote and the Senate confirmed Snow on a voice vote Thursday night.

Durbin said: "If you're going to judge a person on his history, in John Snow's case as CEO of CSX Railroad, when his company was faced with the same decision, they said to the employees: 'Decide what's best for you. Stay with the old plan. Or go with the cash-balance plan.'"

Durbin wants all workers to be given that option if companies decide to change their pension plans.

"To me that's the most important point. There are younger employees who would rather have a cash-balance plan. But for a person who's been there 25 years and is five years away from retirement, that's very different."

Traditional pension plans provide a monthly income for life at retirement age, based on years of service and final average pay. Most agree those plans are a much better deal for older workers than cash-balance plans, which are more attractive to many younger workers who can take the money with them when they change jobs.

In a cash-balance plan, employers agree to invest a certain percentage of workers' pay at a certain rate of interest. Most are set up so that when vested employees leave the company, they receive a lump- sum check that can be rolled over into another retirement account just as 401(k) accounts are.

Like 401(k) accounts, an employee receives annual balance reports. But unlike a 401(k), where employees contribute and employers match contributions in investment accounts, the employee is guaranteed whatever return the employer promises, while the company takes the investment risks.

Problem is, many older, longtime workers whose companies made the switch to cash-balance plans would get far less than they expected under the old plan. Cooper, a financial analyst for IBM who now works in internal business control for the company, ran the numbers in 1999 and got a jaw-dropping result:

"I remember it was 64 percent of my total pension was reduced. It was close to 400 grand," she said. In late 1999, she filed her federal class-action lawsuit in the Southern District of Illinois.

"We'd go on the Internet and were comparing all our notes across the United States with other corporate employees and they'd say, 'Yeah, that happened to me, too."

Benefits and drawbacks

IBM spokesman Bill Hughes declined to comment directly on the suit, which is still pending. He said IBM's decision to switch to a cash-balance pension was to made "to ensure IBM's compensation programs are competitive" so the firm can attract and retain employees.

"This is not about saving money," Hughes said. "It was done so we could free up some of the money and put it into other compensation plans."

Most corporations, however, do see the conversion as a cost-saver, according to Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, a nonprofit, nonpartisan group. The reason it costs less is that cash-balance plans are based on average career earnings, while traditional plans base their benefits on the average of the employees' highest salary over three or five years.

Lower cost is just one of the benefits for companies switching to cash-balance plans, Salisbury said. Because traditional pension formulas are complex and more difficult to understand, they're not as big a draw for new employees. And traditional plans can be so beneficial to longtime, older workers that the employees keep working even when they - or their employer - would prefer that they not.

"Say the company's plan says when you hit a combination of 30 years of service at age 50 you'll be eligible for a near- full benefit," Salisbury said. "What this frequently ends up doing, is somebody would get to the age of 42 or 45 and people would retire in place. They'd really prefer to leave. They hated their job. But if they could only stick it out another five years, they'd get this great pension. . . . By moving to cash-balance plans, the golden handcuff issue disappears."

The proposed Treasury rules say companies could make the switch and be shielded from age- discrimination claims if their cash-balance plans guarantee that current workers start out with at least the present value of the traditional pension plan. But future earnings would be based on the new plan.

"Anybody with around 12 or more years of service with the company is going to get the short end," said John Hotz, deputy director of the Pension Rights Center, a Washington-based advocacy group for workers and retirees. "They could lose as much as half the benefits they were originally promised."

Alternatives could be worse

As a result of such concerns, more than 200 members of Congress signed onto a letter to President George W. Bush, asking that the proposed rules be scrapped. Among those signing were Durbin and Reps. Richard Gephardt, D-St. Louis County; William Lacy Clay Jr., D-St. Louis; and Jerry Costello, D-Belleville.

The letter asked that the rules be rewritten to protect older workers' existing pensions.

Larry Sher, director of research for the global benefits consulting firm Buck Consultants, said such requirements would likely prompt corporations to see other alternatives that could be worse for workers than a cash-balance pension.

"As soon as the government comes in and tries to mandate plan design and force the company to spend money in certain ways, they'll either terminate the plan, or they'll scale back in benefits in some other ways," Sher said.

"It is really fundamentally at odds with the nature of our voluntary system. Current law doesn't force a company to continue their (pension) plan indefinitely. It allows them to be terminated or suspended."

University of Alabama Law Prof. Norman Stein helped advise IBM employee activists concerned over their company's conversion. He said the proposed rules treat older workers slightly better than what was on the books before. But they may hurt older workers' chances at getting a better shake in both the courts or with Congress.

"By the time things are all litigated out, it could be the court would do more than these regulations, but the fact that these regulations are now out will make courts pull back," Stein said. "If the regulations weren't issued, ultimately the question of the validity of cash-balance plans would have been thrown to Congress. And even with a Republican Congress, I think better stuff would have come out of Congress than would have come out of these regulations."

For now, the ball is in the Treasury Department's court. Particularly, it rests in the hands of Snow, the new Treasury Secretary.

The Treasury Department is accepting public comments on the plan until March 13. A public hearing will be held April 10, and after that the department will issue its final rule. Until then, Durbin said, Snow agreed that the moratorium that prevents companies from switching from traditional plans to cash balance plans will remain in place. Snow also agreed to meet with workers and senior citizens groups before making a decision, Durbin said.

People may send written comments on the proposed Treasury rules to:

CC:ITA:RU (REG-209500-86)
Room 5226
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Comments will also be accepted by e-mail at www.irs.gov/regs

My name is Janice Winston. I am a 29-year former employee of Verizon Communications. In 1995, Verizon announced that effective January 1, 1996 my traditional defined benefit pension would be changed to a Cash Balance Plan. It was not until 1999 that I truly understood and realized the devastating effect this change had on my fellow employees and myself.

In September of 1999, I went to Washington DC to attend a Senate Hearing on Cash Balance Plans. It was after these hearings and meeting other Verizon employees, Janet Krueger, a former employee of IBM, the Pension Rights Center and the Coalition for Retirement Security and I found that Verizon was not the only company that had switched to a Cash Balance Plan. Duke Energy, AT&T, and IBM were only a few of the many companies that had converted employees to Cash Balance Plans.

Immediately, Verizon management employees decided to let our voices be heard. As a result of the concentrated, convincing and enduring grassroots effort of the Verizon management, employees that began in 1999 we were able to convince Executives at Verizon that the Cash Balance Plan was wrong for the retirement security of the older, career employees of Verizon. We persuaded the Executives to revisit the decision made in 1995 and come up with a plan that would preserve the trust, motivation and well being of Verizon's career employees. In 2000, the company announced that it would give employees with 15 or more years of service the greater of a traditional defined benefit plan or the Cash Balance Plan. The reason the company listened was because they recognized that this controversial practice had become an employee morale and public relations problem.

I know first hand in actual dollars how devastating the conversion to a Cash Balance Plan formula could have been for me. In December of 2002, my employment terminated with Verizon as a result of a reduction in force. I received a pension benefit statement that showed my actual pension benefit. My traditional defined pension benefit will be $400,000 as opposed to the $184,000 in my Cash Balance Plan - a 54% difference.

I have shared my personal financial information with you today because it is the only way for the Administration and everyone else to see actual effects in real dollars -- not just an actuarial calculation against an imaginary person. If we stand back and do nothing, corporations can use the proposed Treasury regulations to deny older career employees benefits they worked hard to earn over their entire careers. An article in the Philadelphia Inquirer, dated December 11, 2002 stated that the guidelines proposed by the Treasury Department say that as long as companies use "reasonable actuarial assumptions in converting to a cash balance plan, the fact that older workers end up with lower benefits that they would have otherwise cannot be considered age-discriminatory". What is a reasonable actuarial calculation? Would the ordinary employee know? We cannot have this type of ambiguous language affect the future economic well being of millions of employees.

Stop cash balance conversions, NOW!

My name is Larry Cutrone, one of thousands robbed of the full value of their earned pensions due to the “Cash Balance” pension conversion. Before AT&T converted my pension it was valued at $350,000 and after the conversion in July 1997, the value dropped to $138,000. Even with AT&T’s “Special Update” enhancement to my account, the value only rose to $150,000. The calculation period for my pension was frozen at 1994-1996 salaries, so no value to my retirement account was added for any years I worked after the conversion.

In September 2001, I was “downsized” out of AT&T and decided to take my pension. I discovered that it translated into an annual income of just $23,444 instead of the $47,303 income under the old plan. This seems meager after 31 loyal years of service to the company. As a result, my wife was forced to waive her rights to the survivor benefits of my pension in the event I predecease her. Invoking these rights would have meant between 8% and 20% less per month. While my pension was reduced by more than half, my monthly contribution for medical benefits was increased five times this year.

As representatives of “AT&T Concerned Employees Council on Retirement Protection” (ACE CORP), we are willing to publicize our personal situation in order to bring to the forefront the negative impact of the forced cash balance pension on the older worker. We urge President Bush to support Congressmen Sanders, Miller, Senator Harkin, and their fellow representatives to revise his proposal to the IRS by including protection for the older worker and preventing them from becoming “Pension Challenged” by “Cash Imbalance”!

In President Bush’s radio address this past Sunday he states “In 2003, we must work to strengthen our economy; improve access to affordable, high quality health care for all our seniors...” In his State of the Union Address, he urged Congress to pass his plan “…to strengthen our economy and help more Americans find jobs.” (Assuming he makes these comments in his State of the Union Address on Tuesday.) We hope our efforts will convince President Bush that his IRS Proposal and the affect of the cash balance pension on the older worker further reduces consumer spending, and reduces tax revenue while causing our economy to continue suffering. We are unaware of any negative impact to the corporations who convert to cash balance pension plans. Should the loyal worker and subsequently America’s economy be penalized?

I'm Janet Krueger, a former IBM employee from Rochester, Minnesota. I had worked at IBM for 23 years in 1999 when IBM announced our pensions had been converted to a cash balance plan. Our new cash balances would be increased each year with a 5% pay credit and some interest. The announcement made it sound like a good deal, but when I received my first statement in the mail a week later, I was stunned. My new pension balance was less than one year's salary. In fact, it was less than half of what I held in my 401K account! (My 401K account had been started just 8 years earlier, with a 6% contribution each year...) Something was obviously wrong... It was clearly unfair, and if it wasn't illegal, it should have been.

Over the last decade, many thousands of older employees in this country, from over 300 large corporations, have lost significant portions of their promised pensions through these cash balance conversions. Over 800 age discrimination charges have been filed at the EEOC and are still open. Multiple lawsuits have been filed in federal courts -- a lawsuit filed against IBM in 1999 now has 140,000 certified class members.

Against this backdrop of lost pensions and angry older workers, the Treasury has decided to come riding to the rescue on their white horse. But wait! They aren't protecting older workers. They aren't even admitting age discrimination has occurred. Instead, they've decided to wipe the books clean by legalizing all of the corporate thefts that have occurred since January 1, 1988. Not only are they changing ERISA law by removing worker protections in order to legalize cash balance plans, they are attempting to do so RETROACTIVELY.

Don't misunderstand me -- cash balance plans, on the surface, are not a bad idea. In fact, the thought of a much simpler kind of plan that small and medium-sized businesses can easily implement and support without hiring consultants and actuaries is superb! But when it takes 80 pages of regulations to back door cash balance plans into existing defined benefit plans, the end result is neither understandable nor affordable. And adding more verbiage to try to hold employees harmless would just make them more confusing and complex.

Simple saving accounts that are fair and easy for smaller companies to work with is definitely a worth while goal. But you can't meet that goal if you classify them as defined benefit plans (after all, they don't define a final benefit)! Brand new law should not be created through treasury regulations. Cash balance plans need to be implemented the RIGHT way through a well-thought out act of Congress, with the requisite assortment of hearings to ensure all view points are heard and factored in.

Let’s can the regulations, forget trying to pretend unwilling conversions are fair, and do the RIGHT thing. For any of you who are interested, I've got sheets available with facts about how cash balance plans are defined in the proposed regulations. And I would be delighted to expand on my ideas for a reasonable plan!

Thanks for your time!

The Communications Workers of America represents over 700,000 workers: newspaper reporters, nurses, correctional officers, telephone installers and automotive assembly line workers among many other professions. Over the last sixty-plus years, our union has negotiated contracts with thousands of employers, covering wages and benefits, including pensions. We believe that our job in negotiations is to reach agreements that insure the security of our members both now and in the future.

We believe that the laws of our nation ought also to protect American workers and not to allow the security upon which they depend, both now and once they retire, to be put at risk to satisfy the short term profit targets of our nation’s largest employers. Therefore, we join here today with these Members of Congress and these representatives of employee and retiree groups nationwide, to call into question IRS regulation 209500-86 which undermines the rights and promises to older employees.

Let me say upfront that CWA is not categorically opposed to all changes in pension plans. But we feel that if such changes are made, they should be done only when the benefit promises made to loyal, mid-career employees remain fully protected – just as corporate executives’ pensions promises are fulfilled.

We have negotiated cash balance conversions that were fair for our members and, in particular, protected the benefits of mid-career employees. If the Treasury Department wants to know how to implement conversions, they should look to best practices of unions and companies that have done conversions the “right” way, not propose regulations that will enable employers to switch their traditional defined benefit plans to cash balance plans at the expense of older workers.

Let’s look at real world examples. Today, we stand with non-union Verizon and AT&T employees who lost benefits when their pension plans were converted to cash balance plans. In 1998, CWA bargainers at both of these companies were presented with management proposals to convert our members’ pensions to a cash balance design. After extensive talks, union bargainers at the Verizon table (at that time called Bell Atlantic) rejected the proposal. It was the committee’s belief that the pension change was not in the best interest of our members at that time.

Meanwhile, bargainers at the AT&T table came to a different conclusion. The changes we agreed upon in 1998 included the definition of a transition group – workers with 15 or more years of service at the time of the conversion. With this transition group no older worker lost any benefits, there was no period of “wearaway”. Ultimately, the worker has the right to decide which pension option is best for him or her when they leave the company. All together, we negotiated an improved benefit package for all of our members, not just a different package of lower quality for those workers.

We have the power to negotiate cash balance pension conversions and to optimize the design to fit the needs of the people we represent. We would never negotiate a conversion if it weren’t in the interest of our members. However, we believe that these IRS rules will create downward pressure on pension benefits for all workers and will increase the pressure on our members to accept changes that are not in their interest.

It should also be noted that Congress has never authorized cash balance plans or cash balance conversions. CWA believe that the proposed regulations should be tabled until Congress has had a chance to fully examine these regulations and to be sure that employees’ concerns have truly been addressed. We believe that the law of the land should protect older workers from the loss of the benefits that they have been promised and on which they will depend when they retire.

Just two days ago, the Senate held confirmation hearings on the President’s choice for Secretary of the Treasury, John Snow. It has been reported that CSX provided Snow with a pension of $2.47 million, based on 44 years of service - though he only worked 25 - with 250,000 shares of stock kicked in as an extra bonus. CWA members and all employees wonder why an executives like Mr. Snow can expect pensions that are more than they were promised, when other employees can work a lifetime and get less than they were promised when they were hired.

We’d like to echo the president’s statement in the area of retirement plans - "What's fair on the top floor should be fair on the shop floor." Lets begin by insuring that we protect workers from the loss of retirement benefits that have already been earned.