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Pension reform, landmark ruling may help cash balance plans: Panel


Thanks to congressional action and a landmark court ruling, cash balance pension plans once again are a viable plan design for employers to consider, according to a panel of experts during a recent Business Insurance OnLine Executive ForumTM.

The Oct. 6 webinar, "Cash Balance Plans: Back on the Table," reviewed how and why the plans developed and became so popular, the controversies that later slowed plan growth, how federal legislators and courts have resolved those controversies, and why the plans once again may be poised for new growth.

The panelists discussing these and other issues were:

  • Alan Glickstein, senior consultant in the Dallas office of Watson Wyatt Worldwide.

  • Larry Sher, a principal and director of retirement policy at Buck Consultants L.L.C. in New York.

  • Bill Sweetnam, a principal with The Groom Law Group in Washington.

Business Insurance Editor-at-Large Jerry Geisel moderated the panel.

The webinar is now archived and ready for on-demand viewing. Free registration is required to access the webinar.

As the panelists noted, cash balance plans proliferated during the 1980s and 1990s when more than 1,000 employers, including some of the biggest and best-known corporations, adopted them.

The plans grew rapidly because they combined the advantages of 401(k) plans--easy-to-understand benefit formulas, benefits expressed as lump sum, rapid buildup of benefits and benefit portability--with the chief advantage of defined benefit plans--shielding employees from investment risk.

But cash balance plan growth came to a halt a few years ago, chiefly because of a wave of lawsuits against employers charging that the plan design discriminates against older employees.

But now legal uncertainties have eased. A comprehensive pension funding reform measure President Bush recently signed into law shields new cash balance plans from age discrimination suits and lays down a few basic standards that plans must meet.

Additionally, in a landmark ruling, a federal appeals court in Chicago found in a case involving IBM Corp. that the design of cash balance plans--in which employees receive benefit and interest credits--does not discriminate against older employees.

With the new legal certainty provided by Congress and by the appeals court, employers once again are actively considering converting traditional pension plans to cash balance arrangements, panelists said.

And in many cases, converting a traditional pension plan to a cash balance plan rather than switching to a defined contribution plan will be more advantageous to employers and employees, panelists said.

To view, "Cash Balance Plans: Back on the Table," or learn about other Business Insurance Online Executive ForumsTM, visit