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Federal inaction carries a very high cost

Posted On: Nov. 5, 2006 12:00 AM CST

If there ever was an example of the damaging consequences that can result when federal legislators stay on the sidelines on an important employee benefits issue, the controversy over cash balance pension plans is it.

The first cash balance plan was set up in 1985. Since then, more than 1,000 employers, including a good chunk of the nation's biggest and best-known companies, have converted their traditional pension plans to cash balance arrangements.

As employers adopted the new design, they and their advisers pleaded with legislators to clarify pension law to recognize the plans.

Regrettably, legislators gave employers the cold shoulder. And the result of that congressional indifference: a slew of lawsuits charging, among other things, that the plans as designed discriminate against older employees.

While we think that allegation is absurd—where's the discrimination in an arrangement in which all employees, regardless of age, receive the same benefit and interest credits—what we think really doesn't matter. What does matter is that while most courts, including one federal appeals court, have rejected the age discrimination charge, a couple have not.

That means the litigation is going to go on for some time. And what will the result be? For starters, millions and millions of dollars of corporate dollars, which perhaps could have been used to support employee benefit programs, instead will be spent on legal fees.

Still worse, some employers that are tired of waiting for the legal uncertainty to end will phase out cash balance plans in favor of defined contribution plans, where the legal risks are lower but such plans also don't protect employees from investment risk as cash balance plans would. That result hardly is in the public interest. While Congress, finally, passed legislation this summer to protect new cash balance plans from age discrimination suits, it is of little comfort to employers that started the plans years ago.

It would be unrealistic to expect any more action on this front from Congress. We just hope that this sorry chapter of congressional inaction will serve as a lesson to legislators that they are elected to lead and not walk away when leadership is required.