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RICHMOND, Va.--A huge paper packaging and office products company is converting its traditional final-average pay pension plan covering salaried and nonunion hourly employees to a cash balance plan, the first major company to do so since Congress passed legislation in August protecting new cash balance plans from age discrimination suits.
Beginning Jan. 1, new employees at MeadWestvaco Corp. will earn benefits under the cash balance plan, and on Jan. 1, 2008, employees under age 40 will move to the new plan. Employees age 40 and older will be given the option of remaining in their current plan or shifting to the cash balance plan and earning future benefits under that plan.
Under the cash balance plan design, employees will earn benefit credits ranging from 4% to 8% of pay, with the percentage credited based on employees' age and service. Account balances will be credited with interest based on the yield of the 30-year Treasury bond.
Executives at Richmond, Va.-based Meadwestvaco, which last year generated about $6.2 billion in sales, said the company moved to the new design after analyzing retirement trends.
"MeadWestvaco has been listening to its employees and carefully researching retirement trends to determine the best possible defined benefit program," said Senior Vp Linda Schreiner in a statement.
"The implementation of this new cash balance formula provides more options to employees, while ensuring that MeadWestvaco continues to provide outstanding retirement benefits for our employees," Ms. Schreiner added.
MeadWestvaco is the first large company to adopt a cash balance plan since Congress--ending years of legal uncertainty--made clear, as part of a broader pension funding reform measure, that new cash balance plans that meet certain standards would be automatically protected from age discrimination suits. Among other things, a cash balance plan would have to provide at least the same benefit and interest credits to older employees as to younger employees.
Benefit experts say the new law is likely to lead to a mild resurgence of cash balance plans, which grew rapidly in the late 1980s and 1990s as employers looked for a new design that would offer greater appeal to a more mobile workforce while providing a more easily understood benefit formula.
But cash balance plan growth came to a halt a few years ago when the plans became targets of age discrimination suits.
More than 1,000 employers, including many of the nation's largest corporations, sponsor cash balance plans, although some, including Hewlett-Packard Co., IBM Corp. and NCR Corp., either have or are in the process of phasing out the plans in favor of enhanced 401(k) plans.