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COMMENTARY: Cash-balance plan design had promise

COMMENTARY: Cash-balance plan design had promise

Cash-balance plans had promise

It was nearly 27 years ago—in August 1985—when I first heard the term “cash balance pension plans.”

I had been in New York attending a conference. When the conference was over, I crossed over the George Washington Bridge to go to Fort Lee, N.J., to meet with several executives at Kwasha Lipton, then a major employee benefits consulting firm.

The Kwasha Lipton executives I met with were very eager to discuss a new pension plan design. They called the design “cash balance,” so named because employees' benefits would be expressed, like in 401(k) plans, as a cash lump-sum benefit.

Candidly put, I did not understand the design by the time our meeting came to an end. But the discussion continued when Mike Bullard, then Kwasha Lipton's communications director, gave me a ride back to Washington, where I worked and lived.

I still remember—all these years later—that as we were crossing into Delaware, the proverbial light went on and I understood how cash balance plans truly combined the best features of defined benefit and defined contribution plans.

I was very eager to do a story on the new design and didn't have long to wait. A Kwasha Lipton client—Bank of America Corp.—was the first major employer to set up a plan and agreed to be interviewed.

This all came back to me the other week when Bank of America disclosed that it was freezing its cash balance plan and, like other employers, enhancing its 401(k) plan.

Bank of America certainly is not the first employer to freeze a cash balance plan or, for that matter, other defined benefit plans.

But as it was such an enthusiastic pioneer of the plan, I couldn't help but think: Is there really much of a future for defined benefit plans?

My own hunch is not much, leaving me bitter about the plans' demise. I'm bitter because of the many unfair stories written about cash balance plans. I'm also bitter because of how federal regulators dragged their feet in issuing guidance to clear up various cash balance plan issues, triggering a wave of litigation by the plaintiffs bar due to the regulatory vacuum.

Even today, regulators have not resolved all the issues, though they certainly have had enough time to do so.

The slanted stories and regulatory foot-dragging may not have stopped employers like Bank of America from freezing their plans and others from starting new ones. But it certainly didn't help.