Keep Your Balance

Cash balance plans have become the latest cause célèbre of unions and Democratic legislators in Washington, D.C.

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Cash balance plans have become the latest cause célèbre of unions and Democratic legislators in Washington, D.C. In late September, the Senate conducted hearings to investigate allegations that the plans are discriminatory to older workers. In addition, the Internal Revenue Service has directed local offices to seek assistance from the national office before qualifying pending plans for tax-exempt status.

Some experts point out, however, that potential pension discrimination works both ways: back-loaded defined benefit plans have always discriminated against younger workers, women, and others who change jobs or leave the workforce. “Defined benefit plans were great, but not for a world in which people change jobs an average of nine times in their lives,” says Richard Thau, president of Third Millennium, a Gen-X think tank.

Many experts, like pension specialist Larry Sher of PricewaterhouseCoopers LLP, believe that if conversions are handled properly, cash balance will become the plan of choice. “If it weren’t for these cash balance plans,” he says, “sooner or later many of these firms would abandon defined benefits altogether.”

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