WASHINGTON -- US. Representative Rob Andrews (D-NJ-01) and U.S. Senator Tom Harkin (D-IA) today released a General Accounting Office (GAO) report urging the Internal Revenue Service (IRS) to stop the approval of Cash Balance Pension Plans until the Department of Labor and the Department of the Treasury can complete a full review of these plans and their effects on American workers retirement benefits. 

 "This report is a ray of light peeking in on companies converting their employees pensions to cash balance plans, exposing the potential for age discrimination.  I applaud the GAO for calling on the IRS to suspend cash balance pension plans until there are more comprehensive worker protections in place," Harkin said.  "While many companies talk about how younger workers may benefit from converting to cash balance plans, the report shows that conversions can be devastating for older workers. It is not uncommon for older workers to face a loss of more than a quarter million dollars in benefits because of cash balance plan conversions." 

 "I am deeply concerned regarding the GAO’s findings given that their research demonstrates that these cash balance plans are potential harmful to older American workers who are very close to retirement age and are depending on these assets," said Andrews.  "I recognize that we must provide employers the requisite tools to attract and retain talented employees but we must not do so on the backs of the hard working Americans who have helped to get us this far." 

 Currently, about 19 percent of Fortune 1000 firms sponsor cash balance plans that cover an estimated 2.1 million active participants. The reasons given for the proliferation of these plans are the ability to reduce total pension costs, increase portability to enhance the recruitment of younger or more mobile workers and the capability of adding a lump sum benefit feature that can be used to better explain pension benefits to workers.  

 According to the GAO study, cash balance plans leave older workers at a tremendous disadvantage because these plans decrease the rate at which normal retirement benefits accrue therefore raising the age at which an individual can retire with full pension benefits.  In addition, this report illustrates that, prior to conversion, many older workers were participating in defined benefit plans in which the proportion of benefits they were earning accelerated the longer they were employed at the company.  Under the cash balance plan, the percentage at which these older workers are accruing benefits is reduced during the very period of their careers in which they would have been receiving the highest percentage of their pension.

 In response to these findings the GAO has recommended the following to alleviate the problems associated with cash balance plans, including:

• Amend ERISA to require firms to provide participants with more timely information, in plain language, about plan changes that can reduce future pension benefits. 
• Amend ERISA and the Code to establish requirements that would prevent firms that convert to cash balance plans from creating a wearaway period at conversion on the value of prior accrued benefits.  
•  The relevant federal agencies should take steps to clarify how these plan designs will be treated under current pension law. 
• The Secretary of the Treasury direct the Commissioner of the Internal Revenue to establish a moratorium on determination letters approving cash balance or similar hybrid plan designs until IRS acts on our recommendations by promulgating comprehensive regulations addressing these plans and develop a regulatory framework that would recognize and provide comprehensive requirements for cash balance plans.
• The Secretary of Labor should direct the Assistant Secretary of the Pension and Welfare Benefits Administration, under authority provided by ERISA, to amend the disclosure requirements for summary plan descriptions and summaries of material modifications to plans to include clear statements regarding the hypothetical nature of cash balance accounts, to identify the potential of the conversion to reduce future pension accruals and early retirement benefits, and to develop standardized language that firms may use to meet the amended disclosure requirements.
• The timeframe in which notice about plan changes that can reduce future benefits accruals should be provided increase from the current 15 day time frame to no less that 90 days. 

 Andrews, the Ranking Democrat of the Employee?Employer Relations Subcommittee that over sees pension law requested this report in response to the growing practice of employers converting traditional defined benefit pension plans to cash balance plans.  Harkin, a member of the Senate Health, Education, Labor and Pensions (HELP) committee, is a leading advocate for ensuring that workers get their full pension and the author of the "Older Workers Pension Protection Act" (S. 1300).  This legislation is intended to curb the disturbing trend in which the pension benefits of many older workers are frozen for years when a company switches pension distribution plans.

 "If the pension bill comes to the Senate floor before Congress adjourns, I am planning to offer an amendment to provide meaningful protection for workers from the abusive practice, where older workers see their already accrued pension benefits worn away by companies that reduce their pension benefits," Harkin added.