Andrews/Harkin Release on GAO Report About Cash Balance Pension Plans

CONGRESS OF THE UNITED STATES

[2] "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."

[3] "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."

[4] 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.

[5] 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.

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

o Amend ERISA to require firms to provide participants with more

[8] "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.

[9] A copy of the report is available upon request.