Monsanto Comments on Proposed Cash Benefit Regs

[1] We are submitting comments in response to the proposed regulations on age discrimination in retirement plans under IRC §§ 401 and 411.

[2] With over 13,700 employees worldwide, Monsanto Company is a leading global provider of agricultural products and integrated solutions that bring together chemicals, seeds, and biotechnology traits to improve farm productivity and food quality. Monsanto has long recognized that its employees are key to maintaining and enhancing its leading market position.

[3] Monsanto's predecessor converted its pension plan from a traditional, final pay structure to a cash balance plan effective January 1, 1997. Monsanto now sponsors the plan and our experience has been a very positive one from the perspectives of both the employees and the company.

[4] We welcome Treasury's effort to bring certainty to a very complex area, and clearly the proposed regulations reflect much careful thought on the issues involved. We also appreciate Treasury's effort to provide guidance such that the moratorium on favorable determination letters for cash balance plans will be lifted; we have a request covering recent amendments currently in queue at the IRS. In addition, we appreciate Treasury's recognition that cash balance plans are not inherently discriminatory. That view is consistent with the law as it has developed to date.

[5] Of potentially greatest significance, the future of the private pension system in the United States is in part dependent on the plan sponsor's ability to choose the plan design and benefit levels that are most appropriate for its workforce. We are encouraged that the proposed regulations recognize this reality.

[6] The purpose of this letter is to share our belief that a cash balance plan is a very appropriate pension plan for Monsanto -- and possibly a number of other employers as well. Despite what popular media may suggest, a cash balance plan can enable an employer to meet its corporate objectives, while, at the same time, providing meaningful benefits to employees.

We wish to share our experience from three perspectives:

[8] Monsanto changed its plan from a final pay design to a cash balance design for several reasons:

• The company wanted an approach that would recognize past plan accruals but that would provide more consistent value for future service.

• • The cash balance plan allows employees to accrue benefits more evenly over their careers (it does still provide somewhat larger credits for employees at older age

  • The benefit is predictable, portable, and easy to understand.

  • The cash balance plan also reduces artificial cliffs or disincentives to retire before reaching a particular age or age-service combination, which were features of the prior final pay plan.

• The nature of the workforce and the economy make it less likely that employees will remain with one employer for 30 or more years (which was a factor that led to significantly increased benefits under the prior plan).

• • The cash balance plan recognized this and removes the artificial barrier for people to retire.

• Also, the plan provides more consistent, equitable benefits to employees across various business units.

• • We had accumulated a number of different pension designs due to acquisitions. This had made it difficult to transfer employees between units.

• Wear-away is not an issue as plan benefits are the sum of the prior plan benefit and subsequent cash balance accruals (for 1997 and later).

• The plan provided transition credits (which run through 2006 for many employees) to further fortify benefits for employees near retirement.

• The plan indexed the prior plan benefit to approximate pay increases while a participant remains employed at Monsanto.

• The plan fixed the factors for converting the account balance to an annuity, so that employees desiring an annuity form of benefit could have predictability.

[11] We also ask Treasury to provide that Social Security integration that meets defined contribution requirements should not be a barrier to cross testing.

[12] As the amended plan enters its seventh year, our experience has shown that the plan has been very well received.

• From the inception of the plan's cash balance formula (beginning in 1997), most employee feedback has been positive.

• The ease with which an employee can track his or her benefit (through paper or online statements) has made employees better informed for their retirement planning efforts.

• In combination with our savings plan, employees realize that Monsanto's retirement benefits are very competitive.

• As a defined benefit plan, the cash balance plan continues to provide substantial lifetime benefits while limiting the risk taken on by the individual employee.

• • Investment risk falls on Monsanto, the employer, a feature that has taken new meaning during recent years.

  • Benefits are insured by the Pension Benefit Guaranty Corporation (PBGC).