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Cash Balance Plans: Cloud of Uncertainty Continues

Schulte Roth & Zabel LLP

Cash balance plans have been under attack because employees have protested that conversions of traditional defined benefit plans into cash balance plans are a form of unlawful age discrimination. The media and governmental response led the Internal Revenue Service in 1999 to stop certifying cash balance plans as qualified retirement plans eligible for favorable tax treatment. On December 10, 2002, the Treasury Department issued proposed regulations that would allow defined benefit plans to be converted into cash balance plans without violating age discrimination rules if certain conditions are satisfied. The rules are strongly opposed by many in Congress and by worker advocate groups. Until the rules are made final, they cannot be relied on and the moratorium on technical advice on the conversion's effect on a plan's qualified status will continue. Retirement plan sponsors, participants and beneficiaries will continue to live under a cloud of uncertainty until the rules are made final.

Key Words: cash balance plans • retirement plans • hybrid plans • age discrimination

Compensation & Benefits Review, Vol. 35, No. 3, 51-61 (2003)
DOI: 10.1177/0886368703035003007


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