Cash Balance Defined benefit plans - does anyone think IBM won't win?

[papau]

There is a political battle on now as in 1999 as IBM with the support of US industry is trying for a retroactive law change so as to make what they have done with their pension plan legal

I do not like converting a defined benefit plan to defined contribution and calling the result "cash balance". If you want to screw the older workers it is quite legal to do so - you should just not be allowed to pretend you have not screwed anyone.

While the tax court ruled Onan's plan should be disqualified for age discrimination against older workers as defined for defined benefit plans, http://www.careerjournaleurope.com/columnists/edchoice/19991228-schultz.html , the WSJ report DEC. 28, 1999 (Page A1) noted that the 1991 decision to put into the preamble to the 91 regulations words that imply a "safe harbor" sentence -Specifically, the sentence stated that a pension plan's accrual features "will not cause a cash balance plan to fail to satisfy the requirement of section 411(b)(1)(H)." This means that the preamble implies that while the rate at which benefits build up in cash-balance plans declines with age, employers don't have to worry that they are violating age-discrimination law, so per the WSJ, cash-balance plans were all installed "in perfectly good faith, and the IRS never followed through with regulations."

And while a preamble does not have force of law, the IRS is now faced with the question of whether to insist that all cash balance plans comply with the defined benefit version of the age-bias law -- or whether to endorse the 1991 sentence saying cash balance plans are safe from this law.

Unfortunately for the IBM workers, there is a historical parallel that would suggest IBM will ultimately win. In a dispute involving insurance companies that manage pension money that reached the Supreme Court, the insurers argued that for 20 years, they relied on a sentence in a Labor Department bulletin that seemed to exempt them from fiduciary requirements under pension law. And in 1993, the Supreme Court said, essentially, tough luck -- the sentence didn't have the force of law. Insurers and employer groups then sought a legislative rescue, and Congress provided one. It in effect overturned the high-court decision and insulated pension sponsors retroactively from employee lawsuits.

Sounds a lot like where we are now.

[meg]

1. IBM has already lost

and agreed to damages in one class of the suit. As for the cash balance plan from IBM, the first problem was not the accruals so much as the conversion AND the wear-away. For example, an annuity worth $250,000 for a 50 year old might be paid out as around as a $125,000 lump sum. So, even if the IBMer had already earned $250,000, the offer was at 50%.

Here's how the calculation worked: the current value of the annuity for the 50 year is ignored and the current value of the annuity to be drawn at age 65 is used. Strangely enough, the current value of the annuity to be drawn at age 65, is LESS than the value of annuity that could be drawn on the day the calculation is made. So, even though the starting value is LESS, IBM further reduced the value of annuity by multiplying 15 years (65-50)times an interest rate pulled out of HR's ass and subtracting this amount. In addition to the value theft, the 50 year old worker would not have an increase in pension value for something like 8 years or so. So, another worker coming in at age 21 would be earning a pension value that the 50 year old would note. IBM solved the last problem by doing away with the defined benefit pension altogether.

[TechBear_Seattle]

2. Retroactive ("ex post facto") laws are unconstitutional

"Ex post facto" means "after the fact." The U.S. Constitution explicitly prohibits ex post facto laws in Article I, Section 9, clause 3.

Err... corrected a misspelling

[papau]

3. True -but is a preamble statement a legal law fact for "ex post facto"?

The Court tends to say no, but IBM wants it to say yes, and in the past when the court said no, the Congress said "that's unfair" and passed a law saying the preamble statement is to be considered law from the date of the preamble to the regulations originally being released.