LEGISLATION is needed to correct the deceitful corporate contortions known as cash-balance retirement plans, which more than 300 major employers have adopted as alternatives to traditional pensions.
Traditional pension plans give the highest retiree payments to long-term employees, over-weighting the final years' salary and total years of service as a reward for loyalty. The cash-balance plan treats every worker-year equally, setting aside a percentage of pay for each employee. Workers get the accumulated cash savings plus interest whether they leave the company after three years or 30.
Cash-balance plans aren't about an egalitarian system. They're about saving companies money by cutting pension payments to veteran employees by at least a third. They want to use those savings to attract younger, job-hopping workers who want portable cash savings they can take with them.
Today's workers are more mobile and want portable cash savings to take with them. Most of that mobility, however, is in the younger part of the work force. Millions of older workers have stayed with the same employer, in part, because of pension promises at retirement. It is unfair to abruptly change the rules on them.
IBM recently switched to cash-balance plans. Under public pressure, it allowed veteran employees older than 39 to stay in the pension plan, while offering the rest only cash-balance plans. That's a reasonable (yet voluntary) solution that could guide legislators.
Businesses can, and do, revise their pensions. But longtime employees, especially those nearing retirement, need the protection of Congress to keep their claims to traditional pensions.