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Regulation and Compliance > Federal Regulation

Towers Perrin Objects To House Cash-Balance Vote

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NU Online News Service, Sept. 11, 2003, 3:53 p.m. EDT – Towers Perrin Inc., Valhalla, N.Y., has put out a statement expressing concern about a recent House vote supporting opponents of cash-balance pension plans.

The vote approved a measure that would prohibit the Treasury Department from using federal funds to overturn a recent U.S. District Court decision that found that one large cash-balance plan conversion discriminated against older workers.

Towers Perrin says the measure, which was introduced by Rep. Bernard Sanders, a Democratic Socialist from Vermont, as an amendment to the appropriations bill H.R. 2989, would prohibit the IRS from issuing final regulations that would explicitly approve the use of cash-balance pension plans.

An employer with a traditional defined benefit pension plan uses a formula for calculating contributions that assumes employees will be with employer for many years. Employers with traditional plans usually contribute less for newer employees than for more senior employees, on the assumption that the early contributions for newer employees will have many years to accumulate investment earnings.

Employers with cash-balance plans calculate their contributions as they go along, one year at a time. They base contribution levels mainly on the participating employees’ compensation levels, rather than on seniority.

Opponents say conversions from to cash-balance plans from traditional plans often leave older workers with lower pension benefits than they had expected.

But Towers Perrin, a benefits consulting firm, and other cash-balance plan advocates say workers who change jobs several times over the course of their careers can get much better benefits from cash-balance plans than from traditional plans.

“We are concerned that this amendment disrupts the legislative process by addressing a very complex matter without the benefits of hearings,” says Steve Kerstein, leader of Towers Perrin’s global retirement practice. “It also disrupts the regulatory process, after Treasury has spent years working on the project. Additionally, it disrupts the judicial process by asking Congress to express a view while an appeal of an important case is being considered.”


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