The Fool wrote: >The Bush administration has a plan (those are rapidly becoming the >six most chilling words in the English language) to de-improve your >pension.
Horsefeathers. Cash balance plans are *not* that new. They've been coming into vogue for at *least* as long as I've been a pension actuary, at least eight years. >Under the administration's proposed rules, companies can eat away >at the retirement benefits they owe workers by using "reasonable" >interest rates and mortality rates to calculate the value of a >pension as the company converts to the cash-balance scheme. Horsefeathers #2. If anything, the interest and mortality mandated by IRC Section 417 places a serious burden on pension plans because the 30-year treasury rates are way below most actuarial assumptions. >The cash-balance plan is particularly harmful to older workers, so >if you've got any gray hair, you might want to take a look at what >they're about to do to you. Under fixed-benefit plans, retirement >is based on the employee's salary and years of work at the company. >This gives older workers a chance to rack up benefits. When >companies started switching to cash-balance plans, the AARP, the >Pension Rights Center, the AFL-CIO and other groups set up a mighty >holler. The Equal Employment Opportunity Commission received over >800 age-discrimination complaints. As a result, the IRS stopped >approving these conversions in 1999. This part is true. The IRS placed a *temporary* moratorium on cash balance conversions. It was always intended to revisit them. They do favor younger employees, primarily because under traditional DB plans, say with a benefit based on your highest 5-year average out of the last ten, there's a good chance your most recent salary will be used. Under cash balance, it's based on, essentially, your career average. >More than 200 members of Congress have written Bush asking him not >to let the proposed rules become law. The General Accounting Office >did a study showing that annual pension benefits of older workers >can drop by as much as 50 percent under the new plan. Horsefeathers #3. By law, you cannot reduce current benefits. This will, however, reduce future accruals. This article is misleading when written in the above manner. >If you're wondering why you haven't heard much about this, let me >suggest two reasons. One is that TV news is in its one-story, Dead >Diana mode: All they have time for is Iraq and the occasional >nightclub fire. The second is the consequence of having all the >media owned by a few giant corporations. It is not in the interest >of these corporations to have such news widely reported. Horsefeathers #4. The defined benefit plan is underappreciated by many workers, who do not understand how they work. That's why many companies are going strictly with defined contribution plans. Additionally, the workplace has changed, and workers no longer spend their entire careers with one employer as they once did. So the portability of CB plans can work to their favor. The only truth in this article is that cash balance plans are not as favorable to older employees as traditional DB plans. I personally dop not like cash balance plans; I think they do a disservice to employees and their retirement benefits. But this article is so filled with half-truths that it overrode my personal loyalties. James B. Sharkey, Jr. Enrolled Actuary #6483 _______________________________________________ Join Excite! - http://www.excite.com The most personalized portal on the Web! _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
