IBM has taken a lot of hits (including one from this publication) for its handling of the introduction of its cash balance plan. It caused an uproar from mid-career employees who, initially, were not grandfathered into the old, very generous defined benefit plan being replaced by the cash balance plan.
These employees complained to the press and to members of Congress they were being treated unfairly. Their argument was that their pension benefits were being cut.
But let's look at the other side for a moment. The employees' accrued benefits weren't being cut. They didn't lose anything they had already earned. The accrued benefits were converted into account balances that were the starting points for their participation in the cash balance plan.
What the employees actually lost was the ability to continue to accrue benefits under IBM's very rich defined benefit plan in the future. In effect, they lost an opportunity. And some of them lost the chance for a non-actuarially reduced early retirement in a few years, something few non-IBM employees enjoyed.
Yes, IBM changed its employee benefits to meet a changed employment situation, and changing business needs.
The situation was analogous to what occurred as inflation subsided during the 1980s. In the late 1970s, as inflation raged, employers gave employees 10% or even 12% annual raises to keep up. Employees came to like those very large annual raises and to expect them every year. But when inflation subsided, employers cut back the size of the raises.
Some employees grumbled as the annual raises declined with inflation, but Congress didn't get into the act and hold hearings about whether or not the employers had the right to cut back the annual pay increases.
Lawyers weren't out there threatening lawsuits because employees had come to expect big raises in their financial planning and were having to make do with smaller-than-expected raises.
Employers are allowed to change the terms of employment at any time, except where there is a written employment contract. They can, for example, not only cut the rate of salary increase, but also reduce wages. They can cut the rate of the contribution match to a 401(k) plan. They can even dispense with a 401(k) match, and in the past Congress wouldn't get into the act.
They can change the rate at which employees accrue a benefit in a defined benefit plan (our company has done so twice in the 26 years I've been here). They can make it more generous or less generous. They can even terminate a defined benefit plan and not replace it, and again, Congress wouldn't, in the past, get involved.
Employers also can change the amount of vacation time, or sick leave policy without Congress turning a hair, even when employees are unhappy about the changes.
Why, then, should Congress and the lawyers get involved when IBM changes its pension plan?
If an employer changes the terms of employment, and employees don't like the new terms, the employees are free to change to jobs that provide better benefits.
But, judging by the reaction to IBM's cash balance conversion, if Rep. Bernie Sanders and others in Congress have their way, companies in the future will not be able to change benefits, once granted, except to improve them, no matter what is best for the future of the company.
It's only a short step from there to dictating what employee benefits companies must offer their employees.
That way lies France. Rep. Sanders might like that, but the rest of us probably wouldn't.
