WASHINGTON -- The EEOC has doused expectations that it was about to take prompt action on the hundreds of age discrimination complaints the agency has received about conversions of traditional pension plans to cash balance plans.
In a May 9 letter to Sen. Charles Grassley, R-Iowa, chairman of the Senate Special Committee on Aging, EEOC Chairwoman Ida L. Castro laid out the arguments for delaying action on determining whether existing law protects older workers when their companies convert their plans. Among other things, Ms. Castro cited the complexity of the issue, as well as disagreement over how the law is interpreted.
Since September 1999, the EEOC has received more than 650 age discrimination complaints related to cash balance plans.
The Equal Employment Opportunity Commission's decision to take its time in determining whether the conversions might favor younger workers over middle-aged and older workers could be seen as an invitation to lawmakers to step in, sources say.
Lawmakers already have introduced reams of legislation on cash balance plans. But sources say Congress is unlikely to go as far as pronouncing all cash balance plans discriminatory.
In a cash balance pension plan, employees get individual accounts, along the lines of those in 401(k) retirement plans, although they exist on paper only and the funding responsibility remains with the employer. Employee accounts generally grow each year in line with a specified interest rate. Because younger workers can accumulate bigger balances than older workers over time, middle-aged and older workers often lose out when their companies convert to cash balance plans.
The agency's decision to tread slowly and carefully in this matter comes barely a month after it decided not to file legal papers supporting employees of Onan Corp. in a lawsuit over charges that the company's cash balance plan discriminated against older workers.
Onan, an affiliate of Cummins Engine Co., converted its plan on Dec. 14, 1994, but adopted the changes retroactive to Jan. 1, 1989. In May 1997, two Onan employees filed a class-action lawsuit against the company alleging the cash balance plan was discriminatory.
The U.S. District Court in Indianapolis is scheduled to hear arguments June 1.
EEOC lawyers had filed a request with the court March 27 asking for permission to file papers supporting the plaintiffs in the case, Eaton vs. Onan Corp., and were given an April 10 deadline to file the briefs.
But on April 10, the EEOC's four commissioners deadlocked over the issue, and the agency did not submit a brief in the case.
Sources said the EEOC might have been pressured by the Internal Revenue Service and Treasury Department not to get involved in the case at this time, because it could undermine the IRS' own plans in the case.
In addition to the class-action suit, lawyers representing Onan employees had challenged, in the U.S. Tax Court, the IRS' ability to give Onan tax-favored status for its cash balance pension plan. And in August, the IRS agreed with the Onan employees that the plan should have its tax-favored status taken away because the plan violated backloading rules. Just recently, the Tax Court refused to throw out the case and acknowledged the IRS has taken the position that the Onan plan should lose its tax-exempt status.
Meanwhile, Ms. Castro's letter to Mr. Grassley noted the issues involved are too complex, and said disagreement among employers, labor, civil rights and employee groups on interpreting the law makes it difficult for the commission to determine whether the Age Discrimination in Employment Act protects older workers affected by the pension plan conversions.
What's more, the agency does not have the resources to determine if cash balance plans are inherently discriminatory under the law because it did not receive the funding for the current fiscal year that it had requested from lawmakers, she wrote.
Even if the EEOC were to figure out the correct interpretation of the law, "that interpretation would be contested in court for years to come, leaving both employers and affected employees uncertain of their respective rights and obligations," Ms. Castro wrote.
But at the same time, Ms. Castro's letter to Mr. Grassley suggests the conversions can hurt older workers because a disproportionately large chunk of retirement benefits under traditional pension plans are earned in the last few years before retirement.
Thus, the EEOC's preliminary analysis shows that, under a traditional pension plan, an employee who has worked 30 years at one company will earn half of his pension benefits during the last 10 to 12 years before retirement, while under a cash balance plan the pattern is reversed so the employee will earn half his benefits in the first 10 to 12 years of employment and only about 20% of his pension benefits during the final years before retirement, according to Ms. Castro's letter.