NEW YORK - A New York law professor is taking his legal critics to task and standing by his claim that cash balance plans violate age discrimination laws.
In a new paper to be published in the Virginia Tax Review, Edward A. Zelinsky berated his legal critics for not taking statutory text seriously and for looking beyond the law to support their position that cash balance plans do not discriminate against older workers.
Mr. Zelinsky, professor of law at the Benjamin N. Cardozo School of Law at Yeshiva University, New York, claimed in a controversial paper last year that cash balance plans violate age discrimination laws by reducing pension wealth of older workers. He said older workers would fare better under conventional defined benefit plans (Pensions & Investments, June 26).
That prompted a response from lawyers Richard C. Shea, Michael J. Francense and Robert S. Newman from the Washington law firm of Covington & Burling, who wrote a paper claiming just the opposite, based on their understanding of the law.
Taking a professor-to-student tone, Mr. Zelinsky's new article cites specific statutes to support his claims while urging his opponents to rely on the text of the law rather than "extratextual authority" and their interpretations of legislative intent.
"At its most basic, our system of tax and pension laws cannot function without fidelity towards statutory texts; fidelity which frequently entails the acceptance of outcomes with which the reader disagrees as a matter of policy," he wrote.
Sees violations
To take the age discrimination statutes seriously, he wrote, "leads to the conclusion that many, likely most, cash balance plans violate such statutes."
Mr. Zelinsky said the Internal Revenue Code, the Employee Retirement Income Security Act and the Age Discrimination in Employment Act all prohibit age discrimination in retirement plans.
A defined benefit plan is deemed discriminatory if an employee's benefit accrual is halted or the rate of benefit accrual is reduced "because of the attainment of any age," he wrote. While cash balance plans are designed to look like defined contribution plans, they are in reality defined benefit plans; and the relevant test for age discrimination is "the rate of an employee's benefit accrual." Since cash balance plans specify a participant's benefit entitlement as an account balance, it is necessary to convert that into a deferred annuity projected to start at normal retirement, said Mr. Zelinsky.
"Such conversion reveals that, as a cash balance participant gets older, the same dollar contribution to the plan for her purchases less in annuity terms since there is less time for that contribution to accrue investment earnings before retirement and the commencement of previously deferred annuity payments."
Since cash balance plans are defined benefit plans, they should "as a statutory matter" measure for age discrimination in terms of "the annuity purchased as of normal retirement."
It is on the matter of benefit accrual that Messrs. Shea, Francese and Newman in their earlier paper differ with Mr. Zelinsky. They argue that the "rate of benefit accrual" is not defined in the statutes and, according to Mr. Zelinsky, rely on legislative intent and legislative history for definition.
Mr. Zelinsky chides the Washington lawyers for focusing their attention on benefit accruals after the attainment of normal retirement age rather than converting cash balance allocations into deferred annuities starting at normal retirement, as required by statute.
`Legislative intent'
"At its core, the methodology deployed by Messrs. Shea, Francese and Newman brushes the statute aside rather than engage the statutory text in any serious way," wrote Mr. Zelinsky. "With the statutory text pushed aside, (they) discern as authoritative legislative intent which felicitously corresponds with their policy preferences."
The three lawyers, said Mr. Zelinsky, appeal to legislative intent "extratextually," while "a serious reader of any text, particularly a legal text, will think about the purpose of the text he confronts. In contrast, (they) use legislative intent as a device for avoiding confrontation with the statutory text and purport to find outside that text subjective legislative intent which they exalt as the definitive statement of the law."
A serious commitment to statutory law, said Mr. Zelinsky, "requires that we exhaust the text-based possibilities before resorting to extratextual considerations."
In pointed language, Mr. Zelinsky criticized the Washington lawyers for basing much of their arguments that cash balance plans do not discriminate against older workers on the lack of a specific definition of the term "rate of benefit accrual."
"Most statutory terms are not defined since they need not be. Placed in proper context and read in a reasonable fashion, most statutory terms are undefined because the reader willing to engage the text (whether a judge, lawyer or administrator) can be reasonably confident what such terms mean."
"The statutes define an employee's accrued benefit under a defined benefit plan as a deferred annuity commencing at normal retirement," he wrote. "The most natural reading of the pension age discrimination provisions is that the rate of benefit accrual is the rate at which accrued benefits accrue."
