WASHINGTON - William F. Sweetnam Jr., a senior pension official at the Treasury Department, might have become a pawn in a high-stakes campaign to block the Bush administration from reversing earlier guidance on cash balance plans.
That guidance, issued by the Internal Revenue Service in January 1996, requires some sponsors of cash balance pension plans to give departing employees more than they had built up in their hypothetical account balances.
Some opponents of cash balance plans, who will not allow their names to be used, are accusing Mr. Sweetnam of leaking to Xerox Corp. a letter that says the Treasury Department is "fundamentally reconsidering all aspects" of the IRS' guidance. The letter, dated June 6, was sent by Pamela F. Olson, assistant secretary of tax policy in the Treasury Department, to Sen. Charles E. Grassley, R-Iowa, chairman of the Senate Finance Committee. It was written and initialed by Mr. Sweetnam.
Mr. Sweetnam, benefits tax counsel at the Treasury Department, reports to Ms. Olson. A Treasury Department spokeswoman said Ms. Olson had read and approved the letter before it was sent.
A few days after the letter was sent, Xerox filed a motion with an appellate court including Ms. Olson's letter to Mr. Grassley to buttress its arguments in a dispute over the calculation of lump-sum benefits paid from its cash balance plan.
Letter was significant
"The letter ... strongly supports the arguments made by the plan that it does in fact conform to the applicable statutes and regulations," according to the motion. The Treasury letter was so significant in the case, according to Xerox's lawyers, that they asked for the court's permission to file a supplemental brief to address issues raised by the letter.
On Aug. 1, however, the court ruled against Xerox, which is expected to appeal to the Supreme Court
Xerox officials did not return numerous calls seeking comment.
Mr. Sweetnam denied the allegation that he had leaked the letter. "I had no conversation with Xerox officials about the Grassley letter," he said in a telephone interview.
He confirmed, however, that at least one Xerox official was among a group of corporate executives who met with him earlier this year to discuss the Treasury Department's proposed regulations on age discrimination and cash balance plans. He couldn't remember the person's name.
Mr. Sweetnam said Xerox officials could have gotten information on his department's plans from conferences at which he has been a speaker. Ms. Olson's letter, he said, "was nothing new."
This is the second time in a week that Treasury Department officials, including Mr. Sweetnam, have come under scrutiny for interactions with corporate pension officials and lobbyists. The Treasury Department's inspector general launched a formal investigation of how a doctored document on Treasury letterhead, purporting to show the Treasury Department's backing for cash balance plans, came into the hands of an IBM Corp. lobbyist.
A Treasury Department spokes- woman said she could not discuss the investigation, nor say which officials were being investigated.
Diann Howland, a legislative aide to Mr. Grassley, said the exchange of letters between Mr. Grassley and Ms. Olson was shared with other Republican lawmakers who had co-signed the initial Sept. 16, 2002, request to then-Treasury Secretary Paul H. O'Neill, asking the regulator to overturn the original IRS guidance. The correspondence also was shared with other lawmakers who requested it, Ms. Howland said.
"It's not a big secret. It's pretty much a public document," she said, adding that copies of the letters were on the Internet.
A source who did not want to be identified said issuance of Treasury Department regulations upholding the legality of cash balance plans could be slowed by the charges swirling around Mr. Sweetnam. Mr. Sweetnam himself no longer will estimate when the department might issue its regulations; earlier, he had said by year's end.
Meanwhile, on Sept. 9, the House of Representatives passed - by a 258-160 vote - a provision preventing the administration from using any federal dollars in fiscal 2004 to "assist in overturning the judicial ruling" in a lawsuit involving IBM's cash balance pension plan. A U.S. District Court in the Southern District of Illinois ruled July 31 that IBM had discriminated against older workers when it converted to a cash balance plan because the benefit formula in the new plan gives older employees a lower rate of benefit accrual.
The House provision was offered by Rep. Bernard Sanders, I-Vt. Warren Gunnels, legislative director to Mr. Sanders, declined to comment on the Xerox-Treasury Department situation but said he supports a broader investigation of the Treasury Department.
"The whole thing is very troubling," he said, but the bigger issue is ensuring older workers are not discriminated against in getting pensions owed to them. "This is just the pattern of the Bush administration. They want huge tax breaks for their corporate campaign contributors and will do anything to help out their extremely wealthy campaign contributors."
Sen. Tom Harkin, D-Iowa, plans to tack a similar but broader amendment to an appropriations bill in the Senate later this month that would prevent the Treasury Department from finalizing regulations proposed in December upholding that cash balance plans are not fundamentally discriminatory against older workers.
Cash balance plan opponents hope that Mr. Harkin's proposed amendment - and the brouhaha involving Treasury Department officials - will prevent the regulations from being finalized any time soon.
When the IRS issued its guidance on the payment of lump sums from cash balance plans in 1996, IRS officials said they would propose regulations on the matter. They never did. Proponents of cash balance plans have been vigorously lobbying the Bush administration to strike down that position of requiring the possibly larger payouts, while cash balance plan opponents have sought lawmakers' help to prevent that from happening.
The IRS guidance is contentious because it said cash balance plan sponsors could not just pay departing employees the money they had built up in their hypothetical account balances. Instead, the guidance says that cash balance plans - like traditional defined benefit plans - need to treat the benefit as an annuity, and pay out a lump sum equivalent to the present value of the annuity. In order to do that, plan sponsors must project the hypothetical account balances forward to normal retirement age, using the annual interest rate specified by the sponsor, and then calculate the present value of that annuity using the interest rate on 30-year Treasury bonds.
The Bush administration wants to scrap the 1996 guidance because it subscribes to another interpretation of the tax code, one that says that employers should use the same interest rate to calculate the present value of annuities as to calculate pension benefits payable at retirement age. This interpretation would enable plan sponsors to pay departing employees only what they have built up in cash balance accounts.