By Jerry Geisel
WASHINGTON — For a change, employers have scored a victory — albeit a modest one — in Congress on legislation affecting cash balance pension plans.
Late last month, congressional negotiators assembling a giant spending bill quietly knocked out a provision that would have barred the Treasury Department from taking any action to assist in the overturning of a 2003 federal court ruling that held that IBM Corp.'s cash balance plan discriminates against older employees.
That provision, proposed by longtime cash balance plan critic Rep. Bernard Sanders, I-Vt., was approved last summer by the House of Representatives on a 237-162 vote as an amendment to a broader bill appropriating funds to the Treasury Department and several other federal agencies.
Under that amendment, the Treasury Department could have done nothing through Sept. 30, 2005, that would have the effect of undoing a July 31, 2003, decision by U.S. District Court Judge G. Patrick Murphy, who issued a ruling that IBM's 5-year-old cash balance plan was discriminatory.
Since Judge Murphy's ruling and after the House action, IBM and plaintiffs agreed to partially settle the litigation. Under one part of the settlement, IBM will pay — in the form of enhanced benefits — $320 million to plan participants to settle claims regarding IBM's 1995 conversion of its traditional pension plan to a hybrid design known as a pension equity plan.
Under the other part of the settlement, IBM will appeal Judge Murphy's ruling that IBM's cash balance plan, which the Armonk, N.Y.-based company set up in 1999 to succeed the PEP plan, is age discriminatory. If IBM prevails on appeal, it will have no further liability. If it loses, its liability will be capped at $1.4 billion, also payable in the form of enhanced benefits.
The Senate, though, failed to complete action on the House-passed appropriations bill, which included the Sanders' cash balance plan amendment. It also did not act on numerous other appropriations bills.
With time running short in the legislative session, Congressional leaders decided to bundle the various uncompleted appropriations bills into one measure, which was signed by President Bush Dec. 8.
In assembling the broad bill, though, congressional negotiators stripped the Sanders amendment from it. Employer benefit lobbyists say the deletion was the result of several factors, including opposition from several senators and quiet lobbying from the Bush administration signaling its opposition to the amendment.
Given that the Treasury Department has no current plans to issue cash balance plan regulations, the congressional victory on the removal of the Sanders amendment is a modest one, observers note.
"While there will not be any restrictions on how Treasury spends its money, it is pretty unlikely Treasury will restart the regulatory process," said Kyle Brown, an attorney with Watson Wyatt Worldwide in Washington.
Still, the discarding of the Sanders amendment contrasts sharply with prior congressional action regarding cash balance plans. The Senate last year, for example, approved an amendment — introduced by Sen. Tom Harkin, D-Iowa, also as part of a Treasury Department appropriations bill — to prevent Treasury from finalizing regulations it proposed in late 2002 that would have recognized that the basic design of cash balance plans is not age-discriminatory. Chilled by the Senate vote, the Treasury Department withdrew the regulations.
Cash balance plans give employees a credit equal to a percentage of pay and provide interest on benefit accounts.
Some say the refusal of Congress this time around to take up the Sanders amendment may signal a changing and improving congressional attitude toward the plans, which combine elements of defined benefit and defined contribution plans. About 1,200 cash balance plans have been established, with about 25% of defined benefit participants enrolled in the plans.
"I think legislators are beginning to appreciate that cash balance plans are an integral part of the defined benefit plan universe," said Mark Ugoretz, president of the ERISA Industry Committee in Washington.
Plan supporters hope that when the new legislative session begins in January, Congress, working with the Treasury Department, will finally develop rules that cash balance plan sponsors can follow, eliminating the legal uncertainties they now face.
"I have a reasonable amount of optimism that an appropriate resolution can be found," said Scott Macey, a senior vice president in the Somerset, N.J., office of Aon Consulting.
Jerry Geisel is editor-at-large of Business Insurance, a sister publication of Pensions & Investments.