Chairman Johnson, Ranking Member Andrews and members of the Subcommittee, I am submitting this written statement in response to the Subcommittee’s request for additional information regarding cash balance conversions following the Subcommittee’s June 4, 2003 hearing on defined benefit pension plans.
Responding to the Subcommittee’s request, this statement illustrates a possible legislative framework for resolution of the cash balance pension issue. The framework is summarized in part III (pages 3-4) and part V (pages 11-13), below.
Of course, no resolution of this highly contentious issue would leave all parties fully satisfied. There is ultimately a sharp tradeoff between protecting older workers from certain changes in plans and preserving employers’ flexibility to make changes in a private pension system where they are not required to adopt or continue plans. However, the approach outlined here seeks to illustrate how Congress might find common ground—or at least middle ground—by allowing cash balance plans and conversions, resuming the IRS review and approval process, and giving plan sponsors reasonable flexibility to choose how—but not whether—to protect older workers. In a sense, plan sponsors have already pointed the way: corporate “best practices” in a number of instances have sought to combine reasonable protection for employees with reasonable flexibility for the employer.
The material provided in this statement is illustrative, not prescriptive. It is intended to respond to the question framed by Congressman Wu, relating to how Congress could provide for cash balance conversion relief and employer flexibility, but not to make recommendations or offer opinions of the witness (or any other party).