AARP commends Congressmen Bernie Sanders and George Miller for their leadership in introducing the "Pension Benefits Protection Act." AARP supports this bipartisan legislation which would add the critical benefit protections needed for older and longer-term workers in a cash balance pension conversion.
This is clearly the top pension issue on the minds of our members. As a measure of the intensity of their concern, just since the beginning of this year, AARP members have used our web site for over 60,000 contacts to the Treasury Department and to their elected officials asking for better protections for older workers.
Over the past few years, negative publicity over cash balance plans has focused attention on employers proposing to convert their plans. As a result, a number of major employers – knowing full well the dramatic benefit reductions that may occur – have chosen to offer their longer-term workers some type of protection such as permitting employees the choice to remain under the old plan formula.
Unfortunately, the recently proposed IRS regulations, rather than addressing the transition problem and ensuring best practices, will lower the bar. The IRS regulations give a green light to plan sponsors to again convert their traditional plans to cash balance plans without adequate protection for their employees.
AARP has called on the Treasury Department to modify or withdraw its current proposed regulations for its failure to protect older workers and comply with the prohibitions against age discrimination. The Sanders-Miller legislation introduced today would protect older and longer-term workers whether or not the Treasury Department revises its regulations by ensuring that those most likely to be harmed by a cash balance conversion – those age 40 or over and those with 10 years of service – can remain under the old plan formula.
Cash balance conversions disproportionately hurt older workers and they will continue to do so unless protections are put in place. With the decline in stock market savings and escalating health care costs, today's longer-term workers need every dollar they've been promised to be able to take care of themselves in retirement. Yet cash balance conversions can cost those nearing retirement as much as half the benefits they counted on.
By depriving these older workers of the benefits they expected so late in their career, employers break implicit promises made in their traditional defined benefit pension plan and penalize their most loyal longer-term workers. That is why the protections in the Sanders-Miller legislation are so important. We urge its enactment.