AARP is writing to express its opposition to a number of critical elements of H.R. 2830, the Pension Protection Act of 2005, scheduled for House consideration this week. We share the goal of enacting new pension funding rules that will require employers to fully fund their pension plans and provide new revenue for the Pension Benefit Guaranty Corporation. These changes are long overdue and should be enacted into law as soon as possible. However, we cannot support legislation that would clarify the legal status of cash balance pension plans without providing protections for older, long-service workers involved in cash balance plan conversions and without including a prohibition on all discriminatory age based "wearaway." We are also deeply concerned that this bill would, for the first time, permit defined contribution pension plans to provide investment advice subject to inherent financial conflicts.
1. Cash Balance Pension Plans
AARP believes that cash balance plans have a role to play in the private pension system if—and only if—they are designed and adopted in a manner that protects the millions of older workers who have given up wages in exchange for traditional defined benefit pensions.
Cash balance pension plan conversions change the rules in the middle of the game, and older, longer-service workers are at considerable risk. They generally lose out on larger late career benefits, have less time to accumulate benefits under the new cash balance formula, and are less able to leave their current job if benefits are cut because they typically have fewer job prospects.
H.R. 2830 does not protect older and longer-service workers that are involved in cash balance pension plan conversions. The bill represents a step back from the Administration's legislative proposal, which would eliminate wearaway (both normal and early retirement) and provide transition rules to protect some benefits for current workers. The recently passed Senate bill includes similar protections. The current legislation clearly fails to recognize the need for transition rules to protect promised benefits and fails to protect the most vulnerable older, longer service workers.
H.R. 2830 would not only lower the bar for transition protections for older workers set in the Administration proposal, but would lower it substantially below the "best practices" followed by companies involved in conversions over the past few years. Many employers—recognizing the harm to older workers—have adopted transition rules, such as the choice to remain under the old plan formula, or have "grandfathered" older, longer service workers under the traditional plan. As recent reports by both the General Accounting Office and AARP confirm, most employers have adopted transition practices designed to protect the benefits that older and longer serving employees have earned. Any legislation should ensure these protections for older workers, not undercut them.