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Transition Provisions in Large Converted Cash Balance Pension Plans

Cash balance plan conversions have raised these concerns: do they discriminate against older workers, especially long-service older workers? Do they deprive these workers of late-career benefits just as they are about to obtain them? This AARP Public Policy Institute Issue Paper by Daniel J. Beller investigates the effects on older workers of conversions of large traditional defined benefit pension plans to cash balance plans. This study used the annual form 5500 reports filed with the Department of Labor for 2003 to determine the extent to which large conversion plans of this type include transition amendments. The 25 largest cash balance plans (in terms of numbers of participants) are included in the study. The analysis by Beller reveals that transition provisions are very common in large plans and have been adopted by 23 of the 25 plans examined. Most commonly, these provisions either:

  • Grandfather older workers under the prior plan formula, or
  • Grant older workers a benefit based on the greater of the prior or new formula

A less common type of transition provision grants supplemental pay-based credits to some or all participants in the prior plan. (29 pages)