Cash balance pension plans have grown dramatically during a time that other types of defined benefit plans have declined. Most cash balance plans are converted from traditional defined benefit plans, and these conversions can have negative effects specifically on older-worker benefits. An adjustment period called “wearaway” following transition to a cash balance pension plan often results in a significant reduction in benefit accruals for long-service older workers.
This AARP Public Policy Institute Issue Brief by Jules Lichtenstein and John Turner provides essential information regarding the two key issues in the current public policy debate on cash balance conversions:
- how to protect the pension benefits of older workers
- whether cash balance plans discriminate against older workers
The Issue Brief includes both perceived advantages and disadvantages of cash balance plans, probable reasons for employers switching to these plans, and a number of "transition relief" techniques that could be used by these plans to offset disadvantages to older workers. (10 pages)