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Watson Wyatt Coverage of the Cash Balance Controversy
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The Unfolding of a Predictable Surprise: An Analysis of the Shift from Traditional Pensions to Hybrid Plans

Watson Wyatt Coverage of the Cash Balance Controversy

For the past few years, controversy has swirled around the issue of whether cash balance pension plans and other hybrid plans treat workers fairly.

Watson Wyatt has studied the issues extensively and has commented regularly on each new development in the debate. You can find links below to news releases, research reports and articles we have issued along the way.

  
Employers form Coalition to Preserve the Defined Benefit System.  Learn more about the Coalition.

Recent Developments | Proposed Age Discrimination Regulations | Other Cash Balance Issues | Pension Funding

 Recent Developments

Watson Wyatt examines the potential impact of proposed pension regulations and legislation, and a recent court decision that ruled that IBM's cash balance pension plan violates age discrimination laws. A series of articles looks at the ruling, related cash balance issues -- including recent media coverage -- and the broader crisis besetting the U.S. pension system.
October 2004 Cash Balance Court Ruling Leaves Ambiguity in Its Wake.   Read the article.
October 2004 IBM Settles Certain Claims in Pension Litigation.   Read the article.
September 2004 House Committee Holds Hybrid Plan Hearing.   Read the article.
July/August 2004 Court Finds Cash Balance Plans Nondiscriminatory, Treasury Withdraws Regulations, Legislators Plan Hearings.   Read the article.
April 2004 Workforce Realities, Not Cost, Drive Hybrid Plan Conversions.   Read the article.
March 2004 How to Fix Treasury’s Proposed Cash Balance and Pension Equity Plan Legislation.   Read the article.
March 2004 Recent Cash Balance Conversions Have Actually Increased Company Costs, Watson Wyatt Study Finds.   Read press release.
February 2004 A Mixed Bag: Treasury’s Proposed Cash Balance and Pension Equity Plan Legislation.   Read the article.
January 2004 Cash Balance Debate Continues in Congress and the Courts.   Read the article.
November 2003 Experts from The Pension Research Council analyze the transition to hybrid pensions by U.S. employers.  Read the article.
September 2003 House Approves Sanders Amendment.  Read the article.
September 2003 Court Rules That Cash Balance and PEP Plans Are Age Discriminatory.  Read the article.
September 2003 An Issue of Fairness.  Read the article.
September 2003 Reflections on the Cash Balance Media.  Read the article (including a September 10 update).
September 2003 Pensions in Crisis.  Read the article.
August 1, 2003 Cash Balance Court Ruling Could Harm U.S. Pension System, According to Watson Wyatt.  Read press release.
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 Proposed Age Discrimination Regulations
April 9, 2003 IRS Hearing on Proposed Regulations on Age Discrimination in Retirement Plans. Read the testimony of Eric Lofgren and Sylvester Schieber.
April 7, 2003 Most conversions to cash balance pensions are cost neutral -- and 80 percent of employees actually fare better.   Read press release.
May 2003 Cash Balance Debate Continues With Hearing, Legislation.  Since their release in December, the proposed age discrimination regulations have been a source of controversy. Read the article.
January 2003 Summary of proposed regulations.  Read Watson Wyatt’s summary of key provisions – what issues are covered and which plans are affected most.
January 2003 Watson Wyatt’s Position on the Recently Proposed U.S. Retirement Plan Age Discrimination Regulations.  Read Watson Wyatt’s position statement with recommendations on the draft regulations.
January 16, 2003 Proposed Rules Disallow Some Pensions – Even If More Generous To Workers.  Read press release.
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 Other Cash Balance Issues
August 2003 FASB Considers Different Rules for Different Types of Cash Balance Plans.  At its May 15 meeting, the Emerging Issues Task Force concluded that a cash balance plan should be considered a defined benefit plan for accounting purposes.  Read the article.
May 2003 FASB Withdraws Observation Concerning Cash Balance Discount Rate.  The Financial Accounting Standards Board (FASB) staff met on May 28, 2003 to consider the consensus reached by the Emerging Issues Task Force (EITF) on May 15, 2003 regarding issues related to cash balance accounting.  Read the article.
April 2003 Court of Appeals Affirms Wear-Away Does Not Violate ERISA.  The First Circuit Court of Appeals has affirmed the decision in Campbell v. BankBoston, becoming the first appellate court to consider age discrimination claims against a cash balance plan. Read the article.
July 2002 Cash Balance Report Suggests Lax Enforcement; New Court Decision Indicates Whipsaw Calculation Generally Not Required.  The DOL Office of Inspector General (OIG) has released a report reviewing the enforcement activity of the DOL Pension and Welfare Benefits Administration (PWBA) with respect to cash balance plan conversions. Read the article.
January 2002 An Empirical Analysis of the Transition to Hybrid Pension Plans in the United States.  Read the white paper.
September 2001 Cash Balance Whipsaw Upheld, Again.  Ruling against a cash balance plan’s method of determining lump sums, another federal court has held that lump sum distributions cannot be determined simply by reference to the cash balance account.  Read the article.
June 2001 Watson Wyatt Suggests Whipsaw Fix.  Legislative and legal developments have created an uncertain climate for employers who sponsor hybrid pension plans. Much of this uncertainty involves "whipsaw"—the way lump sum distributions are calculated in cash balance plans. Eric Lofgren, Watson Wyatt's Global Director of Benefits Consulting, took this opportunity to write key lawmakers to discuss the problem and suggest simple solutions.  Read the article.
May 2001 The Emergence of Hybrid Plans and Their Implications for Retirement Income Security in the Twenty-First Century.  Read the white paper.
January 2001 Adopting Hybrid Pension Plans: Financial and Communications Issues.  Read the white paper.
October 2000 Courts Rule Against Plans in Cash Balance Distributions.  Ruling against a cash balance plan's method of determining lump sums and reversing an earlier district court decision, two federal courts of appeal have held that lump sum distributions cannot be determined simply by reference to the cash balance account.  Read the article.
May 2000 Taking the Subsidy Out of Early Retirement: The Story Behind the Conversion to Hybrid Pensions.   Read the white paper.
February 2000 Whither Wear-Away?  The cash balance debate being played out in the media and Congress has focused in part on the concept of "wear-away," a method of transitioning from one benefit program to another.  Read the article.
December 1999 Benefit Conversions: Is Choice the Answer?  Amidst recent media critiques of cash balance conversions, praise has been reserved for those employers who offer their employees a choice between the old defined benefit and new cash balance formulas.  Read the article.
October 1999 Meeting the Challenge of Cash Balance Transitions.  This article is the fourth in a continuing series of Watson Wyatt commentaries on the cash balance issue. You can also find previous articles "PEP and Cash Balance: Not the Same", "Cash Balance Plans: Will Congress Take the Media" and "Cash Balance Article Raises False Alarm".  Read the article.
September 1999 PEP and Cash Balance: Not the Same Thing.  This article highlights the differences between cash balance plans and pension equity plans (PEPs), particularly when making the conversion from a traditional plan to a hybrid plan.  Read the article.
August 1999 Cash Balance Plans: Will Congress Take the Media Bait?  This is the second in a series of Watson Wyatt commentaries on the cash balance issue. The first article, "Cash Balance Article Raises False Alarm," appeared in the January 1999 Watson Wyatt Insider.  Read the article.
January 1999 Cash Balance Article Raises False Alarm.  A recent front-page article in the Wall Street Journal on cash balance plans has caused some commotion in the benefits community.  Read the article.
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 Pension Funding 
August 2003 Congress Continues Talks on Interest Rate Reform.  The U.S. Treasury Department released a controversial proposal to measure pension liabilities using a yield curve, and the Ways and Means Committee approved legislation that would temporarily use a corporate bond rate.  Read the article.
August 2003 Update on FASB Project on Revised Pension Disclosures.  The FASB has tentatively decided to make some changes to FAS 132 pension disclosures.  Read the article.
July 2003 Pension Plan Sponsors Looking for Funding Relief from “Perfect Storm” Conditions.  Read the article.
May 2003 New Portman/Cardin Bill Includes Defined Benefit Funding.  On April 11, Representatives Rob Portman (R-Ohio) and Ben Cardin (D-Maryland) introduced the Pension Preservation and Savings Expansion Act (H.R.1776), which proposes a wide range of retirement savings and pension reforms.   Read the article.
May 2003 Congress Continues Talks on Interest Rate Reform.  On April 30, the House Ways and Means Select Revenue Measures Subcommittee held a hearing on funding issues facing defined benefit plans.  Read the article.
April 2003 FASB and EITF Tackle Stock and Pension Accounting.  On March 12 the Financial Accounting Standards Board (FASB) decided to open a major project on accounting for stock-based compensation. First on the agenda will be stock options and whether they should have a compensation expense.  Read the article.
March 2003 Declining Funded Status of U.S. Pensions.  The funded status of U.S. pension plans has declined sharply since 2000, and more employers will be required to make contributions for the 2002 plan year, according to Watson Wyatt’s 2002 Survey of Actuarial Assumptions and Funding.  Read the article.
October 2002 Watson Wyatt Suggests Changes in Pension Funding Rules.  The federal government's decision to stop issuing 30-year Treasury bonds drove interest rates nearly two percentage points below other conservative long-term bond rates.  Read the article.
May 2002 Pension Plans and Interest Rates: Short-Term Relief, Long-Term Uncertainty.  In February, after a three-year buyback program for 30-year Treasury bonds that drove rates nearly two percentage points below other conservative long-term bond rates, the federal government stopped issuing these bonds altogether.  Read the article.
April 2001 Changes in Treasury Bills Vex Pension Sponsors.  As the federal government pays down the national debt, the process is yielding an unintended consequence for qualified retirement plans: lowered returns on 30-year Treasury bills, especially in comparison with other benchmark indices.  Read the article.
June 2000 Don't Miss the Forest for the Trees.  The old saying "you can't see the forest for the trees" refers to the tendency to get caught up in the details, thereby missing the more important message in the big picture. The expression seems especially appropriate with respect to the current cash balance controversy. With so much media and political attention focused on recent cash balance conversions, the debate is missing the much bigger picture—the dramatic, 20-plus-year decline in our nation's defined benefit retirement system.  Read the article.
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