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April 08, 2003
Cash-Balance Rule Withdrawn

The Treasury Department and the Internal Revenue Service announced Monday that they were withdrawing part of a proposed regulation concerning age discrimination in retirement plans.

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The proposal had been part of a broader proposal for companies to follow when they convert traditional pension plans to "cash balance" plans. Critics say cash balance plans hurt older workers.

Treasury and the IRS said the broader proposal, which among other things advises companies on how to avoid age-discrimination lawsuits when switching to cash balance plans, would not be affected by Monday's action.

The Associated Press reports that the provision jettisoned Monday said companies, in setting up cash-balance plans, "may not provide disproportionate benefits to highly compensated employees."

Plan conversions typically mean less money for workers close to retirement and have been the subject of a rash of lawsuits.

Treasury said that the proposal would have made it hard for companies wanting to make the switchover to provide certain workers with pension options, such as how they would want to accrue future benefits or whether they would want to be grandfathered under the traditional pension plan.

"The proposed nondiscrimination regulations would have had the unintended effect of making it more difficult for employers to provide workers with transition relief in cash balance conversions," said Pam Olson, Treasury's assistant secretary for tax policy.

The government said it intends to rework the provision, according to the AP.

Currently, there is a moratorium on government approval of conversions to cash balance pension plans given all the concerns about them. But the ban will be lifted if Treasury's regulations ultimately are adopted.

Treasury's plan has drawn concern from some lawmakers on Capitol Hill, which had thrown a temporary snag in the Senate confirmation process for Treasury Secretary John Snow.


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