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February 03, 2004
Treasury Proposes Plan for Cash-Balance Pensions

Under a Treasury Department proposal that could make it easier for employers to move to cash-balance pension plans, pensions that are converted to a cash-balance plan would be required to offer benefits that are at least equal to those of the traditional plan, for a period of five years after the conversion, Reuters reports.

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In traditional pension plans, workers generally accrue benefits at a greater rate as they near retirement. In cash-balance plans, workers accrue benefits more evenly throughout their careers, the news organization notes.

When companies began converting to cash-balance plans, older workers complained that it was discriminatory because their benefits declined.

The Treasury's plan would require that benefits after a cash-balance conversion be at least equal to those of the traditional plan for five years after the conversion. In order to enforce the rules, the department said it would use a 100-percent excise tax for gaps between benefits required and those offered, Reuters reports.

"We believe that, faced with such an excise tax, employers will provide the benefits required under the proposal," the Treasury said.

The department announced the plan in President Bush's budget proposal for 2005.


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