U.S. lawmakers hit cash balance pension rules

By Susan Cornwell

WASHINGTON, Nov 13 (Reuters) - Congressional negotiators agreed on Wednesday night to block the Bush administration from finalizing its proposed pension rules on cash balance plans in an attempt to stop changes that can reduce payouts to older workers.

But the lawmakers also said the Treasury must offer legislation within 180 days on how best to convert traditional pensions to the newer cash balance plans -- giving the administration another chance to set out a regulatory framework for such changes that Congress might embrace.

The Treasury proposed regulations for cash balance conversions last year, but the Senate recently voted to block these regulations, and the House voted to forbid the Treasury from trying to overturn a court ruling in a cash balance conversion case involving International Business Machines Corp (nyse: IBM - news - people).

Negotiators from both chambers had to reconcile the two approaches as part of the annual spending bill that funds the Treasury Department. They basically embraced the Senate provision and dropped the House language involving the court case.

The compromise bill must now be passed by both the House and Senate before it becomes law.

The controversy over conversion to cash balance plans comes as companies struggle to fund traditional pension plans and Congress and pension regulators wrestle with ways to curb growing bailouts of older-style plans.

Benefits in traditional "defined benefit" pension plans are typically based on a formula that factors in the length of employees' service and their highest salaries earned over the years, which tends to boost the payout for older workers.

In a cash balance plan, however, an employee's average salary over the years and contributions by the company are deciding factors. While employers can save money by converting to cash balance plans, older workers complain their pensions are reduced as a result.

Employers' groups say more than 400 major companies have adopted cash balance plans and other hybrid pension plans. They also say that blocking these conversions would discourage employers from making commitments to retirement security.

But Iowa Democrat Sen. Tom Harkin, who proposed the Senate-passed amendment last month to stop Treasury finalizing its rules, said he was not trying to stop all cash balance plans -- just conversions that would hurt older employees.

Copyright 2003, Reuters News Service