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Wrong Payouts Are Uncovered in Pension Plan

By: Steven Greenhouse
The New York Times, May 8, 2002

The Labor Department's inspector general has found that more than 20 percent of cash-balance pension plans violated the law by not providing workers with all the benefits due them.

In a study of 60 cash-benefit plans, the inspector general found that 13 plans were underpaying participants by a total of $17 million a year, primarily by using improperly low interest rates to calculate benefits. Extrapolating from these findings, the study estimated that the nation's 300 to 700 cash-balance plans were underpaying workers by $85 million to $199 million a year.

Under cash-balance plans, employees earn retirement benefits evenly throughout their careers. With traditional plans, benefits are figured using an employee's length of service and final pay, so most benefits are earned late in the person's career. By converting to cash-balance plans, companies often save money and favor younger workers.

The plans have come under criticism in recent years, and 800 workers at more than 30 companies have asked the Equal Employment Opportunity Commission to find that they violate age discrimination laws.

The inspector general called on the Labor Department division that oversees pensions to be more aggressive in protecting participants in cash-balance plans.

Ann L. Combs, the assistant secretary in charge of the Pension and Welfare Benefits Administration, questioned the report's breadth and interest rate assumptions. She said she was not ready to commit to more enforcement until the department heard from the Internal Revenue Service, which shares responsibility in enforcing the Employee Retirement Income Security Act.

The inspector general's report was made public yesterday by Representative Bernard Sanders, a Vermont independent who opposes cash-balance plans. It found that in some plans individual workers were being shortchanged by $55,629.

"This report proves that a number of companies are illegally slashing the pension benefits of their employees by hundreds of millions of dollars every single year by shifting to cash balance plans," Mr. Sanders said. The inspector general's office did not name the 13 companies found to violate the law.

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