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Nest Egg: All ages have a stake in pension plans

By Jerry Heaster, The Kansas City Star

September 21, 2003

The traditional defined-pension benefit system that has helped provide comfortable lives for millions of post-war retirees may not survive the controversies besetting the system.

The headline focus of late is the conflict over traditional pensions versus cash balance plans. Traditional plans favor older employees because they reward longevity and rising earning power.

Cash-balance advocates say they're more equitable for younger workers, because annual employer contributions accrue evenly and earn guaranteed interest returns.

Opponents claim cash balance pensions would short-change today's older workers by cutting their benefit substantially on the verge of retirement. Attempts to change the rules of the game result from corporate greed, they say, because switching to cash-balance plans enhances profits by saving on pension funding.

The legality of the cash-balance plans has been challenged, and the Treasury Department had been expected to issue regulatory approval of cash-balance plans until House opponents recently approved a legislative proposal designed to block Treasury's blessing.

The issue, meantime, hasn't gotten nearly the public attention it deserves, probably because it's as complicated a matter as it is divisive.

Opposing cash-balance plans seems righteous because it's just not fair to change pension rules abruptly without a grace period of transition that spares today's older workers significant financial damage.

Conversely, the change appears to achieve a righteous goal by improving the lot of young, mobile workers by allowing them to grow pension nest eggs more quickly from the time they start working.

My sympathies are divided by personal experience. My job-hopping as a young newsie delayed my first pension-plan vesting until my mid-40s. A cash balance system would have served me well early in my career.

After nearly 25 years with one employer, however, my traditional pension reward is nearing and to be denied a big chunk of it would be devastating. Thus, self-interest dictates a high regard for honoring tradition.

In other words, I am a quintessential example of the potential societal conflict inherent in changing the rules.

What also must be acknowledged, though, is that government can't force employers to offer pension plans. My paternal grandfather died with no private pension and a very meager Social Security benefit. My father retired with a modest company pension, but a much more generous Social Security benefit than his father received.

Thanks to society's progress, my lot will be vastly superior to theirs, no matter what happens. It's my hope that my children will do even better.

They won't, however, if society discourages employers from retaining defined-benefit plans by demanding more than companies are prepared, or able, to give. We're already seeing a trend of proliferating defined-contribution plans, such as 401(k)s, as companies find defined-benefit plans increasingly less appealing.

As is always the case -- whether it's Social Security, Medicare or corporate pensions -- a balancing of intergenerational interests will be imperative to serve the needs of all those with a stake in the outcome.