Lawmakers appear to have derailed proposed federal regulations that would have encouraged tens of thousands of U.S. companies to convert traditional pension plans to a new type of retirement plan that critics say discriminates against older workers.
So-called cash-balance plans, already in place at some 1,200 U.S. companies and covering about 7 million workers, had been expected to be widely adopted by corporate America.
But in a late-night compromise, House and Senate negotiators agreed Wednesday to an amendment that would stop the Bush administration from crafting regulations that would have made it advantageous for employers to convert traditional corporate pensions to cash-balance plans.
The amendment is part of the Treasury appropriations bill, which must be approved by both houses of Congress before going to the president. Although it's possible the amendment could be cut from the final bill, congressional analysts say that is unlikely.
Congress' move to forestall the new regulations leaves the cash-balance plans in "suspended animation," said James Klein, president of the American Benefits Council in Washington, a trade group that represents big companies.
A cash-balance pension is a hybrid that aims to combine aspects of traditional defined-benefit plans -- which pay guaranteed monthly benefits for life -- and defined-contribution plans, such as 401(k) accounts.
A major difference between defined-benefit plans and cash-balance plans is that the latter allow workers to transfer their retirement benefits from one employer to another.
What has made the cash-balance plans controversial is that traditional pensions tend to provide the bulk of their benefits to workers who have been with a company the longest, while cash-balance plans tend to benefit all employees more evenly.
As a result, when companies have converted from a defined-benefit plan to a cash-balance pension, veteran workers frequently have seen their benefits cut to fund more generous payments to younger employees, said David Certner, legislative director for AARP.
In some cases, retirement benefits were cut across the board -- saving the company money, but costing employees significant sums.
Numerous California companies have adopted cash-balance plans, and several contacted Thursday -- Edison International, Northrop Grumman Corp. and Wells Fargo & Co. -- either declined to comment or said they were unsure what the action in Congress would mean long term.
Pension advocates called the legislative move a victory for workers whose pensions were reduced when their employers switched from a traditional defined-benefit pension to a cash-balance plan.
"If this stands, it will be a major victory in the fight against these age-discriminatory cash-balance pension schemes," said Rep. Bernard Sanders (I-Vt).
Added Rep. George Miller (D-Calif.): "Time and again we appealed to the administration to listen to the stories of people whose pensions were cut in half, saving their employers millions but leaving the workers with no ability to recoup their losses. The president refused to listen. Treasury Secretary Snow refused to back down. But now, on behalf of these employees, we have won."
The flap over cash-balance plans was ignited several years ago when IBM Corp. workers filed suit against the company. A judge ruled that such arrangements were illegal because they discriminated against older workers. IBM is appealing.
The Treasury Department came up with pension rules that addressed the age discrimination issue, but they were highly controversial and eventually were shelved. Wednesday's conference committee action, if it ultimately becomes law, would put those regulations on hold for a least a year.
That would leave it to lawmakers to come up with a legislative solution to the debate over cash-balance plans.
"This throws the battle to Congress," said Karen Friedman, policy director at the Pension Rights Center in Washington.
The White House on Thursday referred questions to the Treasury Department, which said it would work with Congress to find a long-term solution to the issue of cash-balance pensions.