Ban on pension favoritism to be junked

The Bush administration said Monday that it would scrap -- for now -- a rule that sought to ensure that highly paid workers aren't unduly favored when companies switch to a new type of retirement plan.

The provision was contained in a broader proposal that companies would follow when they convert traditional pension plans to "cash-balance" plans, which critics say hurt older workers.

Unlike a traditional pension, which guarantees a monthly payment based on the participant's age, years of service and final income at a company, cash-balance plans provide each participant with a personal account.

The Treasury Department and the Internal Revenue Service said the broader proposal, which among other things advises companies how to avoid age-discrimination lawsuits when switching to cash-balance plans, would not be affected by Monday's action.

Plan conversions typically mean less money for workers close to retirement and have been the subject of a rash of lawsuits.

The provision jettisoned Monday said companies, in setting up cash-balance plans, "may not provide disproportionate benefits to highly compensated employees."

The Treasury Department said the proposal would have made it hard for companies wanting to make the switchover to provide certain workers with pension options, such as how they would want to accrue future benefits or whether they would want to be grandfathered under the traditional pension plan.

"The proposed nondiscrimination regulations would have had the unintended effect of making it more difficult for employers to provide workers with transition relief in cash-balance conversions," said Pam Olson, the Treasury Department's assistant secretary for tax policy.

The government said it intends to rework the provision.

Rep. Bernie Sanders, I-Vt., applauded the decision. He will introduce legislation today requiring companies that convert to cash-balance plans to allow most workers to stay in their traditional pension plans.

"Now we have got to continue pushing to make sure that the next round of regulations don't allow companies to cut their employees' pension in violation of federal age-discrimination laws," he said.

Currently, there is a moratorium on government approval of conversions to cash-balance pension plans. But the ban will be lifted if the Treasury Department's regulations are adopted.

The Treasury Department plan has drawn concern from some lawmakers, which had thrown a snag in Senate confirmation for Treasury Secretary John Snow.