Ethics Newsline®

LOS ANGELES
A new and popular type of pension plan may violate federal antidiscrimination laws, according to a confidential Internal Revenue Service (IRS) memo revealed last week by the Los Angeles Times.

The growing controversy centers on so-called “cash-balance” plans, which cut benefits for workers with many years of service while increasing incentives for younger workers to leave before retirement, thereby cutting a company’s overall costs.

Forty members of Congress have petitioned the Labor Department and the Equal Employment Opportunity Commission to investigate cash-balance plans for compliance with federal age-discrimination laws.

Lead critic Rep. Bernie Sanders (I-Vermont) leaked the confidential 1998 IRS memo, claiming that “if the rate of accrual goes down as workers get older, then the plan violates the law.”

Such plans have recently been adopted by more than 300 U.S. companies, including IBM, the Associated Press reported.

IBM spokeswoman Jana Weatherbee told the AP that the new plan was an adjustment to a changing market.

“We still spend the same amount of money on our people,” Weatherbee said, “but we shifted some money from the pension plan to cash compensation and stock options. The predominant work model today is that you don’t spend your whole career at one company.”