Another Editorial against Bush's cash balance proposal

[Andy Lang]

Editorial: Shorting older workers


Bush rules open doors to smaller pensions


Bee Editorial Staff
Published 2:15 a.m. PST Tuesday, December 31, 2002
Imagine you are a 56-year-old worker. You've put in 20 years at Widgets Inc., forsaking other jobs because you trusted in the company's promise to pay you a decent pension at age 65 based on your long, loyal service to the firm. And then the company announces it is changing your pension plan in a way that will reduce the pension you receive at retirement by 30 percent or more.

Unimaginable? Unfortunately not. The Bush administration -- a government of the CEOs, by the CEOs, for the CEOs -- this month announced rules on pension conversions that will again open the way for firms to reduce their pension costs (and raise their stock prices and CEO compensation) by pulling the rug out from their older employees. Only a change of heart by the administration, or action by Congress, stands in the way.

At issue in the Treasury rules is the practice of converting traditional pensions to so-called cash balance plans. Conversions became all the rage in the corporate world in the late 1990s, until the Clinton administration placed a moratorium on the practice in 1999. The Bush rules would end that moratorium.

Converting was a way to make companies more attractive to younger workers while cutting back on expensive promises to older ones. To understand why, consider the differences between a traditional pension and a cash-balance plan.

Under a traditional pension, workers accumulate pension wealth under a formula that multiplies the number of years served times a fixed percentage, say 1.5 percent, of final or highest-five-years wage. Since two elements of that formula -- service time and wages -- typically go up with age, workers in traditional plans accumulate most of their pension credit after age 55 and very little in their younger years.

In a cash-balance plan, however, the employer contributes a fixed percentage of a worker's wage, say 4 percent, to a cash-balance account and then guarantees an interest rate return on that balance. The worker takes the cash balance at retirement or can roll it over when changing jobs. Because the cash-balance formula doesn't have a length-of-service factor, pension wealth builds up at a steady pace over time, and companies with a large share of workers nearing retirement don't have to make outsize contributions to fund their pensions.

There's nothing inherently wrong with cash-balance plans. Because they provide a steady pension buildup and portability, they may be better suited to today's economy, where workers switch jobs more often.

The problem comes, though, when companies convert. Older workers who stayed with a company and based their retirement savings plans on the promise of a traditional pension plan that builds most of its benefit in the final years of a career can suddenly find themselves in a cash-balance plan where they are accumulating little or no extra pension benefit. They face the prospect of a pension far smaller than they had planned and little time to make up the difference.

That's unfair. Congress needs to require companies converting to cash-balance plans to let older workers have the choice of staying in the traditional pension plan. Loyalty is a two-way street, and it's wrong to sacrifice it to temporary profits.

[Andy Lang]

Tsk ,tsk, pension actuaries at work and play...


ADVERTISEMENT



By virtue of their unique ability to make the complex calculations to
properly price out defined benefit pension plans, pension actuaries
are the only ones to design defined benefit pension plans, and since
they do this, they also have a good deal to do with the employee
communications of these plans.

So what if some very smart people, like, say a nuclear engineer,
cannot figure out, say a cash balance pension plan designed by said
actuary.

Could it possibly be that said actuary is trying to blow smoke,
obfuscate, and otherwise confuse and even hide the fact that such
plans severely cut benefits to older people, and in many cases also
cut future benefits to younger folks too?

Naaw--but here is one article that seems to say just that:

Pension plan puzzle

Cash-balance system a bit murky, may hit older workers hardest

By Craig D. Rose
UNION-TRIBUNE STAFF WRITER

December 29, 2002

To say that Jim D'Aoust was baffled by changes in his pension plan is
saying a lot.

D'Aoust was trained as a nuclear engineer and works as a project
manager at the San Diego Supercomputer Center. But those credentials
left him ill-equipped to figure out what he was owed when his former
employer, General Atomics, converted his pension program to a cash-
balance plan.

The new plan included many features employees have come to expect
from 401(k) investment programs, particularly its benefits expressed
as a lump sum total. But like traditional pension plans – and unlike
401(k)s – these accumulated benefits can never be reduced.

Converting from a traditional to cash-balance pension program,
however, is complex and has led to charges of shortchanging some
workers.

Five years after leaving the company – and receiving a check claiming
to correct past errors – D'Aoust remains unsure whether he was
treated fairly by the conversion of his plan.

But he's drawn one conclusion.

"I realize how much the new plan was designed for the company and not
in the interest of employees," said D'Aoust.

Others are more critical, alleging that cash-balance pension plan
conversions violate the law. Around the country, these conversions
have sparked more than 900 complaints of age discrimination at the
Equal Opportunity Commission. Critics say the plans are little more
than a smoke screen for cutting benefits to older workers.

In 1999, the large volume of complaints prompted the Internal Revenue
Service to withhold approval of new conversions. But this month, the
Department of the Treasury proposed new rules that could reopen the
door to the creation of more cash-balance plans.

The new regulations are subject to a 90-day comment period, followed
by a hearing in April.

"We expect the rules to become effective more or less as written,"
said Jim Jaffe, a spokesman for the Employee Benefits Rights
Institute.

"We expect a big, quick shift to cash-balance pension plans when that
happens. There's enormous pent-up demand among employers who have
been holding back because of a lack of clarity."

While pension advocacy groups continue to study the new regulations,
many say they've already concluded that the proposals fall short of
offering adequate protection to older workers.

Business groups, meanwhile, insist that cash-balance accounts are
simpler to understand and more beneficial for job-hopping younger
workers.

The companies concede that converting to the new plans can save them
money at a time when many would otherwise face obligations to fund
their traditional programs. In fact, retirement plans for Standard &
Poor's 500 companies are underfunded by more than $240 billion,
according to a recent Credit Suisse First Boston report.

"If one or more of the motivations of going to cash balance is to
save money, which it undoubtedly is in some circumstances, there's
nothing wrong with that," said James Klein, president of the American
Benefits Council, an advocacy group for the nation's largest
businesses.

But Klein insisted that money isn't the most frequent motivating
factor. He and others say these cash-balance programs are more
attractive to job-changing younger workers.

With features like 401(k) savings accounts, cash-balance plans share
the key protection of traditional pensions: Both are defined benefit
programs and therefore provide a guaranteed retirement payment.

Conventional retirement plans and cash-balance accounts provide that
benefits earned after a vesting period – typically five years –
cannot be forfeited or lost.

This contrasts with 401(k) accounts, which only guarantee an
employer's contribution and can suffer losses – a lesson many
investors have learned as the stock market tumbled in recent years.

But while traditional pension plans state benefits in terms of
monthly income upon retirement, cash-balance plans express benefits
in lump-sum terms.

Cash-balance plans also differ in the way in which benefits grow.

Unlike older defined benefit programs, which award far larger annual
benefit increases in the years at the end of employee's career, cash-
balance plans increases tend to grow more evenly across a person's
working years.

Consider a 25-year-old beginning his career at an annual salary of
$36,000, with 4 percent annual raises.

After 20 years, the employee would accumulate a lump sum retirement
benefit of about $91,000 under a typical cash-balance program. Under
many traditional pension plans, that same worker would accumulate a
benefit of $85,000.

But at age 55, the employee would earn a lump sum of $225,000 under a
cash-balance plan, lower than the $347,000 from a typical traditional
program.

When the employee reaches age 65, the cash-balance plan would yield
$494,000, or less than 40 percent of the $1.3 million retirement
benefit from a traditional plan.

Many traditional plans also provide subsidies for employees who
retire before their scheduled retirement date, while cash-balance
plans tend to eliminate these bonuses.

When a plan is converted from traditional to cash balance, older
workers find themselves caught midstream: They haven't received the
higher level of benefits early in their careers that would have been
provided by a cash-balance program – and they won't get the big boost
expected at the end from a traditional program.

Even worse, veteran workers caught in plan conversions sometimes
learn that the benefits they already earned – which federal law says
can't be reduced – are higher than they would receive in a cash-
balance plan.

Some companies in these cases make no annual pension contributions to
the employee's account until the benefit under the new plan "catches
up" with the benefit the worker has already earned.

These years without pension contributions have become known as "wear
away" periods and are cited as a prime abuse of plan conversions. The
prospect of "wear aways" helped spark an employee revolt when IBM
first considered a conversion to cash balance.

Joseph Andrew Maher, a customer engineer at IBM for 23 years, said
the planned conversion would have cut his projected pension from
$24,000 annually to $16,000.

Faced with the revolt and a union organizing drive, IBM agreed to
allow older workers to keep their traditional pension programs.

Critics say the Treasury Department's proposed regulations also fail
to eliminate questions about the interest rates that employers assign
to the new breed of pension plans. These can be thought of as
guaranteed growth rates; the higher the rate, the faster and larger
the projected pension benefit will be.

The proposed regulations require that such assigned rates
be "reasonable."

"That is far too open-ended and will lead to problems," said David
Certner, director of federal affairs for the AARP, a national
association for older people.

Norman Stein, a pension expert and professor of law at the University
of Alabama, says the proposed regulations could legitimize cash-
balance plans that he believes are inherently age-discriminatory.

"I think the law is pretty clear that almost every cash balance is
structurally defective," said Stein. "If the proposed regulations had
not blessed the plans, Congress would have had to think what type of
cash-balance programs should be permitted."

Some are companies say they've compensated for potential problems
with plan conversions.

Sempra Energy, which converted its pension program in 1998, crafted
its new plan with unionized employees. Sempra, parent company of San
Diego Gas & Electric, gave older workers the option of keeping their
traditional plans for five years and added subsidies in cases where
the conversion would have penalized employees.

"There are no 'wear aways' and you will never be worse off," said
Joyce Rowland, senior vice president of human resources at
Sempra. "There might be one person who was so unique who we didn't
catch them, but for the majority of workers, 99.9 percent, this works
very well."

Added Dave Moore, president of the International Brotherhood of
Electrical Workers Local 465, which represents some SDG&E
workers: "We did not make the mistake that IBM made. We made
adjustments, and they had to negotiate with us."

Sempra insists it's not saving money as a result of the pension
conversion.

And some business consultants say cash-balance programs could halt a
decline in the percentage of workers covered by any type of defined
benefit program, which guaranteed retirment payments.

But critics say there is no evidence that cash-balance conversions
halt the slide in defined benefit coverage.

"The evidence is overwhelming that this is a method to cut costs,"
said Lynn O'Shaughnessy, author of "The Retirement Bible."

"I'm not aware of any companies who have embraced cash balance to
start a new plan. It's always to change their old plans."

The Pension Rights Center, a Washington, D.C.-based consumer group,
also argues that cash-balance conversions are cost-cutting measures
and talk of helping anyone with the changeover is a smoke screen.

"This is not being done to help younger workers," said Karen Friedman
of the pension center. "This is being done to hurt older workers.

AARP, the national advocacy group for retired people, is also
skeptical of claims that cash-balance accounts make retirement plans
more understandable.

"During hearings on cash-balance plans a few years ago, tapes were
played of consultants saying one of the benefits is that employees
would not know what their benefit would be, that they'd not
understand their benefits were being reduced," said Certner.

But Klein, of the American Benefits Council, which supports the
conversions, cited Delta Air Lines and others that added cash-balance
plans while allowing workers to retain their old plan, depending on
which provided the greater benefit.

"These companies are not saving any money," said Klein. "The ultimate
way to save money is to do what the vast majority of companies are
doing and terminate the defined benefit plan. Companies converting to
cash balance ought to be applauded for staying with a defined benefit
system – with guaranteed benefits."

With frequent job changes, younger workers prefer 401(k) plans and
the portability of cash-balance pension plans, he said.

But Judi Apfel of the California Pension Rights project is skeptical
that portability is useful to many younger workers.

"You still have to vest," said Apfel. "I seem to recall that the
average young worker is leaving before five years (required for
vesting) anyway, so the portability feature does not help that much."

And despite claims that new plans are simpler, companies seem to have
difficulty calculating benefits.

In a spot check of 60 cash-balance plans earlier this year, the Labor
Department found 13 underpaying benefits when workers left before
normal retirement age.

All told, the Labor Department says cash-balance accounts may be
shortchanging retirement benefits by $200 million annually.

General Atomics was one of the companies.

Jack Laufer, a Hewitt Associates consultant who advises General
Atomics on its pension program, said the problems in the company's
plan had nothing to do with age discrimination, but instead resulted
from the complex formulas used to project benefits and then
recalculate backward to arrive at lump sums.

He did not know how many employees had been shortchanged, but said
that the problem has been solved.





----------------------------------------------------------------------
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Craig Rose: (619) 293-1814; craig.rose@uniontrib.com

[Andy Lang]

Here is a whole bunch of good stuff:

Please see http://www.ibmemployee.com/ for summary highlight links to message board postings and press articles of interest to IBM employees, retirees, investors, friends, and persons interested in cash balance pension and corporate governance issues. If your e-mail program supports HTML mail, you may access this week's news directly using the links below. Otherwise, please open your Web browser to http://www.ibmemployee.com/. As for the past two weeks, most of this week's articles focus on the proposed Treasury Department rules regarding cash balance pension plans.

***

There is and has been for some time a pension revolution going on. At this point it might be a good idea for actuaries not to be on the Tory side. You can run, but you can no longer hide.

[glenn]

So what if some very smart people, like, say a nuclear engineer,
cannot figure out, say a cash balance pension plan designed by said
actuary.
The same holds true in reverse then, right?
Andy, you are/were an actuary. This means you are a smart person. Then one of the following must be true:
a) you can figure out all the intricacies of a nuclear power plant including how fission (or fusion, who knows?) works, in a couple of evenings. Or:
b) the nuclear engineers who designed the power plant made it purposefully complex. And that God fellow made chemistry WAY to complicated for no good reason.

Hey! I'm smart. And I've been reading up on medical practices on the internet. Would the reporter like to be first on the slab at my new appendectomy clinic?

[/img]

[aces219]

If the company chooses to cut pension costs, how is that the actuary's fault? If they choose to screw their older workers, that's their moral dilemma. Yes, there is that idiot actuary who got himself caught on tape, and I don't agree with his sentiment. Perhaps as consultants we can best serve our clients by making them fully aware of all the issues surrounding cash balance plans and encouraging them to do the right thing.

[Westley]

"The ultimate way to save money is to do what the vast majority of companies are doing and terminate the defined benefit plan. Companies converting to cash balance ought to be applauded for staying with a defined benefit system – with guaranteed benefits."


This is the key part of the article. The revolution you are trying so hard to pretend is happening, will do nothing but get rid of all DB plans. I'm not saying that's bad, it would be fine with me, but I don't know why you keep trying to claim you are trying to save DB plans, then propose a bunch of rules that will guarantee that all employers will get rid of theirs.

[Andy Lang]

Actuaries as the 'premier risk managers'?

How about the premier 'professionals' systematically destroying American retirement security?

Changes may shrink nest eggs
By Susan Strother Clarke
Sentinel Staff Writer

January 5, 2003

When Marilyn Bowden began her career at Delta Air Lines more than two decades ago, she didn't think much about retirement.

But with all the problems facing the airline industry today, the 44-year-old Bowden has given plenty of thought to life after Delta. And now, on top of just keeping her job, she worries that the income she counted on in retirement will be slashed.

Late last year, Delta announced it would phase out its current pension plan and replace it with a so-called cash-balance plan. The move will save the beleaguered carrier $500 million over the next five years, but it will reduce retirement benefits for an untold number of employees.

"I do have concerns about getting my pension," said Bowden, an Atlanta-based flight attendant. "I don't think I will get what I planned on."

New rules proposed by the U.S. Treasury Department could prompt many more companies to adopt cash-balance pensions this year. Such plans are already in place at several hundred businesses, including Darden Restaurants, BellSouth Corp. and AT&T.

Proponents say the plans are good for companies because they are cheaper to operate than conventional plans. Cash-balance plans are good for younger and short-term workers, too, because benefits add up relatively quickly. The pensions also are portable, meaning the benefits move with employees as they change jobs.

Yet critics say that problems can occur when companies convert existing pensions to the newer plans. Older, long-term workers can wind up with smaller retirement incomes because the change causes them to miss out on the best-earning years of their conventional pension.

IBM Corp. was the poster child for criticism of such plans. It announced its intention to convert its existing pension to a cash-balance plan in 1999. Workers rallied to oppose the effort. Some sued the company. The computer maker relented and allowed older employees to remain in the conventional pension.

Concerns about age discrimination sparked the Clinton administration to impose a moratorium on cash-balance plans three years ago. Companies can still adopt the plans, but they do not receive the approval of the Internal Revenue Service -- meaning they could be subject to back taxes or penalties.

The Bush administration's new proposal, which could take effect by mid-year, would lift the IRS moratorium and make it legal for companies to offer cash-balance plans even if older workers' benefits are reduced. The proposal also gives companies the right to temporarily stop contributing to the pensions of older workers so younger workers in cash-balance plans can "catch up."

"I think this will be a huge raid on the pensions of millions of workers, who will end up receiving 30 percent to 50 percent less than what they anticipated," said U.S. Rep. Bernie Sanders, I-Vt., who has been a leader in Congress criticizing the plans. "Unless we stop this, a whole lot of middle-class families are going to be hurting big time."

Benefits are 'defined'

Both conventional pension plans and cash-balance plans are what are known as "defined-benefit" pensions -- meaning that workers are paid a specific benefit when they reach retirement.

Conventional pensions are generally back-loaded: The payments a worker receives at retirement are based on a computation of wages and years of service. The worker accrues the largest portion of the benefits toward the end of employment, when tenure with the company and salary are the greatest.

Cash-balance plans operate differently, almost like a hybrid of an old-style pension and a newer, 401(k) retirement plan. The benefit that workers receive is typically 3 percent to 5 percent of their salary each year. The percentage doesn't change regardless of the length of service.

The benefit is put into an account each year and earns a rate of interest tied to a government-backed security. Such plans favor younger workers who have more time to build benefits. At retirement, workers receive the money in their account or an annuity that pays them a benefit each month.

Critics of cash-balance plans include unions, pension-rights groups and some members of Congress. They have vowed to fight the new Treasury proposal. The government is accepting comment on the proposals until March. A hearing is planned in Washington in April.

At the very least, Sanders hopes to force companies that adopt cash-balance plans to give existing workers the option to stay with the conventional pension.

Without that, he said, "Few companies will respect the tenure of older workers."

The cash-balance initiative comes at a dicey time for U.S. retirees. In the past decade, a lot of companies have dropped conventional pensions and have substituted 401(k) investment-style accounts -- "defined-contribution" plans that offer no guarantee as to the size of the benefits they'll ultimately pay.

About 65,000 conventional pension plans exist today -- only one-third as many as two decades ago. And an increasing number of those plans have financial problems. The Pension Benefit Guaranty Corp., the government agency that insures pensions, took control of 157 under-funded pension plans during the past fiscal year -- a 55 percent increase from the year prior.

The American Benefits Council, a business-advocacy group in Washington, D.C., supports cash-balance plans. Such pensions appeal to today's more mobile work force, the organization says. Moreover, by saving companies money, the plans may help stem the tide of company-sponsored pensions being eliminated.

"Cash-balance plans are the one bright light in a dismal picture of defined-benefit plans," said Jim Klein, president of the organization.

Darden has cash-balance plan

Some companies have switched to cash-balance plans with little or no pain among existing employees. Orlando-based Darden Restaurants, which owns the Red Lobster and Olive Garden chains, made the change seven years ago. Employees were given the choice of staying with the conventional plan or opting for the new one. Predictably, older, long-term workers tended to stay with the conventional plan, a spokesman said.

Similarly, Kodak Corp. switched to a cash-balance plan three years ago. It also gave employees a choice and found that older workers stayed with the conventional plan, said Rita Metras, the company's director of worldwide benefits. The Rochester, N.Y., company also spent a year communicating with employees, providing them with online tools and personalized mailings so they could make an informed decision on which plan to choose.

"The change helped us recruit for talent," Metras said. "Younger workers are not real impressed" with a conventional pension. "They want to know, 'What are you going to do for me today?' "

Yet it doesn't always work that way. Delta expects to have its cash-balance plan in place on July 1. Existing employees will be able to keep their conventional pensions until 2010 if calculations show that gives them a larger retirement income, said Dr. Miles Snowden, a director of health services in the company's human resources department.

Still, even with that protection, some employees will receive smaller pensions than they would have under the conventional plan.

"We have said from the beginning that part of this change will be necessary to reduce our expenses," Snowden said. "Certainly, one can't reduce expenses without reducing benefits to some degree."

Susan Strother Clarke can be reached at sclarke@orlandosentinel.com or 407-420-5414.

[Aaron Brachowitz]

Andy, do you really think that posting articles written for the general public on an actuarial discussion board really accomplishes anything, other than perhaps to reveal gaps in the author's knowledge of the subject?

[Roberbola]

Here here! The LAST place anyone should go for an informed discussion of DB plan topics is the mass media. They consistently reveal their ignorance in these articles, not to mention their political persuasion (which is usually just as ignorant.)

The fact that AL consistently posts these biased and uninformed articles with nothing more than anecdotal evidence (do these reporters look for the most pathetic cases out there or what?) and emotional class-baiting themes makes his case look less attractive in my eyes, not more.

[Andy Lang]

Those 'most pathetic cases' include nearly every employee group of every large company in America--pretty angry folks in the tens of millions who have gotten robbed of their pension benefits due to flaws in pension laws that have systematically been taken advantage of by major firms with help from their hired guns, the pension actuaries.

If you are so smart, let's see you give the answer to how you divide up a promise of big bucks at age 65, equiitably over each employees participating servcice in the DB pension plan, so that at any point in time , you get exactly n/t times the value of that promise.

Hey dummy, it's a compound interest problem--you know the one in that exam you say that Enrolled Actuaries had to pass to become a 'public servant', working on behalf of the plan plan participants, I believe it says EA's are supposed to be doing.

It is trivial problem, but I have yet to see anyone here or on the SOA forum answer it.

Yo ucan skip the mortality part, cause it seems to me you guys ain't too good with that stuff either, and besides including it is a minor element anyway, and I do not want to get you distracted too much, lest you lurch into some obfuscatory nonsense, or simply confuse yourselves with your own brilliance.

[Botsy]

:roll:

What we need is to be more restrictive on DB plans and have MORE LEGISLATION. Wonderful ideas.

All hail Lord Andy for attacking these corporate devils, thus convincing them to terminate (or freeze or curtail) their DB plans.

[Andy Lang]

[What we need is to be more restrictive on DB plans and have MORE LEGISLATION. Wonderful ideas.]

Whjatwe need is more restrictions of the activities of actuaries, to FIX the backlaoding problems---using the righjt way to do a cash balance plan--and then you can eliminate maybe more than half of those dreaded laws you bitch about so often.

Most of the latter were put in to contain actuaries behavior and to try and prevent the backloading end results--which I remind you have resulted in tens of millions of employees nationwide getting screwed out of their pension benefits, first by stealing the 'surpluses' directly, then by stealth in a whole host of ways--like 401(h) for example--and then such outrages as cash balance plans, which are illegal--age disrimination you know, as well as breaking the rules under which EAs are supposed to be operating, and raking in all that loot all the while.

They are also immoral and unethical.

Simplification can occur on a vast scale, provided we do all the stuff I just said to do--including perhaps some nice comfortable white collar criminals going to prison--just like the ones at Anderson and some CEOS and CFOS will soon.

The cost of a corrected DB plan that provides good benefits--related to final pay, and even with lifetime CPI increases is small--perhaps no more than 6% of pay.

Had you done your homework assignements Botsy, you would know all that. You do know something about compound interest, do you not?

You have learned something about ethics this past year, have you not?

No---? Better check into Enron, WorldCom, Global Crossing, etc., etc.

The roof is going to come crashing down on Mr Bush and those in the management consulting business who have been actively doing cash balance plans--and sooner than you think.

You might wan't to find a new career, Botsy.

Try the life and health insurance industries--they are gearing up for the bonanza they will reap from privatization of SS and Medicare and of course from the dissapearance of DB pension plans in favoir of DC plans, but alas, alack they too will have a big surprise.

Maybe you want to be a Wall Street broker---oops--that too is very short term.

Well I know there is something you can do...

[Botsy]

Andy, since you like tests so much:

Pop Quiz

Regulations requiring a more back loaded approach to Cash Balance (CB) plans will:

a) Cause a rush of new CB plans trying to take advantage of the new tougher rules;
b) Cause many CB plans to freeze benefits or terminate and move towards a DC approach;
c) Nothing except provide better benefits for future retirees;
d) Start an Andy for pres. campaign.

Please give evidence to support your answer.

[Jack]

ACES213 wrote
the company chooses to cut pension costs, how is that the actuary's fault? If they choose to screw their older workers, that's their moral dilemma. Yes, there is that idiot actuary who got himself caught on tape, and I don't agree with his sentiment. Perhaps as consultants we can best serve our clients by making them fully aware of all the issues surrounding cash balance plans and encouraging them to do the right thing.

Aces213 should re-read the Code of Professional Conduct Precept 1. "An Actuary shall act honestly, with integrety and competence, and in a manner to fulfill the profession's responsibility to the public and uphold the reputation of the actuarial profession."

If your aware that conversion to cash balance plans screw older workers, which they clearly do, your participation may violate your responsibility to the public.

[wonderer]

The conversion to cash balance may also clearly keep the retirement plan from terminating and clearly save a bunch of jobs.

This is at best a moral dilemma. Actuaries should be campaigning for more disclosure of what is being done and should not be advocating plus or minus on the level of benefits in my opinion.

[mikey]

Jack

I think you have to think about precept 1 for sure. But we all know that when a plan terminates or freezes with no replacement or even a DC replacement, ALL the participants get screwed. So, are we prevented by precept 1 from doing any calculations regarding these situations?

[aces219]

It's Aces219, by the way. I guess I should have read the Code of Professional Conduct in the first place - I'm still taking exams so I haven't been formally exposed to it. Given the choice of the evil of converting to cash balance with some wearaway vs. IMHO the greater evil of getting rid of a DB plan altogether, I'll take the first option. Given the choice of bankruptcy or terminating the DB plan, I guess I would terminate the plan so at least some people could keep their jobs. All conversions don't screw older workers, anyway. It just depends on the situation.

ACES213 wrote
the company chooses to cut pension costs, how is that the actuary's fault? If they choose to screw their older workers, that's their moral dilemma. Yes, there is that idiot actuary who got himself caught on tape, and I don't agree with his sentiment. Perhaps as consultants we can best serve our clients by making them fully aware of all the issues surrounding cash balance plans and encouraging them to do the right thing.

Aces213 should re-read the Code of Professional Conduct Precept 1. "An Actuary shall act honestly, with integrety and competence, and in a manner to fulfill the profession's responsibility to the public and uphold the reputation of the actuarial profession."

If your aware that conversion to cash balance plans screw older workers, which they clearly do, your participation may violate your responsibility to the public.