If one wishes to stay informed about pension issues, not reading the Wall Street Journal’s Ellen Schultz and Theo Francis is a must. They aren’t merely left-wing; they are astonishingly ignorant of their subject matter. It’s as if sports reporting were assigned to a couple of guys who can’t tell home runs from touchdowns.
The pair’s latest piece [link probably for subscribers only] is, even by their standards, a classic. It editorializes about Revenue Ruling 2008-7, released last Friday, which addresses two issues that arise when a traditional pension plan is converted into a cash balance plan. The first is whether a technique known as “wearaway” is (or, to be precise, was – the law was recently changed to prescribe a different preservation method for conversions occurring after June 29, 2005) a proper method for preserving benefits that accrued before the conversion. The second is whether a plan may offer participants the better of a cash balance or a traditional benefit formula.
Issue one isn’t very controversial, except in the minds of a few leftists, like the Schultz-Francis duo, who really and truly hate cash balance plans, and would like to punish companies that install them. The ruling needs only a couple of paragraphs to dispose of the legal objections that have been raised against wearaway, agreeing with the court decisions that have rejected such arguments (and go unmentioned by Schultz and Francis; Register v. PNC Financial Services Group, Inc., 477 F.3d 56 (3d Cir., Jan. 30, 2007) and Custer v. Southern New England Telephone Co., 2008 U.S. Dist. LEXIS 5067 (D. Conn., Jan. 24, 2008)).
Issue two is trickier. A great many converted plans allow some or all of the employees who were participants at the time of the conversion to take advantage of either the cash balance or the traditional formula, whichever produces the higher pension at the time of retirement. For a young participant, the cash balance accrual is ordinarily faster. As he ages, the gap diminishes until it reaches a crossover point, after which the traditional formula is superior. The “greater-of” technique adjusts benefits upward for participants who start on one side of the crossover and work long enough to reach the other.
Owing to a glitch in the regulations under section 411(b) (commonly called the “backloading” rules), this benign practice is legally dubious. The IRS noticed the problem last year when it began reviewing cash balance plans’ determination letter applications, which had been in limbo for several years awaiting legislative action on various politically delicate issues. Over a thousand plans were threatened with disqualification on this ground. Revenue Ruling 2008-7 outlines the basis of the IRS’s position (which is, much as I hate to admit it, entirely cogent), then announces its intention to amend the regulations to eliminate the problem.
Schultz-Francis seem unaware that the two issues are not identical. Instead, they describe wearaway (intelligibly, though not with complete accuracy), then claim that it was the target of the IRS’s displeasure. They treat the new ruling as a reversal of front in response to “a volley of lobbying, enlisting more than two dozen lawmakers to ask the agency to back off”. The volley was real, but it related only to “greater-of” formulas, not to wearaway.
So these two veteran pinkos lambaste the IRS for letting employers adopt a technique that can only increase workers’ pensions. The reason may be simple ignorance, but isn’t there also likely to be a smidgeon of reflexive left-wing anger: If Big Business wants this, it must be evil. Never mind the facts.
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