Tensions Over Pensions

Many companies have been treating their pension systems like those "Transformer" toys popular with boys a few years back. A few twists will change them from, say, a car to a robot.

One important pension shift in the past two decades has been from traditional "defined benefit" plans to "defined contribution" plans, such as 401(k) plans. In the latter, both employer and employee put money into the savings pot. Workers take the risk of managing the assets, not the firms.

In the last few years, some 800 or so companies have shifted traditional pension programs to hybrid "cash balance" plans. (See story on page 17.)

This has some logic to it. With many Americans changing employers more often, workers appreciate the ability to take the cash balance in their pensions with them. The same portability is true of 401(k)-type plans.

But veteran employees often lose out in this new scheme. Firms can save money at their expense. And companies are not always frank in telling employees about the reduction in expected pension income.

At a minimum, Congress should require firms to spell out details of any lost benefits. The tax-reduction bill passed this month by Congress includes modest disclosure provisions.

President Clinton says he will veto the bill, but for reasons of what he calls "excessive" tax cuts. If the Republican-led Congress and the White House do negotiate a compromise this fall, those pension provisions should be tightened along the lines suggested by Senator Patrick Moynihan (D) of New York. He calls for individual benefit statements, rather than illustrative examples that could be misleading. That would be a worthy approach.

(c) Copyright 1999. The Christian Science Publishing Society

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