Catherwood LibraryILR School

A one-paragraph amendment to the U.S. House of Representative?s Treasury-Postal Appropriations bill, seeking to commit to law an already existing practice of the IRS, is occasioning a major political battle pitting the American Association of Retired Persons and the Pension Rights Center against the powerful ERISA Industry Council and the 125 companies it represents. The IRS practice at the center of this lobbying storm is the assumption of a five-percent per year rate of return---as opposed to the seven to ten-percent preferred by employers---on pension investments in defined-benefit pension plans when companies apply to convert these plans to cash-balance pension plans. When converting from defined-benefit plans in which workers are guaranteed a set amount when they retire, to cash-balance plans which are more like 401(k)?s, assuming a higher rate of return than the market reasonably supports allows companies to skirt a federal law prohibiting them from decreasing the value of pensions during conversions.