WASHINGTON -- The Bush administration retreated yesterday on a contentious proposal that critics said would let companies skirt age discrimination laws when they change their pension plans and reduce benefits for older workers.
The Treasury Department and the IRS said they were withdrawing the proposed regulations to let Congress consider legislation for cash balance plans, in which employers promise workers a percentage of their annual income at a preset interest rate.
The IRS had imposed a moratorium on new cash balance plans in 1999, and planned to issue regulations to address the age-discrimination concerns.
Now the Bush administration is withdrawing the proposed regulations and urging Congress to consider the cash balance plans included in President Bush's 2005 budget proposal that would bar benefit losses for five years.
Thus far, the provision has been left out of both the House and Senate budgets.
In cash balance plans, workers can't contribute their own money or decide how it is invested, and there are no personal accounts, like in a 401(k). But workers can take with them the lump sum when they leave their employer.
The cost is much less to employers than a traditional pension plan, in which workers are promised a set, monthly benefit based on years of service.
But the plans have been challenged in court by older workers who argue that such conversions deprive them of the promised benefits from traditional pension plans, leaving them without enough working years to accrue equivalent cash balance benefits.