Trust Updates Archive
(Nov. 8, 2006--Chicago, IL)--Citicorp, always an industry leader, has decided to freeze its cash-balance plan in favor of tripling its matching 401k contribution. The change, effective in 2008 according to a leaked internal memo, was confirmed by bank.
† † † † "This is what our employees have been asking for," a senior bank spokesman told Trust Regulatory News. The company, he says, annually surveys its employees regarding benefits.
† † † † After the passage of the Pension Reform Act of 2006, consumer groups warned that traditional defined benefit plans would be replaced by cash-balance plans--hybrid plans, that some argue discriminate against older workers--an assertion supported by a 2005 General Accounting Office study. The study found that when comparing a typical cash-balance plan to a defined-benefit plan, all vested employees would do better under the DB plan and that those under age 40 would see greater benefits under the cash-balance plan. (See Report No. GAO-06-42, available at http://www.gao.gov.)
† † † † Congress addressed this concern in the Pension Reform Act. Under the Act, a plan is deemed to not violate ERISA's age discrimination rules if a participant's accrued benefit is equal to or greater than that of any similarly situated, younger individual who is or could be a participant.
† † † † Just four days after the passage of the Act, the Court of Appeals for the Seventh Circuit ruled in Cooper v. IBM that what makes a plan more favorable to older workers may not be discriminatory.
† † † † "Removing a feature that gave extra benefits to the old," wrote Judge Frank Easterbrook in the unanimous August 7, 2006 ruling, "differs from discriminating against them."
† † † † Even though Citicorp has opted to eschew cash-balance plans in favor of 401k's, many companies are expected to keep some defined benefit plans. At Citicorp, a legacy pension plan, which covers only a small percentage of employees, will not be frozen, a spokesman says.
† † † † According to the firm's internal memo, starting in 2008, Citicorp will match 401k contributions up to 6 percent of eligible earning for those making more than $100,000 a year and up to 8 percent for those making less. The additional 2 percent match will be in the corporationís common stock, which participants will have the option of "moving immediately into other investment choices."
†For more on this topic, see the upcoming issue of Trust Regulatory News.
No statement in this issue is offered as or should be
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