Pension

10/16/00 16:41 002 10/12/2090 THU 04 : 44 FAX AARP Peunni October 11, 2000 The Honorable Lawrence Summers Secretary of the Treasury 1500 Pennsylvania Ave., NW Washington, D.C. 20220 Dear Secretary Summers: As we enter the final days of the Congressional session, AARP continues to have concerns with some of the pension provisions contained in H.R. 1102, the Retirement Security and Savings Act of 2000. Both the House and Senate versions of the bill fail to provide protection for older workers harmed by cash balance conversions - with the Senate bill actually more harmful to older workers - and both bills reduce the protections provided by the current nondiscrimination rules, particularly the "top-heavy" rules. AARP has urged Congress to clarify that "wearaway" is prohibited when an employer converts a traditional pension plan to a cash balance plan. Wearaway, which has its greatest impact on older workers, is the freezing of benefit accruals for what can be over 10 years. Freezing the bencfit accruals of older workers as they are nearing retirement undermines the opportunity to earn a more adequate and secure retirement benefit. We are pleased that in addition to supporting the need for greater disclosure of plan changes, the Administration shares our views on wearaway. Unfortunately, the Senate bill protects only normal retirement benefits. and not early retirement benefits. Given that in practice it is generally the early retirement benefit that is wom away, the Senate bill fails to protect older workers. Worse yet, by protecting only normal retirement benefits, the Senate bill implies that wearaway of early retirement benefits is valid, thus undermining legal actions currently pending in the courts and at the Equal Employment Opportunity Commission. AARP urges you to ensure that in the event any pension bill or other tax vehicle moves forward, wearaway of both normal and early retirement benefits is prohibited. As we discussed in extensive comments submitted to the IRS earlier this year; AARP continues to believe that under current law, cash balance conversions violate age discrimination prohibitions contained in the Internal Revenue Code, the Employee Retirement Income Security Act (ERISA) and the Age Discrimination in Employment Act (ADEA). Moreover, while the courts deal with the larger legal challenges posed by cash balance plans. Congress should not interfere with the employees who have sought redress for the harm suffered in these plans. Thus, any legislation should not include any language validating age discriminatory cash balance plans. The Senate bill would currently undercut the holdings of two recent federal Circuit Court decisions by carving cash balance plans out of some of the current rules governing defined benefit plans. 601 E Street, NW Washington, DC 20049 (202) 434-2277 www.aarp.org Esther "Tess" Canja, President Horace B. Deets, Executive Director