Over 30 companies in the Fortune 100 sponsor cash balance retirement plans for their employees. It is similar to a 401(k) in that each employee has an account, but it differs in that the employer decides not only the contribution to the account (for example, 4% of wages) but also specifies the annual return on the investment. I had not heard of cash balance retirement plans until my friend who worked for a time at PricewaterhouseCoopers told me about it, but more on that later.
The employer can decide that the annual investment return will be, for example, 6 percent, a Treasury rate, or a corporate bond rate. Companies have found that cash balance retirement plans attract prospective employees for the following reasons:
1. They provide a larger benefit to employees than traditional pension plans
2. Many employees value the account balance better than the promise of a pension at retirement
3. Generally, employees do not have to make a contribution
4. The employer, not the employee, takes on the risk of the stock market falling
Cash balance retirement plans are relatively new, and how existing pension laws are applied to these plans is not entirely clear. People have differing opinions on what pension laws say employees should get when they quit.
Most employees believe they should get their account balance in cash, and generally, that’s what they get. However, if the employer is generous and offers an investment return greater than the 30-year Treasury rate, some people claim employees should get more than their account balance. They apply a “whipsaw calculation” to determine that amount.
This whipsaw calculation is complex, but in general terms, it calculates the additional interest that the employee might have earned after their quit date and up to their normal retirement age.
One real-life class action lawsuit regarding cash balance retirement plans and the whipsaw calculation was recently settled. Pricewaterhouse Coopers LLP (PwC), a professional services and Big 4 accounting firm, settled a lawsuit by agreeing to pay $267 million to former participants of the PwC plan. The settlement deal is expected to pay an average of about $11,000 to each of the retirees.
Specifically, the lawsuit claims that PwC shorted the former plan participants’ benefits by using faulty interest rates and normal retirement dates when performing the whipsaw calculations.
Cash balance retirement plans and whipsaw calculations can be very complex and confusing. The good news is that we know attorneys who know how to handle these complex cases and have a track record of success in ERISA, compensation and securities related litigation. Best of all, there is no fee to hire them and they only get paid if they make a recovery for you.
If you believe that you may have been shorted by your employer’s pension plan and would like to speak with a lawyer, please contact us at 800-517-1614. All calls are free and confidential.