Unless employers take explicit steps to protect older employees with long company service, conversions from traditional pension plans (whose benefits are largely determined by years of service and final average pay) into cash balance plans, may impact these employees negatively.
Employer accruals under a traditional defined benefit pension plan begin relatively low, but increase sharply as an employee approaches retirement.
Despite this protection, some conversions by high profile employers have attracted media attention.
Most of these plans have emerged as conversions from overfunded traditional defined benefit pension plans. And employers cannot remove overfunded assets unless the plan has been terminated and full benefits under the terminated plan have been funded.
Prohibited Transactions With Parties in Interest d. Prohibited Transaction Liabilities of Non-Fiduciary Parties In Interest f. A defined benefit plan is one which establishes a formula to define what the participant (employee) is entitled to receive.
As the tax laws and regulations tend to change often, the specific requirements, eligibility, conditions, and thresholds also are subject to change.