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Balancing Act

Will proposed pension plan changes help your company--or hurt your employees?

This story appears in the May 2003 issue of Entrepreneur. Subscribe »

The Bush administration is proposing controversial new pension rules that, if adopted, will make it easier for employers to implement cash-balance pension plans, a type of defined-benefit plan that looks like a 401(k). But unlike traditional pension plans, where workers' retirement benefits increase the longer they stay, workers under cash-balance plans accumulate benefits at the same rate no matter how long they stay. Some large companies have saved millions by switching to them.

Cash-balance plans have been around since the mid-1980s, but employers who converted to them were vulnerable to age-discrimination claims and didn't receive tax-exempt status for the plan from the IRS-two things these rules will change.

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