Discussant: Richard Ippolito, George Mason University School of Law
Robert Clark began by asking the question: "What is all the fuss about?" He also noted that there have been many individual stories, but little systematic analysis. He noted that virtually every worker who leaves a company before reaching the early retirement age will be better off under a cash balance plan. However, workers who leave after reaching early retirement age but before normal retirement age will be worse off under a hybrid plan. Hence the main impact of the conversion was the elimination of early retirement subsidies in traditional defined benefit (DB) plans. He said that the main policy question with regard to cash balance plans was whether or not firms should continue to encourage early retirement.
Richard Ippolito said that cash balance plans are here for two reasons: the trend from DB to DC, and that DB plans want to get rid of their excess assets. He said that DB plans want to defund because of reversion taxes (as high as 84%). There was a comment from the floor that no underfunded DB plan has converted to a cash balance plan.
