The law
of benefits is a difficult channel, which requires careful sailing, or rude boats.
A plan amendment that retroactively (i) eliminates or reduces an early retirement benefit or a retirement-type subsidy (as defined in regulations), or (ii) eliminates an optional form
of benefit is treated as reducing accrued benefits.
The normal form
of benefit distribution under the cash-balance program is, by law, an annuity.
In fact, more than 67 percent
of benefit managers of large corporations have stated that they will reduce benefits over the next few years to mitigate their FAS 106 liability.
However, the court found a prohibited reduction, by interpreting "rate
of benefit accrual" to mean the rate at which the participant's accrued benefit, as defined in Sec.
Relation
of Benefit to Salary Prior to Retirement--Since it had a final average plan, Tobacco's benefits were directly related to final average salary.
Protected benefits include accrued benefits, early retirement benefits, retirement-type subsidies and optional forms
of benefit.
However, a mechanism within all flexible benefit programs tends to dampen the effect
of benefit cost increases.
Corporate America may decide to fund aggressively because of financial incentives to do so, but it also needs to raise the broader issue
of benefit security before Congress.
To make certain that at least some level
of benefit security is maintained, excess assets are defined as assets in excess of 125 percent of the pension plan's current liability.
A plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy, or eliminating an optional form
of benefit, with respect to benefits attributable to service before the amendment, is treated as reducing accrued benefits.
Because it is not possible to predict the most efficient method
of benefit delivery years in advance, the plan needs the freedom to change cost-sharing methods.
