What Changed Over the years, and brought cash balance plans from obscurity to one of the fastest-growing retirement options available? To understand the transition, let's take a look at the most significant developments in the legal history of cash balance plans—and see why cash balance plans today deserve our attention. Initial Challenges for Cash Balance Plans Cash balance plans faced significant legal challenges in their early days. When they first emerged, unclear legislation and regulations caused confusion. Even financial experts struggled to design and administer cash balance plans because the rules were so nebulous. A series of lawsuits about complicated matters. Plaintiffs brought suits against companies that had converted existing pension plans into cash balance plans, arguing that the new plans unfairly discriminated against older workers. Inconsistent court rulings initially failed to settle the issue. Although the lawsuits only applied to companies swapping a pension plan for a cash balance plan, other businesses were keen to avoid the controversy and didn't set up new cash balance plans. Until these ambiguities were resolved, the benefits of adding a cash balance plan paled compared to legal concerns. Because of these early problems, many CPA firms still—mistakenly—think that cash balance plans are loaded with problems. Peace of Mind: The Pension Protection Act (2006) In 2006, Congress did away with these legal problems by passing the Pension Protection Act. This act clarified the complex legal status of cash balance plans and addressed age discrimination claims. Essentially, the act: Confirmed IRS standards of approval for cash balance plans. Simplified the rules for plan set-up and administration.
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