IBM says the criticism is unfair. Besides, she said, the argument that the new plan will hurt those who stay with the company for a long time ignores the reality of today's job market. Traditional pensions amounted to annual payments based on a certain percentage of an employee's salary - a percentage that increased the longer an employee stayed around. Only workers who stayed with a company a long time got a significant percentage of their pay as a pension. For young job applicants, the benefits of a traditional pension were too far away to matter much.
Companies say cash-balance plans are a more effective recruitment tool.
That's because of how the retirement accounts on which cash-balance pensions are based work. On top of those credits, the company guarantees a certain rate of return on all money in each worker's account. Picture something like a hockey stick, with the blade pointing to the left. After 20 years or so at one company, the benefits spike rapidly - like the tall handle of the hockey stick. The graph of a cash-balance pension is smoother, rising steadily from beginning to end, without that sharp bend after 20 years.