More than 300 companies, including Eastman Kodak Co., have converted to cash balance pension plans in recent years. The plans are popular among younger workers because they often can be shifted from job to job and frequently permit lump-sum payouts. Workers under traditional pension plans, on the other hand, are rewarded for their longevity with a company and accrue most of their benefits at the end of their careers. Benefits are calculated both on a worker's number of years with a company and his or her average salary for the last few years of work. They are more likely to change jobs on a frequent basis than are folks in previous generations.
Few people dispute that the new systems tend to be good for younger workers.
But critics argue that companies like IBM that switch plans without giving employees the option either of sticking with the old plan or going to the new one are discriminating against their workers. Some workers would do better under the old defined benefit plan than under cash balance. They know that traditionally they can expect a certain monthly payment upon their retirement and therefore can plan accordingly. But under cash balance, those employees will continue working for several years essentially without accruing any additional benefits. That's because they had already accrued more benefits under the previous plan than they would under the cash balance plan.