Do employers switch to cash balance plans primarily to save money?
Cost considerations are important to some employers, but primarily they switch for other reasons, usually in response to a variety of business and employee needs. Pension costs typically do not decrease after conversion to cash balance, and sometimes they actually go up. And where costs do go down, very often the employer shifts some or all of the cost savings to other benefit or compensation programs. A good illustration is BankAmerica’s plan, the first conversion to cash balance. One of the articles falsely indicates that the bank’s primary motive in switching to cash balance was to save money. Based on publicly available information, the average contribution to the plan for the time period beginning January 1, 1982 and ending June 30, 1985 (when the plan formula was based on final average pay) was about $45 million. The average contribution for the time period beginning July 1, 1985 and ending on December 31, 1989 (a period when the plan was a cash balance plan, there were no acquis
