The Cash Balance Controversy

Posted: 27 Sep 2000

See all articles by Edward A. Zelinsky

Edward A. Zelinsky

Yeshiva University - Benjamin N. Cardozo School of Law


This article provides an overview of cash balance pension plans and of the controversies surrounding them. The article describes the cash balance format and contrasts that format with the traditional defined benefit pension. The article also reviews the legal framework currently governing cash balance plans and discusses the critique and the defense of cash balance arrangements.

This article concludes that, as a matter of law, the typical cash balance plan violates the statutory prohibition on age-based reductions in the rate at which participants accrue their benefits. However, as a matter of policy, there is no sound reason to bar cash balance plans nor is there a logical basis for the resentment engendered by the conversion of traditional annuity providing pension plans to the cash balance format. Moreover, the article suggests, the proponents of cash balance plans are correct to contend that such plans permit employers to remain within the defined benefit system rather than debark to the defined contribution universe.

As a matter of psychology, the resentment against cash balance conversions, deeply and sincerely held, largely stems from psychological expectations in the continuation of the status quo, rather than any legal or logical entitlement to the continuation of existing pension coverage.

In the best of all worlds, this article argues, the proper resolution of the cash balance controversy would be to amend the statutory prohibitions on age-based reductions in benefit accrual rates to legitimate cash balance plans and to permit private ordering between employers and employees (or their unions) to govern such conversions. However, as a matter of politics, the article presents a package of legislative compromises which, given the political realities of the situation, is the best likely outcome of the cash balance controversy.

Suggested Citation

Zelinsky, Edward A., The Cash Balance Controversy. Available at SSRN:

Edward A. Zelinsky (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

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