abstract:A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan. The hypothetical nature of the individual accounts was crucial in the early adoption of such plans because it enabled conversion of traditional plans without declaring a plan termination.
In a cash-balance plan, the company contributes a set amount of salary for each worker every year to a theoretical account for him (even though the money is actually managed in one big pot), and then credits his account with some guaranteed annual return--typically the yield on 30-year Treasuries.
Workers Wayne Tomlinson, Alice Ballesteros and Gary Muckelroy brought the suit in 2004, arguing that by switching its defined benefit pension plan from a final average pay formula to a cashbalance formula, El Paso set payments for older, longer-service employees at significantly lower levels.