Lawmakers Cautioned On Pay Discrimination Bill

The American Benefits Council, Washington, sent a letter to the House panel a day before the vote asking for a delay while the implications and potential unintended consequences for pension plans were studied, raising concerns that Ms. Friedman also voiced.

The letter, signed by James Klein, ABC president, made clear that the trade group neither supports nor opposes the bill.

But, the letter did say that it "could possibly raise very serious retirement plan issues."

Specifically, Mr. Klein said, assuming that the actual act of discrimination occurred 30 years ago, the individuals who allegedly discriminated are all deceased, and the claim of discrimination is based purely on oral statements, the defendant company "may have no effective way to defend the case, which hardly seems fair."

Mr. Klein said, "Our question is: How would a judgment in favor of the plaintiff affect the company's retirement plan?

"If the company maintains a defined benefit plan that calculates benefits based on an employee's final average pay, would the plan need to recalculate the plaintiff's benefit based on the revised pay, which could be substantially higher?"

Mr. Klein also asked, "What if the lawsuit is a class action, so that large numbers of plan participants could be making the same claim for much higher benefits?"

In that case, Mr. Klein said, "the plan could become woefully underfunded, undermining the retirement security of thousands of other plan participants."The ABC letter also said, under the proposed legislation, a claim could arguably be made by an individual who retired many years ago and is now claiming an increased pension based on a plan benefit formula that has not been in effect for a long time. "The burdens of recreating both old data and old benefit formulas in order to recalculate that individual's benefits would be immense, yet would arguably be required by the legislation," he said.

The letter continued, "We have other questions regarding the possible effect of the legislation on 401(k) plans, 403(b) plans (generally maintained by schools and charities), and 457 plans maintained by state and local governments. To what extent would such plans have to recalculate benefits payable to the plaintiffs? If the employer needs to fund enormous additional benefits for the plaintiffs, would the employer be effectively forced to reduce or eliminate contributions for others?

"We are writing to ask you not to act until the possible ramifications of the bill are fully understood. We understand the concerns that led to the drafting of this proposed legislation. On the other hand, we are also very mindful of the severe practical problems created by the legislation in its current form. We strongly urge you to fully explore the practical, technical and policy issues before moving forward on legislation that could have far-reaching and unintended consequences."