Reduction of Benefits on Conversion to Cash Balance Plan (Posted December 15, 2005) Technical Tip 60: The following question and answer are from the DOL/EBSA website: Can my benefits earned under the plan be reduced when the plan benefit formula is converted to a cash balance plan formula? DOL Response: No. While employers may amend their plans to reduce the rate at which future benefits are earned, they generally are prohibited from reducing the benefits that participants have already earned. In other words, an employee generally may not receive less than his or her accrued benefit under the plan formula at the effective date of the amendment. For example, assume that a plan's benefit formula provides a monthly pension at age 65 equal to 1.5 percent for each year of service multiplied by the monthly average of a participant's highest three years of compensation, and that the plan is amended to convert its benefit formula to a cash balance plan formula. If a participant has completed 10 years of service at the time of the amendment, the participant will have the right to receive a monthly pension at age 65 equal to 15 percent of the monthly average of the participant's highest three years of compensation when the plan amendment is effective. This benefit (including related early retirement benefits) is protected by law and cannot be reduced. Comment by the RLR&C ERISA attorneys: Because of the controversy surrounding conversion to cash balances plans, we are providing a series of DOL questions and answers from their website concerning cash balance plans. These tips form a predicate for understanding the complex issues facing the DOL with respect to cash balance plans, including age discrimination and cut back in accrued benefits. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.