Cash Balance Conversions: the "Wear Away" Issue (Posted February 15, 2006) Technical Tip 62: The following question and answer are from the DOL/EBSA website: Is it possible that I will not accrue any additional benefits under the cash balance plan formula? DOL Response: In some cases, when your traditional plan formula is changed to a cash balance plan formula, the benefit earned under the old formula may exceed the amount determined to be your benefit under the cash balance plan formula. In this situation, you might not earn any additional benefits until your benefit under the cash balance plan formula exceeds the benefit you had earned under the old formula. This is commonly referred to as "wear away." There are legal requirements that have to be satisfied with respect to benefit accruals, including prohibition against age discrimination. "Wear away" is one of the issues being closely studied by the EEOC, IRS and the U.S. Department of Labor. 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.