In 1925, few U.S. workers could look forward to a pension in their old age. Fewer still were the women who had a chance to earn such a retirement benefit. But that year, with a grant from the Rockefeller family, the Young Women's Christian Association set up a plan to provide its employees, most of them female, with just such an income.

In the years since, thanks to that plan, 12,000 YWCA employees have drawn benefits in old age.

But now, because of that same plan, the YWCA says it could face ruin.

The problem is that a federal judge in Illinois has ruled that retirement plans such as the YWCA's, known as cash-balance plans, violate age-discrimination laws. If higher courts adopt the judge's reasoning, the Young Women's Christian Association Retirement Fund Inc. would be vulnerable to claims that it underpaid benefits to older workers for years.

"The fund's liabilities would triple and the fund would become underfunded by approximately $900 million to $1.2 billion," the organization said in a brief urging a New York federal court that is hearing another pension case to uphold cash-balance plans.

Local YWCAs would be left with the bill, the organization said in its June 30 friend-of-the-court brief. "No YWCA would have the resources to satisfy the increased obligations. As a result, all or almost all YWCAs would be forced to seek bankruptcy protection and end their charitable service to the communities they have served for nearly 150 years."

The threat seen by the YWCA is an example of the collateral damage that could be inflicted on pension plans and their beneficiaries by the tug of war in Congress over whether cash-balance plans should be forbidden or permitted, and if they are permitted, under what terms.

The cash-balance dispute is part of a wave of turmoil sweeping through the world of private pensions, involving not just the YWCA and International Business Machines Corp. -- the defendant in the Illinois case -- but possible policy changes that would reshape the retirement plans that today's workers will have to live on in their old age.

Traditional pensions, known as "defined-benefit" plans, have been in sharp decline, with their number falling from 112,000 in 1985 to 29,500 last year. Many of those that remain, which tend to be very large, are severely underfunded, meaning that the value of their assets is less than the value of the benefits they promise in the future.

Many employers have switched to 401(k) or other defined-contribution plans, in which employees the worker and/or the employer make regular contributions to an investment account, and the benefit is whatever that account adds up to at retirement. But there is growing worry that workers who do not participate or who make poor investment choices will not have adequate resources for retirement.

Policymakers are caught between competing interests, and there are no easy answers.

Employers with defined-benefit plans say that if funding and other laws are tightened, they will drop those plans, and switch their workers to 401(k) plans, where workers bear the investment risk. Workers, such as those at IBM, who have or had traditional plans, say they relied on employers' promises to plan their financial lives. Failure by lawmakers to demand adequate funding could lead to a government bailout for the federal pension insurance agency, while a system that leaves workers on their own could lead to huge demands from elderly voters for assistance.

After a long battle last year, Congress agreed to ease the funding requirements of defined-benefit plans for two years, during which lawmakers are supposed to repair the nation's private retirement system.

Employers are reacting to the uncertainty. One recent survey showed that about 20 percent of defined-benefit plans are frozen, meaning new workers cannot join them, or that a freeze is under consideration.

"The YWCA case has important implications for the defined-benefit system as a whole and the employers who voluntarily sponsor pension plans for their workers," said Rep. John A. Boehner (R-Ohio), chairman of the House Education and the Workforce Committee. "The fact that this potential legal threat could put the YWCA and its important charitable work out of business simply because the YWCA has long provided a cash-balance retirement plan to its workers is a cause of significant concern."

"The continuous threat of legal liability for employers offering cash-balance plans is creating ongoing uncertainty and undermining the retirement security of American workers. Simply put, if the fear of legal liability encourages more employers to leave the defined-benefit pension system, the impact on workers and their retirement could be devastating," Boehner said.

Defined-benefit plans offer a retirement benefit that is spelled out in a formula in the plan, usually related to pay and years of service. In contrast to 401(k) and other defined-contribution plans, the employer in a defined-benefit plan promises to pay that benefit and bears the investment risk involved.

Defined-benefit plans also are insured by the government's Pension Benefit Guaranty Corp., so that, up to certain limits, those pensions will be paid even if the employer goes broke.

But many employers argue that traditional pensions, which best serve long-tenured workers, don't fit today's mobile workforce.

Some have dropped their pension plans and switched entirely to 401(k) plans, which are easily carried from one job to the next. Others, reluctant to shift all the investment risk to employees, have been looking for something that mixes the characteristics of a traditional plan with those of a 401(k). The answer, at least until the courts stepped in, seemed to be a cash-balance plan.

Cash-balance plans are hybrids. They first came to wide attention in the mid-1980s when Bank of America did what is regarded as the first conversion, and today hundreds exist, many at the nation's biggest employers.

Though legally they are defined-benefit plans, they look like defined-contribution plans. The employer sets up a hypothetical account for each worker and credits that account with a percentage of the worker's pay each year. In addition, the employer credits the account with interest, much as if the account were in a bank. At retirement, the account balance typically can be taken as a lump sum or converted into an annuity.

The lump-sum feature makes a worker's account balance easily portable, and workers accrue benefits faster in their early working years, a feature that benefits younger and short-tenured workers.

This is the way the YWCA's plan works now, though for much of its existence the annual pay credits were actually subtracted from workers' pay. Today the individual YWCAs that employ the workers pick up that cost.

For many years, neither regulators nor anyone else knew exactly what to call the YWCA's plan.

"There were not many pension plans" in 1925, said Elizabeth Clark, the plan's executive director. "We were set up as an insurance company. They didn't know what else to call us," and New York state insurance regulators oversaw the plan until passage of the federal Employee Retirement Income Security Act in 1974, she said.

Subsequently, on the advice of consultants, the plan called itself a type of defined-contribution plan, and later still, after cash-balance plans became popular, other consultants settled on that designation.

Meanwhile, however, cash-balance plans were drawing bitter opposition from workers at companies that switched from traditional plans to cash-balance plans.

Though most companies deny the switch was made to save money, some did cut benefits and used the transformation to obscure that fact. And even where employer expense remained the same, the benefit structure of cash-balance plans that works to the advantage of short-tenure workers will correspondingly mean that long-time employees get lesser benefits than under a traditional plan unless the employer grandfathers them into the old plan or protects them in some other way.

In addition, some workers found that the benefits they had earned under older plans were already larger than they would be entitled to under the cash-balance formula. This meant they might work for years without earning any additional benefits until the cash-balance formula caught up -- a condition dubbed "wear away."

Particularly enraged were a number of IBM employees who had had an especially generous traditional plan. They campaigned in the courts and on Capitol Hill, achieving considerable success.

The Treasury Department, which through the IRS had given approval to some cash-balance plans, including the YWCA's, had proposed new regulations that would have deemed such plans not discriminatory. Lawmakers, led by Rep. Bernard Sanders (I-Vt.) barred the agency from moving forward with those regulations.

And although other judges have found that cash-balance plans did not violate workers' rights, last year Chief Judge G. Patrick Murphy of the Southern District of Illinois found that these plans discriminate against older workers.

Murphy reasoned that since younger workers will have more time for pay and interest to build up, cash-balance plans violate a prohibition on awarding reduced benefits to older workers. He is expected to award damages in the case shortly.

"These are tough issues. One can be very sympathetic to workers who had expectations, and employers didn't come through. But employers have to be competitive," Clark said.

But, she noted most of the complaints involve conversions. "We thought [conversion] was sort of a peripheral issue" for the YWCA, she said. "We were really shocked with Judge Murphy's decision."

The Bush administration proposed legislation this year that would allow cash-balance plans if they meet certain standards. If Congress could agree on a new law, that could resolve the issue, which otherwise could go to the Supreme Court.

Sanders said he remains firm in his view that cash-balance plans discriminate.

"The truth of the matter is that these companies and their actuaries knew cash-balance plans were age discriminatory when they put them in place 10 or 15 years ago. Now the companies say it will be too expensive to return the pension money they've taken from their employees because they've had the plans in place for so long." he said in a statement.

But even he has indicated a willingness to compromise. He has introduced a bill that would allow companies to operate cash-balance plans as long as in any conversion, older workers -- those who are 40 or older or who have 10 years with the employer -- are allowed to choose between the old plan and the new one.