<nobr>Nov 10, 2005</nobr>

Employers' Amicus Brief In Cooper v. IBM Accepted by Appellate Court

Washington, D.C., November 10, 2005 – The Seventh Circuit Court of Appeals has accepted the amicus (“friend of the court”) brief of The ERISA Industry Committee (ERIC) and the American Benefits Council in Cooper v. IBM. The brief argues that cash balance and other hybrid pension plans do not violate age discrimination laws.

Mark Ugoretz, president of ERIC said “the Cooper case is critical because the lower court’s position not only misreads the law but strikes at the future of hybrid plans and the revitalization of defined benefit pension plans.”

Ugoretz said that “the lower court decision pulls the rug out from under some 1,500 plan sponsors that relied on the federal government’s long-standing position that cash balance plans are lawful and do not violate federal age discrimination requirements. These plan sponsors include many of the nation’s largest employers, including major corporations, universities, hospitals, and many state and local governments.”

“The district court’s decision suggests that virtually all hybrid defined benefit plans and many other common defined benefit plan designs are unlawful,” said the brief. “If affirmed, the cost to American businesses will … run into the hundreds of billions of dollars and there is little doubt that many companies will exit the voluntary employer-maintained defined benefit system through plan freezes and terminations, leaving millions of workers with diminished retirement security.”

Background

Cash balance and other hybrid plans are defined benefit pension plans that incorporate features of both defined benefit and defined contribution (e.g., 401(k)) plans. They offer the security of employer funding, employer assumption of investment risk, professional investment management, federal guarantees, and required lifetime and spousal benefit options. Hybrid plans are beneficial to a large and growing number of American workers, including women, older workers who continue working after retirement age, younger workers, and any worker who changes jobs more than once or twice in a career. Currently, hybrid plans cover roughly nine million American private-sector workers.

The district court ruled that IBM’s hybrid plan violates an age discrimination clause in ERISA, which provides that a defined benefit plan is age discriminatory if “an employee’s benefit accrual is ceased, or the rate of an employee’s benefit accrual is reduced, because of the attainment of any age.” The district court interpreted this rule to prohibit defined benefit plans from crediting interest on employees’ benefits because younger employees have more years to accumulate interest than do older employees. Because cash balance and other hybrid plans provide such interest credits, the lower court in effect ruled that all such plans are inherently age discriminatory.

“Ruling Makes No Sense”

“This ruling makes no sense,” according to Ugoretz, “because the interest credits are simply a mechanism for preserving the economic value of the benefits earned by employees against inflation. Many traditional defined benefit plans provide the same or similar protection, and there is no indication that Congress intended to prohibit defined benefit plans from providing such protections under the nation’s age discrimination laws. Indeed, under the district court’s interpretation, even the federal Social Security system would be considered age discriminatory because it includes similar inflation-protection features.”

Some 1,500 employers have adopted cash balance pension plans for their employees largely in reliance on Internal Revenue Service and Treasury Department pronouncements affirming that the plans are lawful and, in fact, are required by law to provide the very interest credits the district court found to be illegal.

“The district court’s decision is particularly regrettable, not only because it’s wrong and inconsistent with other court decisions, but because it casts a shadow over the legitimacy of many plans that were established over the last two decades,” stated Ugoretz.

Briefs on behalf of Cooper are due early in December with supporting amicus briefs due a week later assuming that no extension is granted.

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ERIC is a non-profit association committed to and represents exclusively the advancement of the employee retirement, health, and compensation plans of America’s largest employers. ERIC’s members provide benchmark retirement, health care coverage, compensation and other economic security benefits directly to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals affecting its members’ ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

For additional information please contact:

Brendan LaCivita, Director of Communications

202-789-1400
blacivita@eric.org

Websites:

Amici Curiae Brief in Cooper v. IBM Nov. 3, 2005

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