<nobr>Apr 12, 2006</nobr>

ERIC Urges Appeals Court to Uphold Cash Balance Plans (News Release)

Cash Balance Plans Are Not Age Discriminatory, Says The ERISA Industry Committee

Washington, D.C.—The ERISA Industry Committee (ERIC), representing America’s largest employers, filed an amicus curiae brief with the United States Court of Appeals for the Third Circuit urging the court to affirm a lower court decision dismissing an action challenging the legality of cash balance pension plans. The case is Register v. PNC Financial Services Group., Inc. (Case No. 05-5445).

ERIC’s brief addresses plaintiffs’ flawed claim that cash balance plans are inherently age discriminatory because younger employees in such pension plans will accrue a larger benefit due to the longer time remaining before they reach retirement age compared to older workers covered by the same plan. The brief demonstrates that interest accrues at the same rate for both younger and older workers and that plans do not, as the plaintiffs contend, discriminate on the basis of age.

Under the plaintiffs’ reasoning, all cash balance plans—covering over 8 million participants—would be illegal. This strained interpretation of the law produces absurd results and is contrary to long-held views of the Department of the Treasury. Other types of retirement plans under which retirement benefits continue to grow until the employee begins to receive benefits would also be invalid. Indeed, applying the plaintiff’s rationale, Social Security benefits would be unlawful since they index benefits in much the same manner.

“Some 25 percent of all employees covered by a single-employer defined benefit plan could see their pension plans invalidated if the courts adopt the plaintiffs’ reasoning in this case,” said Mark Ugoretz, ERIC president. “It is essential that the court recognizes that these plans are in fact fair, operate consistent with the law, and provide valuable benefits to those they cover.”

Cash balance plans define an employee’s benefit as the sum of the employee’s accumulated pay credits and interest credits. The Employee Retirement Income Security Act (ERISA) required that interest continue to accrue on those benefit balances until the employee receives the first benefit payment. Cash balance plans, which do not distinguish between long-serving and short-tenured employees, allow employees to build significant retirement nest eggs with significantly less risk of loss due to market downturns since the employer takes on the investment risks.

“In today’s economy, the ability to earn a guaranteed retirement benefit that accrues evenly over an employee’s tenure rather than at the very end of a long period of service is essential to securing a comfortable retirement for today’s employees,” said Ugoretz. “Incorrectly holding that these plans are illegal would be detrimental to a great number of employees who switch between employers frequently during their career.”

The Register case is one of several currently moving through the federal court system over cash balance pension plans. To date, only two district courts have held that the plans violate age discrimination requirements, Cooper v. IBM and, in a preliminary ruling prior to trial, Richards v. Fleet Boston Financial Corp. The Cooper decision is currently pending appeal before the United States Court of Appeals for the Seventh Circuit (argued February 16, 2006).

In Richards, the United States District Court for the District of Connecticut, in its preliminary ruling issued March 31, adopted the reasoning of Cooper in determining whether the plaintiff had stated a claim upon which they could seek relief. The decision in Richards is not final.

Five other district courts have specifically rejected the reasoning adopted in the Cooper decision and held that the plans are not inherently age discriminatory.

For further information contact Mike Chittenden, Communications, Director at 202-789-1400 or mchittenden@eric.org.

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ERIC is a non-profit association committed to representing 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.

Websites:

ERIC Amicus Brief in Register v PNC Financial Services Group (April 11, 2006)

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