<nobr>Aug 1, 2003</nobr>

Federal Court Rules on Discrimination Case for IBM Cash Balance Pension Plans

The ERISA Industry Committee today strongly criticized a federal trial court decision that threatens to outlaw hundreds of cash balance pension plans that other court decisions have found legal and proper.

A federal district court judge in the Southern District of Illinois found that IBM had discriminated against older employees when it converted to a cash balance plan. Other courts in the Onan (Eaton v. Onan Corp.) and AT&T (Engers v. AT&T) cases came to opposite conclusions as does a proposed U. S. Treasury regulation intended to set rules for cash balance pension plans.

Mark Ugoretz, President of The ERISA Industry Committee, said that "the court rejected what the court conceded was economically a 'good argument.'" IBM had argued that its plan did not discriminate on the basis of age when the plan added interest to the benefits that employees earned under the plan. Ugoretz said that "a plan like this is no more age discriminatory than is a savings account. The only reason a younger person earns more interest is that he has to wait longer to receive his benefits. An older employee, who is closer to retirement age, has less time to earn interest."

In conceding that sound economic principles argued in favor of the IBM plan, the court relied instead on a convoluted grammatical argument over two terms that govern benefit plans, "accrued benefit" and "benefit accruals." Pension experts generally agree that the two terms are not necessarily synonymous when applying pension law standards and depend on the context in which they are being applied.

Ugoretz said that "the court's decision, in the face of other expert opinions, court cases, and government actions, appears mercurial and unnecessarily calls into question the legality of hundreds of cash balance and pension equity pension plans that would affect millions of workers."

The decision is limited to the Southern District of Illinois, which has been cited in the media as a plaintiffs' forum. It is likely to be appealed.

Text Files:

Click here for the Cooper v. IBM Case.

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