Lets IBM Pension Plan Stand
By Mark H. Anderson
The Wall Street Journal
Wednesday, January 17, 2007
WASHINGTON -- The U.S. Supreme Court let stand a lower court
ruling that said International Business Machines Corp.'s
switch to a cash-balance pension plan didn't discriminate
against older workers, ending a lawsuit that could have cost
the company $1.4 billion.
The Supreme Court's decision adds additional certainty to
the legality of corporate shifts from defined-benefit
pensions to so-called cash-balance retirement plans.
Congress last year also clarified the legality of the plans,
but the IBM case could have bearing on a number of corporate
retirement plans altered prior to the June 29, 2005
effective date in the legislation.
The class-action lawsuit against IBM was filed by older
employees who claimed the company's 1999 retirement benefit
changes amounted to illegal age discrimination under federal
Cash-balance plans accrue value much like a savings account
with regular contributions. They are paid out to employees
whenever they leave a company rather than at retirement.
Two employees who, regardless of age, work for the same
number of years will receive the same benefit. But a
younger worker can over time accrue more benefits than an
older worker starting in the plan because they have more
years before retirement.
IBM's switch to the plan prompted the filing of a
class-action lawsuit by two workers. The lawsuit covers
about 250,000 current and former employees, court filings
A U.S. District Court ruled the plan violated the Employee
Retirement Income Security Act, prompting a $1.4 billion
settlement that hinged on the outcome of appeals. The
Seventh U.S. Circuit Court of Appeals overturned the lower
court in August 2006 in a decision that said the IBM plan
"IBM's pension plan plainly discriminates on the basis of
age," attorneys for the workers said in the appeal.
"Millions of workers are subject to pension plans similar to
that at issue in this case and the Seventh Circuit's
misapplication of ERISA's nondiscrimination mandate
threatens to deprive them of its essential protection."
IBM's pension plan said the Seventh Circuit decision
correctly validated its cash-balance plan. "The court
stressed that IBM's cash balance formula is age-neutral,"
attorneys for the IBM plan said.
The case is Cooper v.
IBM personal Pension Plan.
Tuesday's announcement will not change IBM's plans to
eliminate its cash-balance plan Jan. 1, 2008. IBM announced
in January 2006 that it will eliminate the plan and enhance
its 401(k) plan.
Write to Mark H.