AUSWR
The Association of U S West Retirees
 

 

 

Court 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 pension laws.

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 said.

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 didn't discriminate.

"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. Anderson at mark.anderson@dowjones.com

http://online.wsj.com/article/SB116896070257777717.html?mod=home_whats_news_us