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Cash-Balance Lawsuits

A chart of six corporations and a short summary of what each is dealing with on the cash-balance issue.

May 29, 2004
Related Topics: Finance/Taxes, Benefit Design and Communication, Retirement/Pensions, Compensation

IBM may have gotten the most publicity, but it’s not the only company that has found itself in court over converting to a cash-balance pension plan.

    Since the mid-1990s, at least a half dozen Fortune 500 companies have been the target of class-action lawsuits brought by employees and retirees over the plans, which are a cross between a traditional defined-benefit plan and a defined-contribution plan. Of the cases, only one--Eaton v. Onan Corp.--was found in the company’s favor. Two companies, Georgia-Pacific and Xerox, opted to settle rather than go to trial. Other suits, including IBM’s, are pending.

Here’s a summary of some of the more significant cases, and where they stand.

Company Lawsuit Status
AT&T Corp. AT&T management employees sued in 1998 over a 1997 switch to a cash-balance pension plan, claiming it violated federal age-discrimination laws. The suit is pending.
CIGNA Corp. CIGNA retirees sued in 2001 over the company’s 1998 conversion to a cash-balance pension plan, claiming age discrimination; plaintiffs estimate that more than 25,000 CIGNA retirees could be affected. The suit is pending.
Georgia-Pacific GP retirees sued in 1997, alleging that the company underpaid workers who took lump-sum payments from the company’s pension plan upon retirement. GP denied the allegations, but settled for $67 million in February. Plaintiffs’ attorneys say about 11,000 retirees will receive additional benefits, from $150 to $10,000 each.
IBM After IBM switched to a cash-balance pension plan in 1999, employees sued, claiming age discrimination. Plaintiffs say IBM could be liable for up to $6 billion in retroactive benefits, but the company maintains it doesn’t owe anything. In July 2003, a federal court judge ruled in favor of the retirees, and in February ruled that IBM is liable for back payments. In late February, the judge asked both sides to provide data on estimated damages. IBM previously stated that a loss wouldn’t materially affect its operations.
Onan Corp. Employees of Onan, a subsidiary of Cummins Inc., sued on the grounds that the company’s cash-balance pension plan constituted age discrimination. The suit ended after a U.S. district court’s September 2000 ruling that Onan’s plan didn’t discriminate.
Xerox A 2000 suit alleged that Xerox incorrectly calculated lump-sum retirement payments to workers who left between January 1, 1990, and December 31, 1999. Plaintiffs claim that up to 13,000 retirees could be affected. Xerox settled for $239 million in November 2003, a month after the U.S. Supreme Court refused to stay an appellate court ruling against it. Xerox took a $183 million charge in Q1 to help cover the costs. As of early May, plaintiffs’ attorneys were determining how many retirees would receive settlements and how the money would be divided.

Source: Companies listed; Workforce Management

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