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Court Verizon Cash-Balance Plan Not Age Discriminatory

April 30, 2007
Related Topics: Benefit Design and Communication, Discrimination and EEOC Compliance, Latest News
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Verizon Communications Inc.’s cash-balance pension plan does not discriminate against older employees, a federal court has ruled in yet another legal victory for employers on the issue.

Verizon’s plan is not only age neutral, but in fact provides “pay credits at a rate that is more generous for older employees than for younger employees,” ruled Judge Denny Chin of the U.S. District Court for the Southern District of New York.

For example, while participants whose combined age and service are less than 35 years received annual credits equal to 4 percent of pay, participants whose combined age and service are between 50 and 64 years received annual pay-related credits of 6 percent, and those with 65 or more total years received annual pay credits of 7 percent.

While a pay credit provided to younger employees eventually will be worth more than the identical credit provided to an older employee with the same salary, that difference is not age discrimination but is the result of the younger employee’s benefit having more time to earn interest, Chin wrote.

Chin’s ruling is at least the seventh—six by district court judges and one by an appeals courts—to reject age discrimination charges since the 7th U.S. Circuit Court of Appeals in August 2006 ruled that the design of cash-balance plans in general and IBM Corp.’s plan in particular do not discriminate against older employees.

However, two judges—both in the U.S. District Court for the Southern District of New York—have ruled that the plans are age discriminatory.

Unrelated to the litigation, New York-based Verizon last year froze its cash-balance plan, which covers non-management employees, and significantly improved its 401(k) plan match.

Legislation passed by Congress protects new cash-balance plans that meet certain basic standards from age discrimination suits, but federal legislators left it to the courts to resolve the issue for already-established plans.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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