Supreme Court to Discuss IBM Cash-Balance Plan Review
The August 2006 decision by the 7th U.S. Circuit Court of Appeals overturned a lower court ruling that said the plan discriminated against older employees because, when expressed as a retirement annuity, the benefits earned by younger employees are more valuable than the same benefits earned by older employees.
But the appeals court—in the first time a court of that level ruled on the issue—rejected that analysis, saying the disparity in benefit values was the result of the time value of money, which, it said, is not age discrimination.
It is not known whether the Supreme Court will agree to review the appeals court ruling. Certain factors, such as a split between appeals courts or the involvement of the federal government, that increase the likelihood of high court review are not present in the IBM cash-balance plan litigation.
But if the Supreme Court does take up the case, its ruling could put the age discrimination issue to rest. If the court agreed to review the ruling and found that the plans are not age discriminatory, it would in one fell swoop end age discrimination litigation and provide the legal certainty employers have long sought.
On the other hand, if the court took up the case and found that the cash-balance plan design violates age discrimination law, employers with the plans would face more lawsuits and likely would move to freeze their plans to reduce their exposure to damage awards.
Some 1,200 to 1,500 cash-balance plans covering millions of employees and retirees are currently in operation.
As part of a comprehensive pension funding reform measure passed last year, Congress included provisions to protect new cash-balance plans—those created after June 29, 2005—from age discrimination suits. Only one large employer, MeadWestvaco Corp., a Richmond, Virginia-based office products and paper manufacturer, is known to have set up a new cash-balance plan since the legislation was passed.
It isn't known how soon the Supreme Court will decide after the Friday discussion—part of the justices' regular weekly conference—whether to review the lower court ruling.
Jerry Geisel is a reporter for Business Insurance,
a sister publication of Workforce Management.