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Supreme Court Won't Take IBM Cash-Balance Case

January 16, 2007
Related Topics: Retirement/Pensions, Latest News
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The U.S. Supreme Court on Tuesday (January 16) declined to review a federal appeals court ruling that IBM Corp.’s cash-balance pension plan does not discriminate against older employees.

Chicago. The appeals court overturned a lower court ruling that had said IBM’s plan created in 1999 discriminated against older employees because, when expressed as a retirement annuity, the benefit earned by younger employees is more valuable than the same benefit earned by older employees.

But the appeals court—the first time a court of that level ruled on the issue—rejected that analysis, saying the benefit-value disparity was the result of the time value of money, not age discrimination.

The Supreme Court’s refusal to review the appeals court ruling is not surprising. Certain factors, such as a split between appeals courts or the involvement of the U.S. government, that increase the likelihood of high court review were not present in the IBM cash-balance plan litigation.

In 2004, a year after U.S. District Judge G. Patrick Murphy found the IBM plan age discriminatory, IBM and the plaintiffs agreed to a partial settlement. As part of that settlement, IBM agreed to pay $1.4 billion, in the form of enhanced benefits, if it lost its appeal of Judge Murphy’s ruling.

While IBM has prevailed in the litigation, the age discrimination issue around cash-balance plans remains unsettled, with numerous district courts handing down conflicting rulings. More certainty isn’t likely until several more appeals courts rule on the issue or the Supreme Court, in another case, decides to take up the issue.

A 2006 federal law does protect cash-balance plans that meet certain basic standards from age discrimination suits. But that law, the Pension Protection Act, applies only to cash-balance plans established after June 29, 2005.

Roughly 1,200 to 1,500 employers now sponsor cash-balance plans, which are so named because benefits are expressed as a cash lump sum.

Not directly related to the litigation, IBM, like several other major U.S. employers, is phasing out its cash=balance plan in favor of an enhanced 401(k) plan.

Jerry Geisel

Jerry Geisel is a reporter for Business Insurance, a sister publication of Workforce Management.

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