In a unanimous decision, the San Francisco-based appeals court affirmed a lower court ruling that a cash-balance plan sponsored by Southern California Gas Co., a subsidiary of Sempra Energy in San Diego, does not discriminate against the big utility’s older employees.

Closely following other appellate rulings on the issue, the 9th Circuit said that while the benefits provided to younger employees are worth more—expressed as a retirement annuity—than the same benefits provided to older employees, that difference is the result of the time value of money, not age discrimination.

“Although a younger worker’s total accrued benefit at retirement age will be greater under the cash balance formula than an older worker’s if both started working at the same time, the difference is due to the time value of money rather than age discrimination,” stated the opinion, which was written by Judge N. Randy Smith.

Starting with a 2006 ruling by the 7th U.S. Circuit Court of Appeals involving IBM Corp.’s cash-balance plan, all the appeals courts that have taken up the issue have reached the same conclusion. They have rejected the argument by plaintiffs’ attorneys that the plans are age discriminatory because the same earned benefit will produce a smaller retirement-age annuity for older employees than younger employees.

“Plaintiffs’ argument ignores the realities of the time value of money,” Judge Smith wrote, adding that the 9th Circuit concurred with the 7th Circuit that nothing in federal age discrimination law suggests that federal legislators were opposed to younger workers having more time left before retirement and thus a greater opportunity to earn interest on each year of retirement savings.

With five appeals courts all affirming that cash-balance plans are not age discriminatory, litigation on the issue—which intensified after a district court judge in southern Illinois ruled in 2003 that cash-balance plans in general and IBM’s plan in particular discriminated against older employees—should be coming to an end, legal experts say.

“Given the universal conclusion reached by all courts of appeal, notwithstanding their diverse political leanings, this challenge should now be buried once and for all,” said Nancy Ross, a partner with McDermott, Will & Emery in Chicago.

“The fear of litigation should be gone. The courts have spoken very clearly on the issue,” said Jeffrey Huvelle, a partner with Covington & Burling in Washington.

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

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