Human Capital & Careers

Court: IBM Pension Plan Not Discriminatory

On the heels of Congress's new pension law, a court rules that IBM's cash-balance pension plan did not discriminate against older workers.
Stephen TaubAugust 7, 2006

In a court decision that could have wide implications for the millions of Americans who are enrolled in traditional pension plans, a federal appeals court ruled that IBM Corp. did not commit age discrimination when it converted its pension plan to a “cash-balance” plan, according to the Associated Press.

“All terms of IBM’s plan are age-neutral,” the judges reportedly wrote. “Removing a feature that gave extra benefits to the old differs from discriminating against them.” Indeed, the AP noted, IBM had already agreed to settle the case for as much as $1.4 billion if it had lost the appeal.

Traditional defined-benefit pension plans offer retirees a monthly check for life based on their salary and the number of years they worked for the company. In cash-balance plans, by contrast, companies set aside a specific sum for each worker and guarantee that a minimum interest rate will be earned. The cash-balance plan structure is thought to favor younger workers because those workers have more time to benefit from compounding interest.

According to the AP, about 1,500 U.S. companies have adopted cash-balance or other “hybrid” pension plans.

Last week, Congress passed a pension bill that in part aimed to clarify the legality of cash-balance plans.

The AP noted that the lead plaintiff, Kathi Cooper of Bethalto, Ill., said she would continue to pursue the case, confident that IBM’s move was illegal. “I don’t consider this a dead end,” said Cooper, according to the wire service. “I do not consider this fight over.”

IBM said in a statement it was “gratified” by the verdict.

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