IBM pension ruling reversed on appeal

August 08, 2006|By NEW YORK TIMES NEWS SERVICE

A three-judge appellate panel ruled yesterday that IBM did not discriminate against its older workers when it switched retirement plans in 1999, a long-awaited decision that could help shelter hundreds of companies from possible age-discrimination suits.

The decision reversed a 2003 federal court ruling that changes International Business Machines made to its pension plan discriminated against older workers by making it impossible for their benefits to grow in value as much as the benefits of younger workers.

"All terms of IBM's plan are age-neutral," Judge Frank H. Easterbrook of the U.S. Court of Appeals for the 7th Circuit in Chicago wrote of the switch to a cash-balance plan, in which employees earn retirement benefits evenly throughout their careers, and away from a traditional plan, where benefits are based on length of service and final pay.

At least 1,500 pension plans similar to IBM's are in place in the United States, covering more than 7 million workers and retirees.

The lower court ruling, by Judge G. Patrick Murphy of the Southern District of Illinois, had suggested that virtually all cash-balance pension plans were illegal. Businesses had worried that if the lower court's decision had been upheld, they could be vulnerable to hundreds of age-discrimination lawsuits.

In the appellate court ruling, Easterbrook wrote that older workers were generally correct in perceiving "that they are worse off under a cash-balance approach" because such a plan eliminated the possibility of earning larger benefits as they neared retirement.

"But removing a feature that gave extra benefits to the old differs from discriminating against them," the judge wrote.

Yesterday's decision protects IBM from having to pay up to $1.4 billion in remedies to about 140,000 employees and retirees to settle the two significant claims in the original lawsuit, filed in 1999. Both sides in the class action lawsuit had agreed to cap the remedies at that amount in 2004, while they waited for the appellate ruling.

The decision has no effect on a $320 million settlement that IBM reached with plaintiffs on the five other claims in the original lawsuit. Those claims dealt primarily with changes that IBM made to its pension plan in 1995. IBM has agreed to pay the $320 million once all legal proceedings have ended.

A spokesman for the plaintiffs said the appellate ruling appeared to confuse the distinctions between pension plans and 401(k) plans, denying workers the benefit of special legal protections Congress had provided.

He also said the group planned to request a new hearing by the entire 7th Circuit. He asked not to be identified because the group was still studying the three-judge opinion.

Cash-balance pension plans have generated several lawsuits, but the IBM case has gathered attention because it was among the first to get a decisive win for the plaintiffs on the basis of age-discrimination claims.

Business groups applauded the opinion. The decision "should settle this matter once and for all," said James A. Klein, president of the American Benefits Council, a group that represents large companies.

While business groups have watched the case closely, they have also lobbied Congress for changes. Business lobbyists were able to include a provision in the recently passed pension reform bill that would shield companies switching to cash-balance plans in the future from age-discrimination lawsuits.

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