IBM Wins Appeal in Pension Case

A federal appeals court Monday ruled that IBM did not discriminate against its employees on the basis of age, overturning an earlier verdict in that case.

“All terms of IBM’s plan are age-neutral. Every covered employee receives the same 5 percent pay credit and the same interest credit per annum,” said the U.S. Court of Appeals for the Seventh Circuit, negating contentions by a class-action suit that IBM had favored younger employees over older when it switched pension plans in 1999.

“The judgment of the district court is reversed, and the case is remanded with directions to enter judgment in IBM’s favor,” the decision said.

The case centered on the difference between defined-benefit and cash-balance pension plans. A defined-benefit pension means that the employee will receive a fixed amount each month from the employer after retirement. Cash-balance plans give employees the same interest rate, but not necessarily the same benefit.

Because employees who join the company at a younger age receive more compounded interest, the plaintiffs in the case argued that it discriminated against older workers and those who began their pension under the earlier plan.

More than 1,000 U.S. companies now offer cash-balance pension plans, according to a statement by Covington and Burling, IBM’s attorneys in the appeal. Because the lower court’s ruling had said that cash-balance plans were unlawful, the ruling could have a significant impact on the implementation of pension plans in the United States now that the decision is overturned.

By Steven Schwankert, IDG News Service (Beijing Bureau)

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