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Supreme Court Lets Stand IBM Pension Case January 16, 2007

Posted by notapundit in Judiciary, US News.

NEW YORK (Dow Jones)–The U.S. Supreme Court Tuesday let stand a lower court decision on the legality of International Business Machine Corp.’s (IBM) cash-balance pension plan, saving the company more than $1 billion.

The Seventh Circuit Court of Appeals in August reversed a lower court decision that said IBM’s cash-balance pension discriminated against older workers. The Supreme Court’s order will save IBM about $1.4 billion, which it had agreed to set aside for the appeal.

Plaintiffs, who included current and former IBM employees, had appealed the case to the Supreme Court because of conflicting lower court decisions over the question of whether cash-balance plans discriminate against older workers.

Legal experts, however, had thought the chances were low that the court would hear the IBM case because the other decisions, some of which have not yet been decided, were not a direct conflict with the IBM case. The Supreme Court also is taking far fewer cases than it has in the past.

Lee Freeman, the lawyer who handled the appeal for plaintiffs, said it would “be extra unfair to the hundreds of thousands of IBM retirees to have this decision left alone” if other courts eventually rule that the plans discriminate against older workers.

Tuesday’s announcement brings to an end several years of litigation over the IBM cash balance pension plan. In 2003, U.S. District Court Judge G. Patrick Murphy in the Southern District of Illinois ruled that IBM, in changing its pension plan, discriminated against older workers.

A year later, IBM agreed to pay $320 million to about 140,000 current and former IBM employees. IBM also agreed to pay up to an additional $1.4 billion if it had lost the appeal.

The IBM case has been closely watched because a number of companies are concerned about the legality of their cash-balance pension plans. While the Pension Protection Act of 2006 clarifies the legality for future cash-balance plans, it did not address existing plans, a number of which are being litigated.

Cash-balance pensions, also known as hybrid plans, are a form of defined-contribution pension plan, but the two differ slightly: The final monthly benefit is determined by the growth of a hypothetical pot of money, which the employer added to each year during the worker’s tenure, whereas defined-benefit plans tend to be more heavily swayed by the worker’s tenure and salary in their final few years, which tend to be higher.

The plans were first implemented in the 1980s. As of 2003, about 1,200 companies in the U.S. offered hybrid pensions, covering about seven million workers, but some of the companies that converted traditional pensions to these hybrids were accused of age discrimination in lawsuits.

Tuesday’s announcement will not change IBM’s plans to eliminate its cash-balance plan Jan. 1, 2008. IBM announced in January 2006 that it will eliminate the plan and enhance its 401(k) plan.

Shares of IBM traded recently at $99.93, up 59 cents.

By Jilian Mincer, Dow Jones Newswires


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