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Court Faults IBM Pension Move

The firm discriminated against older workers when it altered its plans, a federal judge rules.

August 01, 2003|From Associated Press

IBM Corp. illegally discriminated against older workers when it altered its pension plans in the 1990s, a federal judge ruled Thursday in a closely watched case that affects 140,000 employees at Big Blue and could ripple across American industry.

Judge G. Patrick Murphy of U.S. District Court in East St. Louis, Ill., ruled that IBM unfairly penalized older workers when it converted its traditional retirement benefits to a cash-balance plan, in which workers can get a lump sum whenever they leave the firm.

Further hearings will determine the damages to be paid.

IBM and other firms believe cash-balance plans are more attractive to younger workers, who probably will change jobs during their careers. But older workers contend that the plans cut their expected benefits by as much as half.

"It's awesome -- I knew we had a case," said the lead plaintiff, Kathi Cooper, 53, of Bethalto, Ill., a 24-year IBM employee who filed the case in 1999.

"When IBM converted to a cash-balance plan, it hurt almost every single employee over the age of 40, 45, because it reduced our accrued benefits. The law says you cannot reduce benefit accruals on account of age.... That formula was part of the greed from the 1990s -- it's all about greed."

IBM spokesman Bill Hughes denounced the ruling and said the Armonk, N.Y.-based technology company would appeal.

"IBM's pension plan does not discriminate on the basis of age," he said. "To call such a plan discriminatory makes no sense and ignores the fundamental principle of the time value of money. Under the court's interpretation of the law, every cash-balance plan in the country is illegal."

Cash-balance plans mushroomed in popularity during the 1990s. Similar to a 401(k), workers can track the growth of their money in a hypothetical, individual "account," although they can't allot any of their own pay to the plan or decide how it is invested. Workers are allowed to take the money with them if they leave for another job.

Traditional pension plans reward workers for sticking with a company over time, increasing their retirement benefits at a much faster rate during their last years of service. Critics of cash-balance plans say that if they are instituted before experienced workers are near retirement age, that essentially changes the rules late in the game, depriving such employees of anticipated gains and leaving them without enough working years to accrue equivalent cash- balance benefits.

"IBM's plan became ... the poster child for cash-balance abuse," said Norman Stein, a pension expert at the University of Alabama. "This was the very kind of employer that you wouldn't expect this kind of action from, and I think the employees regarded this literally as an act of betrayal."

Stein said Thursday's ruling appears to reject arguments that IBM and other firms have made in defending their shift to cash-balance plans. It could force lawmakers to tackle an issue they have been reluctant to touch, he and others said.

The Internal Revenue Service imposed a moratorium on new cash-balance plans in 1999. Since then, Congress has largely ignored the issue, though a bill that would require firms to give workers a choice of plans has been pending since December.

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