Compliance

Murphy's Law: IBM Loses Cash Balance Ruling

By Nevin E. Adams | July 31, 2003
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July 31, 2003 (PLANSPONSOR.com) - Big Blue got a black eye from a federal judge today, who ruled that IBM's pension plan conversion and operating assumptions violated age discrimination laws.

>The ruling, by Judge G. Patrick Murphy in the US District Court of Southern Illinois, found that the computer giant violated age discrimination laws by amending its pension plan in a way that would make older employees accrue retirement benefits at a lower rate than younger workers.  

>Focusing on the rate of accrual, rather than the benefit itself, Judge Murphy noted that IBM's argument was based on the "actuarial premise" of the "time value of money."    However, Murphy dismissed that claim, noting that "From an economist's perspective, Defendants have a good argument…. This does not mean, however, that the (IBM plan) is legal."

Age Claims

>The plaintiffs had claimed that the IBM plan violates ERISA because it is age discriminatory based on a conversion factor that increases in direct correlation to an employee's age - causing older workers to receive a lower rate of benefit accrual and thus a smaller accrued benefit at age 65 than a younger employee who had the same service and salary as the older worker.

>In today's decision, Murphy held that IBM's formula was set up so that older workers would receive a lower benefit accrual rate than younger employees if they worked the same years at the same salary and both retired at age 65.   In further dismissing IBM's claims, Murphy went on to categorize Congress' decision to use the different terms "accrued benefit" and "benefit accrual" in ERISA as a "simple" attempt to be "grammatically correct."