Boeing Cash Balance Ruling Adds to Pro-CB Case Law

March 15, 2007 ( - Following the dictates of a recent appellate court finding about the legality of cash balance plans, a federal judge in Illinois has thrown out a legal challenge to the Boeing Company's cash balance program.

U.S. District Judge David Herndon of the U.S. District Court for the Southern District of Illinois dismissed the employee challenge because of the recent ruling by the 7 th U.S. Circuit Court of Appeals that a similar IBM program was not age discriminatory (See  IBM Cash Balance Discrimination Ruling Reversed ).

According to Herndon, the ( 7 th Circuit) decision “makes clear” that the term “benefit accrual” must be measured in terms of what an employer puts into a cash balance account, not the final account balance.

The plaintiffs in the case were a group of Boeing employees who worked for McDonnell Douglas Corp. prior to the merger of Boeing and McDonnell Douglas in 1997. The plaintiffs in 1999 became participants in Boeing’s cash balance plan.

As have employees waging legal battles against cash balance plans at other companies, the Boeing workers charged that the cash balance plans not only discriminated against older workers, but violated anti-backloading provisions of the Employee Retirement Income Security Act (ERISA).

In granting Boeing’s motion to dismiss both claims, Herndon first rejected the employees’ contention that the plan violated the 133 1/3 percent backloading test because swings in the interest rate on 30-year Treasury securities “were likely” to cause interest credits allocated to participant’s accounts to accrue in later years at a rate more than one-third higher than the rate of accrual of such benefits in earlier years.

The employees were represented by Matthew Armstrong and Jerome Schlichter of Schlichter, Bogard & Denton, St. Louis. The law firm has made national news in recent months by filing a raft of lawsuits against employers over retirement plan issues including charging excessive fees (See  Lawyer: Excessive Fee Suits Not an Organized Anti-Plan Campaign ).

The case is Wheeler v. Pension Value Plan for Employees of the Boeing Co., S.D. Ill., No. 06-cv-500-DRH, 3/13/07.

The 7 th Circuit ruling let stand a July 2003 decision stating that the IBM plan violated ERISA by favoring younger workers – a decision that eventually prompted a $1.4-billion settlement that hinged on the outcome of appeals (See   Murphy’s Law: IBM Loses Cash Balance Ruling ).

The U.S. Supreme Court refused to review the 7 th Circuit ruling in mid-January (See  US Supreme Court Turns Away IBM Cash Balance Appeal ).  But,  despite the high court’s ruling, some retirement industry observers say that should not stop plan sponsors from setting up their own cash balance programs (See   Rules/Regs: Prevailing Wisdom).