Cash Balance Plan not in Breach of Age Discrimination Laws

In dismissing the claims of four plaintiffs, the court rejected an actuary’s interpretation of the phrase “rate of benefit accrual” for cash balance plans as being the same as “accrued benefit.” Two of the plaintiffs had relied on the actuary’s interpretations for their claim. The other two plaintiffs were not yet age 65 and the court ruled they did not have an age discrimination claim under the Employee Retirement Income Security Act (ERISA), saying it does not apply to “persons who are not already over the normal retirement age of 65 and continuing to work.”

Senior Judge Karl Forester also said in the opinion that a plan is not age discriminatory if the allocations to a plan participant’s account do not decrease on account of age.

The reasoning in the court’s decision paralleled that of other courts’ rulings on whether cash balance plans were discriminatory.

The plaintiffs in the case had relied heavily on a 2003 US District Court for the Southern District of Illinois decision in Cooper v. IBM Personal Pension Plan, in which the court decided the IBM violated age discrimination laws when it switched from a defined benefit plan to a cash balance plan, saying it allowed younger workers to accrue benefits at a rate higher than older workers. (See Murphy’s Law: IBM Loses Cash Balance Ruling ).

However, the 7 ^th  US Circuit Court of Appeals rejected the lower court’s opinion in August. The appellate court said all terms of IBM’s plan are age-neutral, with every covered employee received the same 5% pay credit and the same interest credit per annum, and pointed out that “rate of benefit accrual” was not the same as “accrued benefit” (See IBM Cash Balance Discrimination Ruling Reversed ).

The four plaintiffs were all employed by Rand McNally Book & Media Services, which had a defined benefit plan, when the company was acquired in 1997 by World Color Press. Following the acquisition, the plan participants were all transferred to World Color’s cash balance plan and were give the option to choose a retirement benefit that was the greater of the benefit they would have received under the Rand McNally plan if they would have remained participants in that plan until retirement date, or their cash balance under the World Color plan. Two of the plan plaintiffs in the case retired in 1998 and they received benefits under the Rand McNally DB plan.

The plan changed again in 1999, when World Color merged with Quebecor Printing Inc., creating Quebecor World (USA) Inc. The World Color cash balance plan was merged with the non-cash balance Quebecor plan in December 2000.

“When plaintiffs have a choice between the greater of their pension benefits calculated under their old defined benefit plan or their new cash balance plan, and they choose the old plan, they have suffered no injury as a result of the company’s conversion to the new cash balance plan,” according to the opinion.

The case is Drutis v. Quebecor World (USA) Inc.