Court Dismisses Age Bias Claims Against Hybrid Plan

Using the argument in Cooper v. IBM (See IBM Cash Balance Discrimination Ruling Reversed ), the court disagreed with the plaintiffs’ contention that “the rate of benefit accrual” is the same as “accrued benefit.” The court found that the pension equity formula provided for an age-neutral rate of benefit accrual annually.

In addition, the district court determined that a wear-away period under the plan was also not discriminatory even though older workers may have to wait longer to begin accruing benefits since their calculated opening balances under the hybrid plan were more likely to be less than their accrued benefit under their prior defined benefit plan. The court reiterated that this plan feature does not lead to an age-discriminatory final accrued benefit at retirement.

A suit was brought against the plan and Gannett Co. claiming that the pension equity formula was age discriminatory because the total number of points a participant will earn under the formula if he works to retirement (which determines his benefit) will differ depending on what age the participant starts work.   “An employee beginning work at age 25 would have the potential of 40 years of service, accumulating 300 potential percentage points, while an employee beginning work at age 45 would have only 20 years of potential service, earning 120 points,” according to the court opinion.

In addition, plaintiffs’ claimed that the plan was age discriminatory because no new credit is given to employees whose balances under the prior defined benefit plan were lower than the “starting percentage” calculated with the pension equity formula, most likely older employees.

The court dismissed all age discrimination claims.

The case is Wells v. Gannett Retirement Plan, D. Colo., No. 03-cv-02671-RPM, 7/1/08.