Court Throws Out Three Cash Balance Challenges

September 18, 2007 ( - With one eye cast toward a landmark federal appellate decision declaring that cash balance plans were not age discriminatory, a district court judge has thrown out similar complaints against three such pension programs.

In reaching his decision to dismiss discrimination complaints against the cash balance plans, U.S. District Judge J. Phil Gilbert of the U.S. District Court for the Southern District of Illinois said he was bound by the 7 th  US Circuit Court of Appeal’s decision in Cooper v. IBM Personal Pension Plan (See  IBM Cash Balance Discrimination Ruling Reversed ).  

In that instance, 7 th Circuit judges ruled that cash balance plans do not discriminate against older workers because younger workers receiving more interest credits than older ones was simply a function of the “time value of money” and not age bias.

Gilbert’s decision that the cash balance plans do not violate the Employee Retirement Income Security Act (ERISA) came in challenges by participants in plans sponsored by Solutia Inc., Monsanto Co., and Pharmacia Corp.

Gilbert noted that the 7 th Circuit asserted that age bias in a cash balance plan is to be tested under ERISA Section 204(b)(2)(A). That provision holds that a defined contribution plan is not age discriminatory if allocations to an employee’s accounts do not cease and the rate at which amounts are allocated to the employee’s account is not reduced because of the attainment of any age.

According to the district court, the participants in the current challenges did not allege any reduction in employer inputs to participants’ accounts by reason of age and instead argued that the actuarial value of the interest credited to those accounts decreased as participants near retirement age.

Gilbert added that while several federal courts within the jurisdiction of the 2nd U.S. Circuit Court of Appeals have disagreed with Cooper, that the Cooper ruling was binding on him.

Gilbert’s latest decision is  here .