Business Insurance reports that Judge Harold Baer, Jr. said that when cash balance plan benefits are expressed as a retirement-age annuity, an older employee who started working at the same time as a younger employee will receive a smaller benefit – which he said constitutes age discrimination.
Baer’s decision is the first to go against a landmark ruling by the 7 th US Circuit Court of Appeals that said a cash balance plan offered by IBM Corp. was not age discriminatory, according to Business Insurance. The appellate court noted the difference between “benefit accrual” and “accrued benefit” in its decision, and said the benefit accrual method was the same for participants regardless of age (See IBM Cash Balance Discrimination Ruling Reversed ).
In rejecting that logic, Baer wrote, “It is immaterial that the terms of the plan appear age neutral. Despite the fact that every employee receives pay credits based on their completed years of service and the same interest rate is applied to each employee’s account balance, that is not the yardstick by which to test, not the means to avoid, age discrimination results,” according to Business Insurance.
Baer said what matters is that converting employees’ account balances to a retirement-age annuity results in a smaller benefit for older employees because they have fewer years in which to earn interest.
The case is now set for a ruling by the 2 nd US Circuit Court of Appeals which recently denied an effort by FleetBoston Financial Corp. to dismiss a similar suit (See Court Rebuffs Fleet/BoA Cash Balance Ruling Reconsideration Request ).