Energy Firm Workers Challenge Cash Balance Conversion

July 11, 2005 ( - The latest battle over a cash balance conversion has popped up in a Los Angeles court as two Southern California Gas Co. workers claimed in a lawsuit that their firm's 1998 pension conversion illegally discriminated against older employees.

The federal court lawsuit alleges that older workers suffered a “disparate impact,” under both state and federal laws, when the company, a unit of Sempra Energy Co., San Diego, changed its pension calculations for salaried employees, according to a Wall Street Journal report.

According to the news report, Southern California Gas Co. went from a formula calculating benefits by multiplying years of service by average salary to a two-step formula. The new system calculated how much a person’s pension would be worth if he immediately quit and his pension was paid out in a lump sum. That became an opening balance, which would grow with hypothetical annual pay-based contributions, plus interest.

A spokesman for Southern California Gas told the Journal that the company hasn’t seen the suit, but is confident it will prevail. He added that the company took steps to ensure a smooth transition for older workers.

In general, cash balance plan opponents have waged a bitter fight against the plans both with federal regulators and on Capital Hill, alleging that the pension approach leaves older workers will less than they would have had otherwise.

The suit, which seeks class-action status, is the first pension suit alleging age discrimination to be filed since a March Supreme Court decision made it easier for older workers to bring cases alleging that pension cuts hurt them more than younger workers (See Supreme Court Rules Age Discrimination Does Not Need to Be Deliberate ). Meanwhile, Congress is expected to vote soon on rules that could protect employers with cash-balance plans from age-discrimination suits (See Latest GOP Pension Reform Bill Includes Advice ).

A federal district court judge in 2003 ruled that International Business Machines Corp. discriminated against older workers when it converted to a cash-balance plan in 1999 (See Murphy’s Law: IBM Loses Cash Balance Ruling ). IBM settled a portion of the case for $320 million, and is expected to appeal the age-discrimination claim later this year (See IBM Strikes a Deal on Cash Balance Suit ).