Among the lawsuit’s laundry list of allegations were charges that PwC illegally provided partners with a 200% K plan match, compared with 25% matches to other employees, and gave partners oversized contributions to their balance pension accounts, the Wall Street Journal reported. Such treatment violated federal pension laws, the suit claimed.
The suit, filed by Timothy Laurent in federal court in the Southern District of Illinois seeks class-action status. Laurent, a managing consultant, worked at Pricewaterhouse from 1995 to 2001.
David Nestor, a spokesman for Pricewaterhouse, told the Journal that the firm believes its plans are lawful and fair to employees. “It’s also important to note that this lawsuit does not claim any loss of employee benefits, because there were none,” he said.
According to Laurent’s suit, Price Waterhouse LLP, a predecessor of Pricewaterhouse, in July 1994 froze its traditional pension plan and set up a cash-balance plan. Four years later, when Price Waterhouse and Coopers & Lybrand merged to create the current firm, Coopers & Lybrand’s traditional pension plan was converted into a cash-balance plan, and the two firms’ plans merged in July 1999.
Laurent alleged that instead of crediting employee cash-balance accounts with a preset interest formula pegged to returns on Treasury bills, plus 1% to 2%, as is common with cash balance plans, Pricewaterhouse instead required employees to “invest” the value of their accounts in hypothetical portfolios tracking the returns of investment funds similar to ones available in the 401(k) plan also available to employees.
This arrangement shifted investment risk to employees and created a conflict of interest, the suit claimed: “The worse the rank-and-file performed in their account balances, the smaller the (plan) benefits would be.” Meanwhile, Pricewaterhouse could invest the pension money for potentially higher returns. This violated fiduciary duty rules, the suit said, because if the firm’s own professional money managers believed there was a better way to invest the money, it should have told the participants in the plan.
Nestor, the PwC spokesman, told the Journal that there were no breaches of fiduciary duty and that “each employee may do better or worse than the firm did through its investments.” He said employees could choose among 16 investment options, including stable-value offering or riskier equity and fixed-income choices. “We believe the plans offer PwC employees benefits of flexibility and independent choice, through the ability to self-direct their investments,” he added.
The suit also alleges that Pricewaterhouse took steps to provide the top-paid employees with an unfair share from the retirement savings plans.
While most employees receive annual “credits” to their cash-balance accounts ranging from 5% to 8% of their annual pay, partners can receive an amount necessary to generate a benefit equal at retirement to $140,000 to $165,000 a year for life, depending on the returns in the investment options the partners select, unnamed sources told the Journal.
Meanwhile, the suit says, partners also got a better deal in the 401(k). They could defer as much as the maximum allowed by law, $13,000 a year, and receive a 200% matching contribution, for a total annual accumulation of $39,000. By contrast, other employees receive a matching contribution of 200% only for the first month of participation in the plan, after which the amount falls to 25%.
The PwC lawsuit was filed in the court headed by Chief US District Judge G. Patrick Murphy, who penned a landmark ruling regarding IBM’s cash balance plan. The ruling found that the computer giant violated age discrimination laws by amending its pension plan in a way that would make older employees accrue retirement benefits at a lower rate than younger workers (See Murphy’s Law: IBM Loses Cash Balance Ruling ).