The appellate court’s decision focused on the term “benefit accrual” used in the Employee Retirement Income Security Act (ERISA) when determining if a plan satisfies discriminatory requirements. In its decision, the appellate court pointed out that “benefit accrual” has a different meaning than the term “accrued benefit,” which the district used in its determination (See Murphy’s Law: IBM Loses Cash Balance Ruling ).
According to the court, “benefit accrual” refers to the amount IBM puts into the plan for each employee and “accrued benefit” refers to the final amount from which plan participants can withdraw when they retire. “All terms of IBM’s plan are age-neutral. Every covered employee receives the same 5% pay credit and the same interest credit per annum,” the opinion said.
ERISA provides that employers cannot stop making allocations to participant accounts or change their accrual rate due to age, which the court noted the IBM plan did not do.
The appellate court rejected the plaintiffs’ argument that a previous decision by the 9th U.S. Circuit Court of Appeals against Xerox Corporation upholds their claim, pointing out that the Xerox case concerned calculations of final benefit payouts and not additions to participants’ accounts (See Xerox Loses Another Retiree Benefit Challenge ).
Offering another perspective on the issue, the court conceded that traditional defined benefit plans tend to benefit older employees with longer years of service, but said, “Replacing a plan that discriminates against the young with one that is age-neutral does not discriminate against the old.”
In its opinion, the court concluded that employers are “free to move from one legal plan to another legal plan” and that “the decision mayâ€¦ be made freely, governed by private choice rather than legal constraint.”
The decision in Cooper, et al. v. IBM Personal Pension Plan is here .
« Fewer Stock Options for CEOs