Judge Gives Preliminary Approval to Partial IBM Pension Settlement

October 29, 2004 (PLANSPONSOR.com) - IBM Corp. received preliminary approval Thursday to settle a small part of a larger class-action lawsuit regarding the company's switch to a cash balance plan in the mid-1990s.

The computer giant received preliminary approval from a judge Thursday to pay between $14 million and $15 million to approximately 16,000 former employees who worked for less than five years (See IBM Reaches Partial Cash Balance Lawsuit Settlement ), according to the St. Louis Post-Dispatch. This number pales in comparison, however, to the remaining case, in which IBM may be forced to compensate up to 140,000 employees for discrimination due to the switching of its plan.

A majority of the workers covered by the recent settlement are not the older workers who lost out on benefits, but are instead younger employees who left the company before their pensions vested. Lawyers had argued that federal law stipulated that these employees garner some form of vesting payment.

US District Judge Patrick Murphy recently ruled that IBM, by switching to a cash-balance plan, discriminated against older workers. The company has estimated that Murphy’s ruling could lead to a devastating $6-billion payout. Lawyers said that the remaining part of the case may be settled next month, according to the Post-Dispatch. Murphy had been ready to rule on the amount of damages when the two sides notified the judge that they were in settlement discussions.

The case is being watched intently because of its potential implications for other major corporations where employees have complained that pension and health care benefits were reduced in corporate cost-cutting moves (See  One Bad Apple ). Companies in addition to IBM that moved to cash-balance pension plans in the 1990s include Eastman Kodak Co. and Electronic Data Systems Corp.