Justices to Consider Taking IBM Cash Balance Appeal

January 9, 2007 (PLANSPONSOR.com) - One of the most controversial cash balance plan conversions could get its day in the nation's highest court, if US Supreme Court justices agree to weigh in on a case that alleges IBM's cash balance program discriminated against older workers.

Business Insurance reported that the nation’s high court is scheduled to this week discuss accepting an appeal of an August 2006 decision by the 7th US Circuit Court of Appeals overturning a lower court ruling labeling IBM’s plan as age discriminatory (See  IBM Cash Balance Discrimination Ruling Reversed ).  If the Supreme Court takes the IBM case, its eventually ruling could put the age discrimination issue to rest.  However, it is not yet clear when – or if – justices might decide on whether to hear the case after talking about it at their regular weekly conference.

The Pension Protection Act, signed into law by President Bush last August, resolved the controversy regarding age discrimination for these type plans, but only on a prospective basis (see  The Pension Protection Act: This Changes Everything ).  However, the courts have been divided on the issue – and in several cases have taken decidely opposing positions on the issue (see  Hanging in the Balance ).   

Despite that split in opinions, the IBM case has garnered most of the media scrutiny.  In that 2003 case, a federal judge ruled that IBM”s cash balance plan hurt older workers because, when expressed as a retirement annuity, the benefits earned by younger employees are more valuable than the same benefits earned by their older counterparts (See  Murphy’s Law: IBM Loses Cash Balance Ruling ). 

But just last year the appeals court – the first time a court of that level ruled on the issue – rejected that analysis, saying the disparity in benefit values was the result of the time value of money, which, it said, is not age discrimination.

Roughly 1,200 to 1,500 cash balance plans covering millions of employees and retirees are currently in operation – and despite the controversy, most have been implemented without controversy (see  One Bad Apple ). As part of the Pension Protection Act, Congress included provisions to protect cash balance plans created after June 29, 2005 from age discrimination suits (See  What’s Inside the Pension Protection Act ).  The IRS, which had suspended its determination letter process on the plan conversions in the midst of the controversy surrounding the design, reopened that process last month, specifically citing the PPA provisions (see IRS Opens Floodgates on Cash Balance Conversion Letter Requests ).