Following the ruling by the 7 th US Circuit Court of Appeals that said IBM’s cash balance plans did not discriminate against older workers, the plaintiffs requested the full 11-member appellate panel hear the case (See IBM Employees Want Full 7th Circuit Review of Cash Balance Case ). However, the court denied their plea to reconsider the case.
The appeals court had reversed the 2003 ruling by the US District Court of the Southern District of Illinois which said IBM had amended its pension plan in a way that discriminated against older workers. The court said the plan would allow older workers to accrue benefits at a lower rate than younger workers (See Murphy’s Law: IBM Loses Cash Balance Ruling).
The ruling by the district court stood alone in its reasoning that cash balance plans violated the Employee Retirement Income Security Act (ERISA) age discrimination rules, particularly in the way it interpreted the rate-of-benefit-accrual issue. However, another ruling this spring by the US District Court of the District of Connecticut hinged on the same reasoning, which said that a cash balance plan by FleetBoston discriminated by giving older workers a lesser age 65 annuity than younger workers (See Hanging in the Balance ).
However, the 13-page appellate court decision written by Circuit Judge Frank Easterbrook rebuffed the Illinois district court’s reasoning (See IBM Cash Balance Discrimination Ruling Reversed ).
Easterbrook wrote that “Litigation cannot compel an employer to make plans more attractive. It is possible, though, for litigation about pension plans to make everyone worse off. After the district court’s decision IBM eliminated the cash-balance option for new workers and confined them to pure defined-contribution plans. Whether that is good or bad (for employees or society as a whole) is not for us to say. What we can and do conclude, however, is that the decision may again be made freely, governed by private choice rather than legal constraint.”
The reversal by the appellate court prompted acclaim from the retirement industry, which hoped the decision would quell plan sponsors’ fear of the legal liability associated with cash balance plans (See Appellate Cash Balance Ruling Applauded for being Succinct, Clear Particularly ).