US Supreme Court Turns Away IBM Cash Balance Appeal

January 16, 2007 ( - Despite a desire by many in the retirement services community for legal clarity in the continuing hot button issue of cash balance plans, the US Supreme Court has refused to hear a high profile cash balance appeal involving IBM.

Acting without comment, the justices let stand a 7 th US Circuit Court of Appeals decision (See  IBM Cash Balance Discrimination Ruling Reversed ) in 2006 that IBM’s switch to a cash balance pension did not discriminate against older workers, according to news reports.

In July 2003, a federal judge handed down a then-landmark decision stating that the plan violated the Employee Retirement Income Security Act (ERISA) by favoring younger workers – a decision that eventually prompted a $1.4-billion settlement that hinged on the outcome of appeals (See  Murphy’s Law: IBM Loses Cash Balance Ruling ).

While the recently passed Pension Protection Act (PPA) declared new cash balance plans to be legal under ERISA, the provision did not apply to plans older than the June 29, 2005 effective date in the legislation.

In legal briefs filed with the high court, attorneys for the participants argued that the 7 th Circuit had erred in its decision. “IBM’s pension plan plainly discriminates on the basis of age,” the workers’ attorneys wrote. “Millions of workers are subject to pension plans similar to that at issue in this case and the Seventh Circuit’s misapplication of ERISA’s nondiscrimination mandate threatens to deprive them of its essential protection.”

However, lawyers for the company insisted that the appellate court had correctly interpreted the facts and the law. “The court stressed that IBM’s cash balance formula is age-neutral,” the IBM attorneys asserted.

In recent months, federal judges have issued a variety of rulings on the crucial age discrimination question – leading many to look to the high court to settle the issue definitively. Trial judges have thrown out claims against PricewaterhouseCoopers LLP (See  ERISA Requires Specific Retirement Age for Cash Balance Plans ) and the Equitable Life Assurance Society of America (See  Equitable Cash Balance Plan Wins Discrimination Ruling ). Judges have ruled in favor of workers, at least in part, in cases involving Citigroup Inc. (See  Court Gives Thumbs Down to Citigroup Cash Balance Plan ), JPMorgan Chase & Co. (See  District Court Disagrees with Logic in Landmark Cash Balance Ruling ) and Bank of America Corp.’s FleetBoston unit.

The high court’s ruling in Cooper v. IBM personal Pension Plan will not change IBM’s plans to eliminate its cash-balance plan on January 1, 2008. IBM announced in January 2006 that it will throw out the program and enhance its 401(k) plan

(See IBM Beefs Up 401(k), Backs Off DB – Come 2008 ).