PHILADELPHIA -- SmithKline Beecham PLC has been slapped with a lawsuit over its new cash balance pension plan.
The suit, filed as a class action by a former employee, charges the company deliberately misled the approximately 1,000 employees of its laboratories division when it began negotiating to sell the unit at the same time as it promised the workers it would restore some of the retirement benefits they lost when the company converted to a cash balance plan.
Although only one former employee is involved so far, others are expected to join the suit soon.
Individuals can file lawsuits as class actions if they believe others are similarly harmed; it is up to the court, however, to grant class-action status. The court has not yet certified this case as a class-action suit.
Cash balance pension plans are defined benefit pension plans that look like 401(k) plans because they give employees a notional account that lets them see how their retirement benefits are growing, and typically let them take their entire savings with them when they quit their jobs.
While the plans typically benefit younger workers who tend to change jobs frequently, older workers often see the value of their projected pensions drop when companies convert to cash balance plans.
The lawsuit is the latest of several filed against companies that have retrofitted their traditional pension plans into hybrid plans.
SmithKline Beecham told employees of its plans to convert its traditional pension plan to a hybrid cash balance plan in fall 1998.
The new pension plan kicked in on Jan. 1.
The lawsuit was filed Oct. 28 in U.S. District Court for the Southern District of Illinois in East St. Louis.
The lawsuit seeks to recover the millions of dollars of benefits the employees lost when the company sold the laboratories division Aug. 16 and announced plans to stop paying the partial restoration of benefits at the end of 2000.
SmithKline Beecham was scheduled to file its response to the lawsuit by Nov. 24.
"We disagree with the plaintiff's allegations and we will be seeking a dismissal of the plaintiff's complaints," a SmithKline Beecham spokesman said.
The giant pharmaceutical company switched to the cash balance plan in January, and announced plans to sell its laboratories division to Quest Diagnostics Inc., Teterboro, N.J., in February.
Some months later, SmithKline Beecham told the employees they would stop getting the "transition" benefits after Dec. 31, 2000. Quest did not assume any responsibility for the lost benefits.
Quest has only a 401(k) plan and an employee stock option plan. Former SmithKline Beecham employees are now eligible to participate in Quest's defined contribution retirement plans, said Fred Williams, Quest's director of benefits. They also will receive the benefits they had earned under the SmithKline Beecham plan at retirement or, if they prefer, they may cash out their benefits and roll over that money into the Quest plans, Mr. Williams said.
After the announcement of the sale, SmithKline Beecham initially promised the employees they would receive the partial restoration of benefits for seven years, or until they turned 60, whichever came first.
The lawsuit, brought by Barbara Simpson, who joined SmithKline Beecham in 1988 and now works for Quest, alleges the company knew that "replacing the pension plan with the cash balance plan would cause significant unrest among the employees of SmithKline Labs."
If the company had warned employees last year that it would not make up the lost benefits after the sale of the division, Ms. Simpson and others working at the unit "would have been able to voice their opposition to any termination of the payment of transition credits or begin looking for employment elsewhere," the lawsuit notes. "Because a skilled technical staff was one of the most valuable assets SmithKline was selling to Quest, SmithKline would have taken steps to make certain that the transition credits continued after the sale."
SmithKline Beecham informed Ms. Simpson that she would receive about $19,000 in transition credits over a five-year period, until she turned 60, "to relieve the financial pain" of the company's conversion to the cash balance plan, she said in a telephone interview.
But some months after the sale was announced, SmithKline Beecham told employees of the laboratories division they would not receive any of the benefits to make up for their losses under the cash balance plan.
SmithKline Beecham subsequently offered to pay the benefits until the end of 2000.
Ms. Simpson said she and other employees in the Midwest spoke several times to Cindy Wiggins, director of SmithKline Beecham's human resources for the Midwest, only to be told that was nothing they could do.
Ms. Simpson also has filed an age discrimination complaint with the Equal Employment Opportunity Commission, and the lawsuit could be amended to include a formal age discrimination charge at a later date, said James X. Bormes, the Chicago-based attorney who is representing her.