By Jerry Geisel
CHICAGO — The full 7th U.S. Circuit Court of Appeals has, as expected, refused to rehear a landmark ruling by a 7th Circuit panel finding that IBM Corp.'s cash balance pension plan does not discriminate against IBM's older employees.
In a one-page order, the appeals court noted that none of its judges who considered the issue requested a vote on the petition by the plaintiffs to rehear the case, while all three judges who ruled in favor of IBM voted against a rehearing.
The unanimous Aug. 7 ruling by the three-judge panel in Chicago was the first time an appeals court has ruled on whether cash balance plans are age discriminatory.
That ruling came three years after a federal judge in Illinois said the design of cash balance plans — including IBM's — was inherently age discriminatory because younger employees earn interest on their benefits for more years than do older employees.
But the appeals court rejected that argument, noting that nothing in federal law "suggests that Congress set out to legislate against the fact that younger workers have (statistically) more time before retirement and thus have a greater opportunity to earn interest on each year's savings."
The denial of the en banc petition had been expected. Such requests are rarely approved, especially in cases where an appeals court's panel decision is unanimous.
Plaintiffs still can request a review by the U.S. Supreme Court.
IBM said in a statement it is "gratified" by the court's refusal to approve the plaintiffs' request for a rehearing. That refusal "underscores IBM's position that … neither IBM's plan or cash balance plans in general discriminate on the basis of age."
IBM in 1999 set up the cash balance plan to replace another hybrid plan design known as a pension equity plan and was soon sued for age discrimination by older employees.
In 2004, IBM agreed to partially settle the litigation by agreeing to pay $320 million — in the form of enhanced benefits — for issues mainly related to the pension equity plan conversion. As part of the settlement, IBM said it would appeal the age discrimination charges related to the cash balance plan. If IBM had lost, its liability would have been capped at $1.4 billion.
A pension funding reform measure passed by Congress last month makes clear that cash balance plans set up on or after June 29, 2005, will be protected from age discrimination suits as long as the benefit credits provided to older employees are at least equal to those provided to younger employees. Typically, cash balance plans provide the same benefit credits, expressed as a percentage of pay, to all employees. In some plans, the credits increase with age; no plans are known to decrease credits with age.
Jerry Geisel is editor at large of Business Insurance, a sister publication of Pensions & Investments.