A federal appeals court ruled that El Paso Corp. did not violate federal age-discrimination law when it set up its cash balance pension plan in 1996.
The ruling Aug. 11 in Tomlinson vs. El Paso Corp. by the U.S. Court of Appeals for the 10th Circuit, Denver, agreed with a district court ruling that “wear-away” periods, the time it takes overall benefits to grow after a new plan is adopted, do not violate ERISA or federal age-discrimination law, if employees are informed in advance of plan changes.
The plaintiffs were appealing a district court's dismissal of their claims that the wear-away periods discriminated against older workers, and that the company failed to give adequate notice. The appeals court ruled that El Paso's transition “favored, rather than discriminated against, older employees” and that ERISA does not require notification of wear-away periods, “so long as employees are informed and forewarned of plan changes. El Paso provided sufficient notice.”
Susan Hoffman, co-chair of the benefits litigation group for the law firm of Littler Mendelson, which represented Houston-based El Paso, said this ruling — added to earlier unanimous appeals court decisions on the legality of cash balance plan conversions — “could signal fewer lawsuits hinging on age discrimination charges. It makes these cases more and more unattractive.”
Ms. Hoffman cautioned that the more complicated issue of backloading — when an employer tries to avoid vesting rules by loading accruals into later years of service — raised in the case is still likely to trigger legal challenges until the Internal Revenue Service provides clearer guidance. Until then, said Ms. Hoffman, “employers need to pay attention to backloading.”
The Washington-based National Chamber Litigation Center, an arm of the U.S. Chamber of Commerce that had filed a brief in the case, applauded the decision and said in a statement that “cash balance pension plans provide employers the flexibility they need to administer voluntary retirement benefits.”
“El Paso fully complied with ERISA and did not discriminate against employees on the basis of age when it switched,” spokesman Richard Wheatley said in an e-mail.
Mr. Wheatley said the company agrees that the decision “provides much needed clarity … including affirming the ability of employers, such as El Paso, to provide greater benefits for longer service employees in the form of transition periods and what disclosures are required when changing a pension plan.”
Plaintiff attorneys Stephen Bruce and Barry Roseman did not return calls by press time.