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Seventh Circuit rules IBM cash-balance pension plan not age discrimination

[JURIST] IBM [corporate website] did not discriminate against older workers by adopting a cash-balance pension plan, the US Court of Appeals for the Seventh Circuit [official website] ruled Monday. A unanimous three-judge panel reversed a 2003 district court decision [PDF text], finding that the IBM plan did not violate subsections of the Employee Retirement Income Security Act (ERISA) [text] that prohibit age discrimination. In the court's opinion [PDF text], Judge Frank Easterbrook [official profile] wrote:

Like a defined-contribution plan, a cash-balance plan removes the backloading of the pension formula; older workers (accurately) perceive that they are worse off under a cash-balance approach than under a traditional years-of-service-times-final-salary plan. But removing a feature that gave extra benefits to the old differs from discriminating against them. Replacing a plan that discriminates against the young with one that is age-neutral does not discriminate against the old.
IBM reached a partial settlement in the case in 2004 [JURIST report], agreeing to pay up to $1.4 billion if its appeal failed.

While the named plaintiff in the class-action suit pledged to continue the case, the president of the American Benefits Council praised the decision [ABC press release], coupled with legislation passed by Congress [JURIST report] last week, as clarifying the legality of cash-balance plans. AP has more.

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