The U.S. Supreme Court today declined to review a lower court ruling that allows companies to change traditional defined benefit pension plans into cash balance plans and other types of hybrid plans.
The 7th U.S. Circuit Court of Appeals ruled in favor of International Business Machines Corp., Armonk, N.Y., and against an IBM pension plan participant, Kathi Cooper, in August in Cooper v. IBM.
The 7th Circuit held that IBM’s efforts to convert to a cash-balance plan did not constitute age discrimination, and Congress recently included a provision in the new Pension Protection Act that declares that use of hybrid pension plan designs is not a form of age discrimination.
The Supreme Court refusal to grant certiorari to Cooper and the PPA provision “validate the view that cash balance and other hybrid pension plans are perfectly legal and not age discriminatory,” says James Klein, president of the American Benefits Council, Washington, which worked with another organization to submit a brief on behalf of IBM.
The 7th Circuit ruled that the terms of IBM’s cash balance plan were “age neutral” and that “removing a feature that gave extra benefits to the old differs from discriminating against them,” Klein says.
“While a number of other cases regarding cash balance plans have yet to be decided, final resolution of the Cooper v. IBM case brings an important chapter to a close,” Klein says. “American companies will now be more confident in sponsoring the broad range of pension plans workers desire and deserve.”
Cooper served as the lead plaintiff in a class-action suit brought on behalf of 250,000 current and former IBM workers. The lawsuit could have cost the company $1.4 billion.
Cooper charged in her suit that IBM’s “cash balance” pension plan was discriminatory because it allowed younger workers to accrue benefits in the plan at a faster rate than older workers.
The company had switched to a cash balance plan in 1999. This type of benefit plan provides workers with individual accounts that can be cashed out when they leave the company and are intended to appeal to younger workers who are more likely to switch jobs.
The IBM case has been closely watched, as roughly 1,500 companies have adopted cash-balance plans. IBM had agreed to settle the case for $1.4 billion if it lost in court.
Cooper’s lawyers argued in court papers that the PPA provision declaring hybrid plans to not be inherently discriminatory against older workers applied only to future cash balance plans and did not affect cases that were already in court.