IBM Pensions Ruled Legal, Age-Neutral

A federal appeals court rules that IBM did not commit age discrimination when it changed its pension coverage in 1999.

A federal appeals court ruled Aug. 7 that IBM did not commit age discrimination when it changed its pension coverage in 1999.

The 7th District U.S. Court of Appeals in Chicago found that IBMs pension plan did not constitute age discrimination because it gave every employee the same credits.

"Treating the time value of money as discrimination is not sensible," the appeals court wrote in its statement. All terms of IBMs plan are age-neutral."

IBM had agreed to settle for up to $1.4 billion if it had lost the appeal.

When IBM converted to a "cash-balance" pension plan, it affected 140,000 older employees. The plan gave workers virtual accounts where a set portion of their salary was put aside each month to build a pension. Designed to be more attractive to younger workers who are more likely to switch jobs, this amount could be cashed for a lump sum when they left the company.

However, opponents said that the new setup denied older workers the gains they would have gotten under a traditional, "defined-benefit" pension plan, in which employees receive a fixed amount each month from the employer after retirement, and guaranteed a set proportion of their final salary.

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In 2003, a federal judge agreed that the plan amounted to age discrimination because it unfairly penalized older employees and ordered IBM to make up for what they had lost.

Many companies adopted cash-balance plans in the 1990s, causing this case to be closely watched, and the settlement was considered a relief.

"We are gratified that the Court of Appeals has vindicated IBMs long-held position that its pension plan formula is both lawful and age-neutral," IBM said in a statement.

IBM is no longer offering either pension plans to new workers, instead encouraging them to take part in their 401(k) plan.

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