A federal appeals court ruled that IBM did not commit age discrimination when it changed its pension coverage in 1999.
More than 140,000 older employees said that they were adversely affected when IBM converted to a cash-balance plan, which gives workers virtual accounts that can be cashed out for a lump sum when they leave a company. The plaintiffs had wanted the courts to force IBM to make up for lost potential benefits after the plan was rolled out. Traditional plans allow employees to amass more benefits over their final years with a company.
In 2003, a federal judge ruled that the plan amounted to age discrimination because it unfairly penalized older employees. As IBM continued to work on a settlement, it also pursued an appeal -- eventually winning its case this week when a Chicago federal appeals court found that the plan did not discriminate because it gave every employee the same credits.
"Every employee with the same salary and service record receives the same opening account balance under the new plan," the court wrote. "That the change disappointed expectations is not material. An employer is free to move from one legal plan to another legal plan, provided that it does not diminish vested interests -- and this transition did not."
About 1,500 U.S. companies have adopted cash-balance or other hybrid pension plans, though the IBM case questioning the legality of switching to such plans was likely a reason why the plans' popularity has waned in recent years.
The lead plaintiff, Kathi Cooper of Bethalto, Ill., said she planned to continue pursuing the case. IBM had already set aside $1.4 billion for settlement costs, and will still owe $320 million as part of a separate settlement.
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