The U.S. Supreme Court will allow a lower court ruling to stand -- finding that International Business Machines Corp. did not commit age discrimination when it changed its pension coverage in the late 1990s.While the ruling paves the final legal road for IBM’s switch to a cash-balance pension plan from a defined-benefit pension, regardless, the company announced a year ago that it would eliminate the cash-balance plan as of Jan. 1, 2008, making enhancements to its 401(k) plan instead.
Congress clarified the legality of the plans in legislation last year, but the IBM decision could still impact corporate retirement plans that were changed before the June 29, 2005 effective date of the congressional bill. According to the courts, IBM's cash balance formula is age-neutral.
The class-action lawsuit, which covered about 250,000 current and former employees, could have cost the company $1.4 billion. More than 140,000 older employees said that they were adversely affected when IBM converted to the 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.
About 1,500 U.S. companies have adopted cash-balance or other hybrid pension plans, according to reports.
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