A federal judge in Illinois has added a judgment of age discrimination to the public debate over whether businesses should be allowed to change their pension plans in such a way as to unexpectedly reduce benefits to older workers on the verge of retirement.
The ruling, in a class-action case filed against IBM, could complicate plans by the Bush Administration to answer the age-discrimination question by simply declaring that conversion of traditional defined-benefit pensions to cash-balance plans does not violate federal law.
Judge G. Patrick Murphy, of the southern federal court district of Illinois, held just the opposite. IBM, he said, made changes to its pension plan that trample on age-protection provisions of the Employee Retirement Income Security Act.
The changes, the judge ruled, penalize older workers by diminishing accrual of pension benefits as they approach retirement age. Moreover, he said, IBM made the changes with full knowledge that they would be viewed as discriminatory under ERISA.
“Indeed, the plan's actuaries projected the age 65 annuity benefit earned by a young employee for a year of service exceeded the benefit earned by an older employee for the same service,” Judge Murphy wrote.
IBM plans to appeal the ruling, and the sooner this case is resolved at the appellate level or the U.S. Supreme Court the better.
The answer is of vital importance not only to the 130,000 IBM employees involved but also to millions of workers nationwide and their employers.
Traditional pension plans figure benefits based on a worker's highest wages, usually in the four or five years nearest retirement. Cash-balance plans build up benefits more steadily over a worker's career.
But traditional plans have proven expensive, especially since investments soured in the stock market decline of 2000-2002. Many companies have huge pension-fund deficits - an estimated $200 billion nationwide - and are struggling with solutions. As we have argued in the past, an equitable answer may be to let employees choose the method that best suits their needs.
One of the worst things that can happen to older workers is to have their promised benefits suddenly reduced after a lifetime of saving and planning for retirement.