IBM Wins Reversal In Pension Discrimination Case

IBM the world’s largest technology services company, won reversal on Monday of a lower-court decision that its shift to a new pension plan had discriminated against older employees.The U.S. 7th Circuit Court of Appeals in Chicago said IBM’s 1999 pension plan changes, affecting the company’s roughly 140,000 employees in the United States, were “age-neutral.” The ruling reverses a lower court decision in 2003 that said the shift discriminated against older workers.

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

Representatives for the plaintiffs in the closely watched class-action lawsuit could not be immediately reached for comment. It was unclear whether the plaintiffs would appeal the ruling.

International Business Machines Corp., like other large U.S. corporations, in the late 1990s switched to a new type of pension plan. It has said it did so to reduce volatility in its pension liabilities, which could lead to fluctuations in earnings.

IBM rival Hewlett-Packard Co. decided in 2004 to offer only a 401(k) retirement plan to U.S. employees hired starting this year.

IBM in 1999 changed from a system resembling a so-called defined benefit plan, which guarantees predetermined payouts upon retirement regardless of the performance of the plan’s underlying investments, to a model akin to a defined contribution plan, which sets aside a percentage of employees’ pay during each pay period.

IBM pensioners in the class-action lawsuit had said the new plan unfairly benefited younger employees because they accrued benefits over more years than older employees. The three-member appellate panel, however, said such differences did not amount to age discrimination.

“Treating the time value of money as discrimination is not sensible,” the appeals court wrote in its 13-page opinion.

The two sides had earlier agreed to a $1.4 billion cap on any judgment in case the plaintiffs prevailed, IBM said.

IBM, seeking to save as much as $3 billion over five years, in January stopped the pension plan that was put in place in 1999, and boosted its contribution to 401(k) for employees. IBM had said the changes would affect existing employees and new hires but not its 125,000 U.S. retirees, former workers with vested benefits or employees who retire before January 1, 2008.

Source: Reuters