Court Finds No Bias in IBM Plan

IBM Corp. did not commit age discrimination when it changed its pension coverage in the 1990s, a federal appeals court ruled Monday in an influential case that Big Blue had agreed to settle for as much as $1.4 billion if it had lost the appeal.

The case involved 140,000 older employees who were affected when IBM converted to a so-called cash-balance plan, which gives workers virtual accounts that can be cashed out for a lump sum when they leave the company.

The plans are designed to be more attractive to younger workers who are more likely to switch jobs. But opponents say the setup denies older workers the gains they would have seen under traditional pension plans, in which employees amass more retirement benefits during their last years of service.

About 1,500 U.S. companies have adopted cash-balance or other “hybrid” pension plans, although this case was a large reason the approach had become less popular and legally questionable. Just last week, Congress passed a bill that sought to clarify the legality of such plans, over the objection of groups such as senior advocate AARP.

The plaintiffs in the IBM case sought to force the company to make up for what they said they lost in potential benefits after IBM adopted the cash-balance plan in 1999. In 2003, a federal judge agreed that the plan amounted to age discrimination because it unfairly penalized older employees.

Although Armonk, N.Y.-based IBM negotiated a possible settlement, it pressed its appeal with the U.S. 7th Circuit Court of Appeals in Chicago, which found Monday that the plan did not discriminate because it gave every employee the same credits.

“All terms of IBM’s plan are age-neutral,” the judges wrote. “Removing a feature that gave extra benefits to the old differs from discriminating against them.”

The lead plaintiff, Kathi Cooper of Bethalto, Ill., said she wanted to keep pursuing the case. She said she was confident that IBM’s move was illegal, noting that it wasn’t until last week that Congress officially said otherwise.

“I don’t consider this a dead end,” said Cooper, who spent her career with IBM before retiring last year at age 55. “I do not consider this fight over.”

IBM said in a statement that the company was gratified by the verdict.

IBM shares fell 39 cents to $75.52.