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Compliance September 22, 2004
House Approves Measure Blocking Treasury Cash Balance Intervention
September 22, 2004 (PLANSPONSOR.com) - The US House
of Representatives has approved an amendment to the Treasury
Department's funding bill for the third time that would
prevent it from helping to overturn a court case that found
that cash balance pension plans violate federal age
discrimination laws.
Reported by Kip McDaniel
>The amendment, backed by Representative Bernie Sanders (I-Vermont), would prevent the Treasury from spending money to intervene in the case against International Business Machines Corp. (IBM) in US District Court in Illinois.
“By voting for this amendment, we will be protecting the retirement benefits of some 8 millions of American workers who have seen their pensions slashed by as much as 50% through age discriminatory cash balance pension schemes,” Sanders told Dow Jones.
Some outsiders, however, disagree with Sanders regarding the motives for the amendment. “Sanders is very focused on this one court case and not the retirement system as a whole,” asserted Kyle Brown, a consultant for Watson Wyatt in Washington, DC. “As far as I know, the Treasury was not planning on intervening. The IRS had proposed regulations, but they have now dropped them. Thus, I am skeptical of about the true motives here, whether this is more about policy or politics.”
>In July 2003, US District Judge G. Patrick Murphy ruled that the computer giant violated age discrimination laws by amending its pension plan to make older employees accrue retirement benefits at a lower rate than younger workers. By switching to a cash balance plan – where workers are credited annually for a percentage of their income and interest and use the money at retirement to purchase an annuity – IBM discriminated against older workers who would not have as much time to accrue interest, Murphy ruled (See Murphy’s Law: IBM Loses Cash Balance Ruling ).
>Last week, IBM settled part of the cash-balance pension lawsuit. The settlement, however, did not deal with age discrimination, and instead dealt with termination claims of employees who did not become 100% vested upon plan termination, which is required by federal pension law. Although the amount settled upon was not disclosed, court documents filed by IBM suggested that the price tag could be as high at $6 billion. (See IBM Reaches Partial Cash Balance Lawsuit Settlement ).
The case is being watched intently because of its potential implications for other major corporations where employees have complained that pension and health care benefits were reduced in corporate cost-cutting moves (See One Bad Apple). Companies in addition to IBM that moved to cash balance pension plans in the 1990s include Eastman Kodak Co. and Electronic Data Systems Corp.