Cash Balance Proponents Get Two Legal Victories

Acting within a few days of each other, the 3 ^rd U.S. Circuit Court of Appeals and U.S. District Court Judge Stanley Chesler of the U.S. District Court for the District of New Jersey decided that the plans do not discriminate against older workers – a key legal claim made by opponents in courts around the country.

The 3 ^rd Circuit ruling on Tuesday upheld a lower court rulingon November 21, 2005 by U.S. District Judge Legrome D. Davis of the U.S. District Court for the Eastern District of Pennsylvania in a cash balance challenge against PNC Bank (See  Court: Cash Balance Plans Aren’t Age Discriminatory) . Chesler’s January 26 holding came in a similar challenge to the cash balance plan sponsored by Dun & Bradstreet Corp.

In both instances, Chesler andSenior Circuit Judge Morton I. Greenberg, who wrote the 3 ^rd Circuit opinion, followed the reasoning in decisions on IBM’s cash balance plan.

The IBM opinions included a then-landmark trial court ruling (See  Murphy’s Law: IBM Loses Cash Balance Ruling ) and a closely watched and widely analyzed contrary appellate decision from the 7 ^th U.S. Circuit Court of Appeals (See  IBM Cash Balance Discrimination Ruling Reversed).Recently, the U.S. Supreme Court declined to review the 7th Circuit ruling (See  US Supreme Court Turns Away IBM Cash Balance Appeal ).

Greenberg, in the 3 ^rd Circuit PNC case, flatly rejected the notion that the cash balance plan illegally provides more for older workers than younger workers - attributing any difference to a greater amount of interest when it accumulates over a longer period because of the operation of the time value of money.

"The effect of the cash balance design that appellants challenge (the accumulation of interest) is identical to the accumulation of interest on employer contributions under defined contribution plans," Greenberg wrote. "Accordingly, employer contributions in both instances ultimately are more valuable when those contributions are made to younger employees as the contributions have a longer time to grow. That unremarkable consequence of a contribution growing in value because of earnings on it is no different than that when a bank deposit is drawing interest. The longer the deposit remains in the bank in an interest bearing account, the more it is worth."

Greenberg continued: "We do not find any support for appellants' argument that Congress wanted to prohibit such a consequence with respect to cash balance plans, but legitimize it for defined contribution plans. Rather, the similarities of the anti-discrimination provisions governing defined benefit and defined contribution plans suggest that Congress was not seeking to prohibit the consequences of the time value of money in either circumstance, and appellants have not offered a reasonable explanation of why Congress would have wanted to do so."

Chesler, in the Dun & Bradstreet decision, quoted the 7 ^th  Circuit ruling as declaring "[t]reating the time value of money as a form of discrimination is not sensible." Dun & Bradstreet is a Short Hills, New Jersey.-based business information provider.

Wrote Chesler: "The principle of compound interest and the passage of time produce the age differences that plaintiff complains of, but these are things that are correlated with age; they are not the effects of age discrimination."

In recent months, federal judges have issued a variety of rulings on the crucial age discrimination question.

Trial judges have thrown out claims against PricewaterhouseCoopers LLP (See  ERISA Requires Specific Retirement Age for Cash Balance Plans ) and the Equitable Life Assurance Society of America (See  Equitable Cash Balance Plan Wins Discrimination Ruling ). Judges have ruled in favor of workers, at least in part, in cases involving Citigroup Inc.

(See  Court Gives Thumbs Down to Citigroup Cash Balance Plan ), JPMorgan Chase & Co. (See  District Court Disagrees with Logic in Landmark Cash Balance Ruling ) and Bank of America Corp.'s FleetBoston unit.

The 3 ^rd  Circuit ruling in the PNC case is  here . The latest district court ruling was in Finley vs. Dun & Bradstreet Corp. and the Dun & Bradstreet Corp. Retirement Account,   No. 06-1838 (SRC) DC N.J.

Congress included the Pension Protection Act (PPA) passed last year that protects new cash balance plans that meet certain standards from age discrimination suits, leaving it to courts to settle the issue for already established plans.