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Benefits February 7, 2005
Citigroup Sued Over Cash Balance Plan
February 7, 2005 (PLANSPONSOR.com) - A lawsuit
seeking class-action status filed in federal court is
alleging that Citigroup's cash-balance pension plan violates
minimum accrual rules.
Reported by Kip McDaniel
The lawsuit, filed in Brooklyn, alleges that the Citigroup plan – which was created in 2000 with the merging of multiple plans – violates “backloading” rules, which are minimal accrual stipulations that make it illegal to use a pension formula that gives disproportionably high benefits in later years, according to the Wall Street Journal.
Under the company’s old plan, benefits were calculated by multiplying years of service by salary, while under the new plan benefits grow every year by a percentage of pay plus interest. The Citigroup plan, however, provides much lower percentages for younger workers than it does for older workers. The suit claims that this causes the plan to fail a minimum accrual test, according to the Journal.
Multiple suits have been filed regarding cash-balance plans, with most focusing on age discrimination (See One Bad Apple ). Employers often argue that the plans benefit workers who change jobs during their careers due to benefits accruing more evenly.
The Citigroup pension plan has 240,000 participants, 112,739 of whom are still employed with the giant financial company.