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Compliance September 17, 2004
IBM Reaches Partial Cash Balance Lawsuit Settlement
September 17, 2004 (PLANSPONSOR.com) - International
Business Machines Corp. (IBM) has reached a partial
settlement with current and former employees over its pension
plan.
Reported by Kip McDaniel
>Reuters reported that the Armonk, New York , corporation settled for an undisclosed fee with ‘partial termination’ employees. The settlement affects workers employed on July 1, 1999 by IBM and who left the company before working there for five years and weren’t vested in their pensions, court filings show. Court documents filed by IBM suggested that the price tag could be as high at $6 billion.
>In February, US District Judge G. Patrick Murphy of the US District Court of Southern Illinois ruled that IBM owed compensation to approximately 140,000 current and former employees who say they were short changed when the company switched to a cash-balance plan in 1999 (See IBM Cash Balance Judge: Plaintiffs Due Retroactive Benefits ).
>Although it was not included in Wednesday’s settlement, the company has also been accused of age discrimination. In July 2003 Cooper ruled that the cash-balance plan discriminated against older workers under the Employee Retirement Income Security Act (ERISA) (See Murphy’s Law: IBM Loses Cash Balance Ruling ).
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.
Because US pension law states that when a company terminates a pension plan, workers are immediately 100% vested in the plan , IBM was wrong in not allowing all employees at the time of termination to become completely vested, the court ruled. Instead, the plan gave workers a choice of withdrawing accumulated benefits as a lump sum, converting the balance to an immediate life annuity, or deferring receipt of either the lump sum or annuity. Plaintiffs asserted that this, along with constituting age discrimination, resulted in a partial termination of the pension plan.