IBM agrees to liability in Cash balance lawsuit

[mbozek]

IBM has announced a partial settlement in its class action brought by workers who sued for age discrimination. IBM has agreed to pay 320M to workers who were affected by the adoption of a pension equity benefit formua in 1995. If the court decision that IBM's cash balance pension formula discriminated against participants on account of age is upheld on appeal, IBM would pay up to an additional 1.4B. The agreements are subject to ct approval.

[SoCalActuary]

Can you tell us the cite for your info? I would like to read the details.

[mbozek]

Todays NY times P 1 right column. You can google the article under "IBM cash balance pension plan". There arent too many details because the court has not issued a ruling. IBM wants to limit its total liability to about 1.7B which should not materially affect the company.

[SoCalActuary]

Thanks for the info. I checked IBM's press release, in which they accepted court remedies on their old Pension Equity Plan, but held their position on the cash balance plan. In addition, they agreed to limits on the costs if they lose on the CB age discrimination issues.

Stay tuned for 15 to 27 months of further litigation on this issue unless Congress acts sooner. If they lose at the Supreme Court, CB plans are dead until legislation fixes them. Expect massive numbers of participants taken out of the db system, as in ATT, Bof A, California PERS, etc.

Meanwhile, I hope to keep installing new ones, because they work so well.

[david rigby]

News Release

http://www-1.ibm.com/press/PressServletFor...&STATUS=publish

[mbozek]

I dont think there will be legislation permitting cash balance plans in this lifetime because Congress will never enact a law that permits any reduction in retirement benefits for older employees. In 1986 Congress amended the ADEA to prevent employers from excluding older employees from voluntary severance benefits if they were eligible to commence retirement benefits.

[JAY21]

SoCalActuary; are you able to still get favorable IRS determination letters on new cash balance plans ? if so how long is the average wait for a FDL ?

[SoCalActuary]

mbozek - interesting political commentary. Of course, you know there are two sides to that argument, especially since they affect new plan formation. If you can't do cash balance, you will get fewer db's and more uncertain profit sharing plans.

jay21 - no recent news.

[mbozek]

From a congressional point of view the constitutancy of employers who want to adopt CB plans to replace uncertain PS plans is a lot smaller than the number of older employees who are adversely affected by the adoption of CB plans. Besides given the increase in under funding in DB plans (e.g. airline industry) in the last 4 years I dont think its uncertainty of the PS plan benefits that worries policy makers. There are people who believe that the demise of the DB plan will be a good thing if it reduces Govt liability for paying benefits to participants in declining industries such as steel, airlines, auto and telecom.

[Guest Harry O]

If the feds were concerned about the PBGC's solvency, they ought to try to expand its premium base. One way would be to clear the air on hybrid plans. I think you might see a perceptible increase in new or unfrozen DB plans which obviously would increase the PBGC's revenues. Of course, FASB is trying to do its part to kill hybrid plans by adopting some pretty onerous accounting rules.

[david rigby]

If the feds were concerned about the PBGC's solvency, they ought to try to expand its premium base.

Exactly wrong. The answer is to reduce (can you say "eliminate") the PBGC burden. Neither the government (taxpayers) nor other plan sponsors have an interest in "insuring" a qualifed plan, whether DB or DC. The interest of the government should be to require that a pension promise is paid for, not to amortize the cost over some future working lifetime.

[Guest Harry O]

Pax,

I don't disagree but it is a little too late for that. There is a laundry list of bad policy decisions regarding the PBGC and DB areas. But we have what we have -- airline and steel plans threatening to suck the PBGC (and ultimately the taxpayers) dry. One way to help is to get more money into the PBGC without raising premiums across the board which penalizes well-funded plans. Encouraging the formation or continuation of plans as hybrids would help.