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IBM Loses Another Round In Pension Case

A federal judge ruled that the company owes back payments that may be worth billions of dollars to 140,000 employees who were harmed by the switch to a cash balance plan.
NEW YORK (AP) -- IBM Corp. owes back payments--possibly worth billions of dollars--to 140,000 older employees who were harmed when the technology giant converted to a new kind of pension plan in the 1990s, a federal judge has ruled.

The plaintiffs in the case want IBM to make up for what they lost after the company adopted a "cash balance" pension plan, which pays workers a lump sum when they leave the company. A federal judge had ruled last July that the plan amounted to age discrimination because it unfairly penalized older employees.

IBM argued that it shouldn't be forced to make retroactive payments because it could not have foreseen that the judge, G. Patrick Murphy of U.S. District Court in East St. Louis, Ill., would declare the cash balance plan illegal.

But in a ruling dated Feb. 12, Murphy wrote that IBM had no justification for claiming it was blindsided by his decision.

"The prohibition against age discrimination existed long before the appearance of cash balance plans," Murphy wrote. "All that has changed is IBM's clever, but ineffectual, response to law that it finds too restrictive for its business model."

Murphy has yet to decide the damages IBM should pay or how the figure will be calculated. Under one formula suggested by the plaintiffs, IBM has estimated the payments would total $6 billion.

IBM spokeswoman Kendra Collins said Wednesday that the company doesn't believe it should pay anything. She said IBM expects to win the case on appeal.

"We continue to believe that our plan is legal," Collins said.

The case is being closely watched because IBM was one of several companies that adopted cash balance plans in the '90s.

Traditional pension plans reward workers for sticking with a company, awarding them more retirement benefits during their last years of service.

In contrast, cash balance plans give workers individual "accounts" that workers can track over time, although they can't allot any of their own pay to the plan or decide how it is invested. The advantage is that workers can take the money with them if they leave for another job, which can make cash balance plans more appealing to younger workers.

Opponents of the cash balance plans say that if they are instituted when experienced workers are near retirement age, that essentially changes the rules late in the game, depriving the employees of anticipated gains and leaving them without enough working years to accrue equivalent cash balance benefits.

Lead plaintiff Kathi Cooper, 53, a 24-year IBM veteran from Bethalto, Ill., who filed the lawsuit in 1999, said she was "extremely gratified" by the judge's ruling on retroactive benefits.

"It would have been a travesty of justice if IBM had gotten away with only paying damages to 140,000 injured employees from today forward. That is not the American way of doing things," she said. "I want to stay with IBM for a long, long time. It is one of the magnificent corporations of the world. But they just can't do what they've done with their pension benefits and think they are above the law."

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