IBM has agreed to pay $300 million to settle most of the
claims in a class action lawsuit related to its pension plan, the company
announced today.
Under the pact, plaintiffs are eligible for an incremental pension benefit
worth $300 million (including attorneys’ fees). In exchange, they drop
several claims and agree to cap damages for the suit’s remaining charges at
$1.4 billion.
“IBM continues to believe that its pension plan formulas are fair and
legal,” IBM said in a statement. “The company has reached this agreement in
the interest of the business and IBM shareholders, and to allow for a review
of its cash balance formula by the Court of Appeals.”
The five-year-old complaint centers on IBM’s cash balance pension formula, which
provides employees with interest credits at the same rate regardless of
age. A U.S. District Court judge ruled the formula unlawful because a
younger employee will earn more years of interest by the time he is age
65 than an older employee will.
The ruling effectively concluded that the method constituted age
discrimination under the Employee Retirement Income Security Act (ERISA) of
1974, the federal law that sets standards for voluntarily established
pension plans, IBM said.
IBM disputes the interpretation, saying that it was not supported by
judicial, regulatory or legislative authority and will appeal.
Randy MacDonald, IBM’s senior vice president of human resources, said in a
statement that the ruling “seriously jeopardizes the security of an already
fragile U.S. pension system.”
He noted that there are more than 1,200 U.S. cash balance and related plans
that could potentially be deemed illegal under the ruling.
If upheld, the judge’s opinion could force companies that don’t have IBM’s
war chest to end pension plans, cut back on the number of employees
eligible or become non-competitive, ultimately leading to job cuts.
Kathi Cooper, lead plaintiff in the case against IBM, told the Journal
News of White Plains, N.Y., that she looks forward to IBM’s appeal and
believes she will win again. The 54-year-old has worked 25 years for Big
Blue as an accountant, the newspaper said.