A federal judge has ruled in a landmark pension lawsuit that
International Business Machines Corp. must make back payments to
workers covered by a 1999 retirement plan that didn't give
longer-service workers a fair share of benefits. IBM, of Armonk, NY,
says it shouldn't have to make the payments, which it estimates
could amount to $6 billion in retroactive benefits.
The company on Wednesday reiterated that the amount it would have
to pay under the decision hasn't yet been determined." The $6
billion is neither a number from the judge or IBM," said IBM
spokeswoman Kendra Collins. "It's a plaintiff's estimate of what
they believe the relief should be."
IBM calculated the figure based on a formula put forward by
plaintiffs in the case. "We continue to disagree with the Court's
ruling on liability, and we disagree with the Court's most recent
ruling[s]," said Ms. Collins.
Judge G. Patrick Murphy of the U.S. District Court in the
Southern District ruled last week that IBM must pay the back
benefits, but didn't specify an amount. The money would go to
workers covered by a cash-balance pension plan that Judge Murphy
ruled in July violated the age discrimination provisions of federal
pension law. At the time of that ruling, the judge directed parties
in the case to propose damages. Last October, plaintiffs in the case
told the court that they wanted IBM to recalculate pension benefits
accrued under the plan with a different formula than was initially
IBM countered in December with a filing that contended it didn't
owe any retroactive benefits. Judge Murphy's action last week was
the latest development in a case that has been seen as a testing
ground for cash-balance pension plans, hybrid retirement vehicles
that combine elements of traditional plans with 401(k)s. Controversy
has swirled around cash-balance plans, with critics saying that
longer-service workers often lose benefits when companies convert to
Saying that the IBM workers are "entitled to retroactive relief,"
Judge Murphy also criticized IBM's legal argument that the company
shouldn't be liable for the back benefits. IBM based that argument
on City of Los Angeles, Department of Water and Power v. Manhart, a
1978 pension case that involved the issue of age discrimination. IBM
argued that, like the city of Los Angeles, it was blind-sided by
what it called a drastic change in the law.
In the case of IBM, the drastic change was Judge Murphy's
contention that the company's plan had violated federal law. IBM,
"like hundreds of other companies, reasonably assumed" that its
pension plan was legal, according to IBM spokeswoman Ms. Collins."
There has not been a change in the law," Judge Murphy said. "All
that has changed is IBM's clever, but ineffectual, response to law
that it finds too restrictive for its business model.
"Kathi Cooper, an IBM employee who is a lead plaintiff in the
suit, said she wasn't surprised by Judge Murphy's ruling." I would
expect no less," Ms. Cooper said in an interview. "IBM reached
beyond limits to try to pull Manhart over on Murphy, and he caught
it." Cash-balance proponents who criticized Judge Murphy's decision
last July again voiced warnings about a potentially dire impact from
the judge's more recent ruling.
The ERISA Industry Committee (ERIC), a lobbying group that represents
big employers, said the decision "may result in substantial
litigation and liability for hundreds of companies that have
transitioned from traditional DB plans to cash balance, pension
equity and other hybrid plans." Employers have embraced cash-balance
pensions, but a growing controversy over age-discrimination issues
has clouded their future. Though the debate dates back years, and
even prompted the Internal Revenue Service to stop approving new
cash-balance plans in 1999, companies have maintained and adopted
the pensions nonetheless. The ruling by Murphy last July deepened
the chilling effect. Companies that had been planning to adopt or
expand cash-balance pensions put those plans on hold. The U.S.
Treasury Department earlier this month proposed rules as part of the
Bush budget package aimed at ending disputes over whether
cash-balance pensions violate age-discrimination rules. But
observers said at the time that the Treasury proposal isn't like to
resolve the disputes any time soon. In fact, disagreements over
aspects of the proposal immediately arose between actuaries,
employers and employee advocates. Accounting rule makers have also
gotten into the act, with a recent project to revamp the way
companies measure the amount of money they must put away to cover
cash-balance benefits. Last week, the Financial Accounting Standards
Board, a private-sector rule maker in Norwalk, Conn., decided on a
new definition for cash-balance plans, as part of that wider
project. IBM on Wednesday reiterated its intention to appeal
Murphy's decisions." We stand by our defense and continue to believe
that our pension is legal and sound and that we will prevail on
appeal once the remedies phase in the District Court is complete."
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