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IBM comes out on top in age discrimination suit

Federal appeals court's ruling allows Big Blue to avoid paying costly settlement.

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
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Caroline McCarthy
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A federal appeals court has ruled in favor of IBM in an age discrimination suit concerning a change in pension plans that the plaintiffs said favored younger workers.

The case, Cooper vs. IBM, was filed on behalf of 140,000 older IBM employees in the wake of Big Blue's 1999 decision to switch its pension coverage to a "cash-balance" plan. In the new plan, all IBM employees receive the same pay credit (5 percent) and interest credit each year regardless of age. The change to a cash-balance system has proven controversial among older workers--as well as shareholders--because a dollar earned by a younger worker has more time to accrue in value. In more traditional pension plans, the value of benefits increases at a faster rate for older workers.

A federal judge ruled in favor of the plaintiffs, led by now-retired IBM employee Kathi Cooper, in 2003. IBM simultaneously negotiated a settlement and filed an appeal with the Chicago-based 7th U.S. Circuit Court of Appeals.

The American Benefits Council, a nonprofit organization that supports privately sponsored pension plans and had filed an amicus brief on behalf of IBM in late 2005--cosigned by such corporations as Honeywell, AT&T and Wells Fargo--applauded the court's decision. Council President James A. Klein said the verdict "should settle this matter once and for all," adding that "cash balance and other hybrid plans are--and always have been--perfectly legal and not age discriminatory."

Klein cited the apparent success of the Pension Protection Act, a bill that recently passed the Senate and which he says "clearly affirms the legitimacy of hybrid pension plan designs."

Now that its settlement is void, pension plan controversies may be over for the Armonk, N.Y.-based IBM. Earlier this year, the company froze its pension fund and announced a transition to 401(K) plans. "We are gratified that the Court of Appeals has vindicated IBM's long-held position that its pension plan formula is both lawful and age-neutral," the company wrote in a statement. "Treating the time value of money as a form of discrimination is not sensible."

Cooper, however, claims that the case still has momentum and has no plans to give it up.

The plaintiff's counsel was unavailable for comment.