New York Employment Lawyer Blog

Older workers are disfavored when a company switches to a cash balance pension plan. Some say this amounts to age discrimination. Cash balance pension plans work the same as a savings account. Employees put money into them, interest accrues and they can withdraw the money whenever they leave rather than having to wait until retirement. Any two employees who start the program and end their employment at the same time can put away and then withdraw the exact same amount. This is regardless of age, race, religion, gender or sexual orientation. This sounds fair so what's the problem?

The problem is that when a company switches from a traditional pension plan which vests after a number of years, thereby rewarding employees who stay, to a cash balance pension, the older employees do not have as much time to invest in the plan and thereby they will be short changed despite years of service. Is this legal?

Yes. The Supreme Court let stand, in Cooper v. IBM personal Pension Plan, the decision of the Seventh Circuit Court of Appeals which held that the plan does not discriminate because the cash balance pension formula did not use age as a factor. It does not matter that older workers are disadvantaged when a company switches to a cash balance pension plan.

Nonetheless, IBM is abandoning the cash balance pension plan on January 1, 2008 in favor of strengthening its traditional 401(k).