Another defeat for age bias claim on pensions

On January 16, the Supreme Court turned down an appeal claiming that so-called “cash balance” pension plans discriminate illegally against older workers. That order left intact a Seventh Circuit Court decision rejecting that claim, in the most closely watched of a series of similar court challenges — the case of Cooper v. IBM Personal Pension Plan (Supreme Court docket 06-760). That Seventh Circuit decision has now figured prominently in another defeat of the age bias claim. The legal scene now shifts to the Second Circuit for the next round. Although Congress has lately changed federal pension law to largely scuttle such claims, that law does not affect already pending court cases. The issue remains important, because at least 30 percent of all participants in defined benefit plans nationwide are covered by a “cash balance” plan.

Borrowing heavily from the Seventh Circuit’s decision last August in the highly visible IBM case, the Third Circuit Court based in Philadelphia on Tuesday rejected a claim that PNC Bank violated the age discrimination provisions of federal pension law by its 1999 switch to a “cash balance” plan. The ruling came in the case of Register, et al., v. PNC Financial Services Group (Circuit docket 05-5445). (Thanks to Howard Bashman of How Appealing blog for the alert to the new ruling. Howard has provided a link to the Register opinion.)

Under “cash balance” pension plans, a hypothetical amount of credit is added to each worker’s pension account each year. A traditional defined benefit plan spells out what a retiree will get in monthly pension checks, while a cash balance plan defines benefits in terms of each worker’s account balance. A cash balance plan’s annual credits thus build up pre-retirement. Because younger workers who are in such a plan receive more such interest credits, because they will be in it for a longer time before retirement, older workers have contended in a wide array of lawsuits that this violated the Employee Retirement Income Security Act’s ban on age discrimination in defined benefit plans.

The Third Circuit, saying that “much is at stake here,” concluded that the challengers were focusing wrongly on the potential output of a cash balance plan upon retirement. The focus, the Court said, should be on the inputs — the credits added to each employee’s account annually. All participants get the same interest credit added to their accounts each year, so there is no age-related bias, the Court found. Its reasoning closedly tracked that of the Seventh Circuit in the IBM litigation.

What an employer puts into a worker’s pension plan, the Third Circuit said, is more valuable when contributions are made to younger employees since the contributions “have a longer time to grow. That unremarkable consequence of a contribution growing in value because of earnings on it is no different than that when a bank deposit is drawing interest. The longer the deposit remains in the bank in an interest bearing account, the more it is worth. We do not find any support for [the] argument that Congress wanted to prohibit such a consequnece with respect to cash balance plans…”

The Court noted that District Courts within the Second Circuit had divided on the issue. “It seems to us to be inevitabvle that the Curt of Appeals for the Second Circuit ultimately will decide the discriminatioin issue for that circuit.” But it added that it had considred the conflicting views of the district courts in that circuit.