<nobr>Aug 25, 2003</nobr>

New ERIC Brief Criticizes Recent Cash Balance Court Ruling

ERIC on August 21 issued a brief that criticizes a recent federal district court decision maintaining that IBM’s cash balance plans discriminated against older workers. On July 31, a federal district court in Southern Illinois adopted a test for age discrimination that would outlaw all hybrid pension plans, contributory defined benefit plans, and any other defined benefit plan that indexes benefits between an employee's termination date and the date the employee begins to receive benefits.

More than 400 major companies have adopted cash balance plans and other hybrid pension plans. These plans cover millions of employees and hold 40% of all defined benefit plan assets invested in the U.S. economy.

In the brief, ERIC states that the decision in Cooper v. The IBM Personal Pension Plan ignores the policy behind the age discrimination rules, the wording of the statute, the views of the IRS and Treasury Department, the considered opinions of other federal courts, and plain common sense in order to embrace a test that others had rejected.

“The Cooper decision calls into question plan features that have been in operation for many years and that have been approved repeatedly by federal regulators. It encourages costly and unpredictable litigation between employers and their employees. It raises the specter of huge retroactive liabilities, and it demands absurd prospective remedies,” the brief states.

ERIC warns that employers will have no choice but to abandon hybrid pension plans if the Cooper decision becomes law. “Their exodus from the defined benefit system will have a devastating effect on the economy and on society as a whole.”

The brief can be found on ERIC OnLine at: http://www.eric.org/forms/uploadFiles/2CE500000002.filename.cash_balance_talking_points.pdf

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