UK/US - Experts fear the future of "hybrid" pensions could be in the balance after a US judge ruled that cash-balance schemes were discriminatory on grounds of age.
The ruling is particularly relevant in the UK, which is currently consulting on its own age discrimination legislation.
The US ruling follows a class action by 130,000 members of the IBM Personal Pension Plan against the computer giant.
They claimed older workers in the cash-balance scheme were being unfairly disadvantaged.
IBM said the plan – where benefits accrue steadily over time rather than increasing in value near retirement – was fair and better for its relatively young workforce, many of whom were likely to change careers and employers several times.
But the States District Court for the Southern District of Illinois did not agree and deemed the plan age discriminatory.
IBM has appealed but if the ruling is upheld it could have severe ramifications in the UK, as it suggests that many hybrid plans could be illegal under pending age discrimination laws.
The EU employment directive requires legislation to outlaw age discrimination by December 2006.
Mercer Human Resource Consulting senior legal consultant Stephen Hart said it was not yet clear what the government had in mind with its age discrimination consultation paper.
He said: “The paper doesn’t go into great detail about pensions.
“It doesn’t look as if government will go down this route but it could. It is something we have to be concerned about.”
Allen & Overy senior associate Penny Cogher agreed that the judgement was cause for some concern. But she stressed that the UK’s age discrimination legislation originated from the EU and it would be misleading to read too much into a decision based on US laws.
American Benefits Council president James Klein commented: “A decision like this sends one more negative signal to employers that ‘no good deed goes unpunished’.
“It penalises employers trying to provide their workers with a pension that is funded by the employer and guaranteed by the government, as opposed to requiring workers to rely solely on employee-funded retirement alternatives.”
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