US - A district court ruling on IBM's cash balance or hybrid pension plan that suggests "virtually all hybrid defined benefit plans are unlawful" could see the destruction of the nation's defined benefit pension system, argue the ERISA Industry Committee (ERIC) and the American Benefits Council.
The two bodies have filed a joint amicus brief with the US Court of Appeals against a decision made by the United States District Court for the Southern District of Illinois, arguing the court’s interpretation could result in many companies exiting the DB pension system through plan freezes and terminations, leaving millions of workers with “diminished retirement security”.
ERIC and ABC are urging the court to reverse the district court decision.
In the district court decision, the court interpreted a specific ruling in the Age Discrimination in Employment Act 1967 and the Internal Revenue Code of 1986 to mean that the amount of the benefit earned as of normal retirement age cannot be less for an older worker than a younger worker.
According to ERIC and ERISA this interpretation means that any pension plan providing benefits of equal value to participants of different ages will be age discriminatory because younger workers have a longer period to reap advantages of compound interest.
“We urge the court to reject this artificial and strained reading of section 204(b)(1)(H), which overlooks the purpose and structure of the statute, the time value of money, and the impact this reading would have on many common defined benefit plans and our pension system as a whole,” the brief stated.
It continued: “Not only is the district court’s view wrong as a matter of law and a matter of economics, the district court fails to recognise or acknowledge that if its view on this subject is correct, then a broad range of pension designs viewed as perfectly appropriate under the pension age discrimination prohibition Congress adopted in 1986 would be considered age discriminatory.”
ERIC, ABC and several companies including Watson Wyatt Worldwide, BP America and Honeywell International said they each maintain at least one hybrid DB pension plan that would be directly affected by the decision of this court.
This week's edition of Professional Pensions is out now.
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