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By Caroline McCarthy, 8 August 2006 09:05

NEWS

A federal appeals court has ruled in favour of IBM in an age discrimination suit concerning a change in pension plans that the plaintiffs said favoured younger workers.

The case, Cooper vs IBM, was filed on behalf of 140,000 older IBM employees in the wake of Big Blue's 1999 decision to switch its pension coverage to a "cash-balance" plan. In the new plan, all IBM employees receive the same pay credit (five per cent) and interest credit each year regardless of age. The change to a cash-balance system has proven controversial among older workers - as well as shareholders - because a dollar earned by a younger worker has more time to accrue in value. In more traditional pension plans, the value of benefits increases at a faster rate for older workers.

A federal judge ruled in favour of the plaintiffs, led by now-retired IBM employee Kathi Cooper, in 2003. IBM simultaneously negotiated a settlement and filed an appeal with the Chicago-based 7th US Circuit Court of Appeals.

The American Benefits Council, a not-for-profit organisation that supports privately sponsored pension plans and had filed an amicus brief on behalf of IBM in late 2005 - co-signed by such corporations as AT&T, Honeywell and Wells Fargo - applauded the court's decision. Council president James A Klein said the verdict "should settle this matter once and for all", adding that "cash balance and other hybrid plans are - and always have been - perfectly legal and not age discriminatory".

Klein cited the apparent success of the Pension Protection Act, a bill that recently passed the Senate and which he says "clearly affirms the legitimacy of hybrid pension plan designs".

Now that its settlement is void, pension plan controversies may be over for IBM. Earlier this year, the company froze its pension fund and announced a transition to 401(K) plans. The company wrote in a statement: "We are gratified that the Court of Appeals has vindicated IBM's long-held position that its pension plan formula is both lawful and age-neutral. Treating the time value of money as a form of discrimination is not sensible."

Cooper, however, claims the case still has momentum and has no plans to give it up.

The plaintiff's counsel was unavailable for comment.

Caroline McCarthy writes for CNET News.com