International Business Machines (IBM) was in court over a case deciding if they “had a legal right under the Employee Retirement Income Security Act to convert to a ‘cash balance’ pension plan formula, from a traditional formula in the 1990s.” According to the article a traditional pension plan and a cash balance plan formula are the following:
A tradition pension plan formula is designed in such a way that employers contribute more for older employees and less for younger employees. Interest on pension plan assets is supposed to give otherwise identical older employees and younger employees identical pension benefits when they reach the plan retirement age.
A cash balance plan is designed in such a way that an employer contributes identical amounts each year for employees with identical levels, regardless of the employees’ ages or years of service.
Older IBM employees have argued that, “the cash balance plan conversion is unfair to them because they will have less time than younger IBM employees to earn interest on their share of IBM’s pension plan assets.” Judge Frank Eastbrook wrote in his opinion, “Replacing a plan that discriminates against the young with one that is age-neutral does not discriminate against the old.”
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