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August 7, 2006
WASHINGTON, DC, August 7, 2006 - The United States Court of Appeals for the Seventh Circuit ruled today that IBM's pension plan formula is both lawful and age-neutral. The decision was the first by a federal appeals court to address the closely-watched question of whether hundreds of "cash balance" pension plans across the country are unlawful under an age discrimination provision in the Employee Retirement Income Security Act ("ERISA"). The decision holds that the IBM Plan, and presumably other plans like it, are not age discriminatory. The decision also avoided $1.4 billion in additional pension obligations that IBM would have incurred if the district court judgment had been affirmed. The Seventh Circuit noted that the decision whether to offer employees a cash balance pension plan "may again be made freely, governed by private choice rather than legal constraint."Cash balance plans cover 25% of all participants in defined benefit plans and account for more than 40% of the assets of defined benefits plans. More than 1,000 U.S. companies have cash balance plans, including many of the nation's largest employers. For a copy of the Seventh Circuit's opinion, please click here.Jeffrey Huvelle, a partner at Covington & Burling LLP, argued the appeal on behalf of IBM; Mr. Huvelle and Robert Wick of Covington were the principal attorneys for IBM throughout the litigation; they were assisted in the case by the head of Covington's appellate practice, Robert Long, and by Covington pension practitioners John Vine, Richard Shea, and Robert Newman.