On October 16, 2005 the plaintiffs filed a lawsuit based on the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §1001 against IBM Personal Pension Plan in United States District Court for the Southern District of Illinois. The plaintiffs alleged that amendments made to their pension plans when it was transformed from a traditional cash balance plan to a defined benefit plan based on a point system constituted age discrimination. Specifically they alleged that the changes were discriminatory because rather than defining benefits by salary at retirement the plan now defined benefits based on time served and salary and awarded interest to employees who left IBM before retirement. Hence the benefits for an employee who spent 20 years at IBM between the ages of 25 and 45 would be greater than those for an employee who spent 20 years at IBM at the same salary between the ages of 45 and 65. The plaintiffs, represented by private counsel, sought damages and attorneys' fees and costs.

On September 17, 2001 the district court (Judge Murphy) certified the suit as a class action and separated three classes depending on how long the relevant members had been with IBM. On July 31, 2003 the court granted the plaintiffs summary judgment and found that the pension plan did discriminate based on age. Before appeal the case moved to the determination of damages and two settlement agreements were reached with the subclasses and were approved by the court on January 10, 2005 and August 16, 2005. The settlement agreement set total damages to be paid to the plaintiff's and their attorneys at $1,714,293,000 should the district court's ruling regarding liability be upheld on appeal.

The Seventh Circuit Court of Appeals (Judge Easterbrook, Judge Bauer, and Judge Manion) heard arguments on February 16, 2006 and reversed the district court on August 7, 2006. The court held that the alleged age discrimination stemmed only from the effect of time on money through compound interest and that this did not constitute age discrimination. The case was concluded on January 16, 2007 when the Supreme Court denied plaintiffs' petition for a writ of certiorari.

Michael Perry - 08/21/2010


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