IBM pension dispute settled for $300M
By Ellen Simon
Associated Press
NEW YORK — IBM Corp. and plaintiffs challenging the legality of its pension plan agreed to a deal yesterday that settles most claims and caps the company's potential liability at $1.7 billion. The company previously had estimated that a settlement could cost up to $6.5 billion.
IBM reached a $20 million settlement earlier this month with 15,000 of the 140,000 workers who claimed its adoption of a "cash balance" pension plan discriminated against older workers. That agreement, together with yesterday's $300 million settlement, will lead the company to take a one-time charge of approximately $320 million in the third quarter.
The latest deal, which must be approved by the U.S. District court for the Southern District of Illinois, ends the company's pension litigation on all but two claims.
The plaintiffs settled for much less than IBM's highest projection because some lawyers believe a federal judge's ruling against IBM earlier this year may have been wrong, said Bruce Wolk, a law professor at the University of California, Davis, School of Law. A federal court in Maryland ruled for a company in a similar case, he said.
IBM announced the deal after the end of regular trading. Its shares closed at $84.98, up 50 cents, on the New York Stock Exchange, then gained 4 cents in extended trading.
The crux of the case is the company's "cash balance" pension plan, which it adopted in 1999 for all new employees and some longtime employees.
Cash-balance plans, which mushroomed in popularity in the 1990s, resemble 401(k) plans in that they let workers track the growth of their money in a hypothetical individual "account." Unlike a 401(k), workers can't allot any of their own pay toward the plan or decide how it's invested.
Traditional pension plans reward workers for staying with a company over time, often making their last years with the company the time when their eventual pension increases the most.
Cash-balance plans are computed using a formula that awards benefits at a steady rate through a worker's tenure, which awards workers who jump from job to job more benefits than they would have under a traditional plan.
But a worker counting on a leap in benefits at the end of his career can be sorely disappointed if his company switches to a cash-balance plan not long before he retires.
The federal judge hearing the IBM case ruled in favor of the workers earlier this year, saying the company's cash-balance plan is illegal because it discriminates against workers on the basis of age. IBM has said it will challenge that contention.
