Big Blue’s Pension Problems

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Big Blue’s Pension Problems

By James Bernstein, Newsday.com

February 20, 2004

Nothing in Kathi Cooper's background suggests a hint of rebellion: She has worked as an internal auditor for IBM Corp. the past 25 years and has lived in the tiny Illinois town of Bethalto all her life.

But Cooper has certainly caused headaches for Big Blue. The latest came late last week, when a federal judge in East St. Louis ruled that - as a result of an earlier successful suit Cooper filed against IBM - the company owes back payments possibly involving billions of dollars to 140,000 older employees who were harmed when the computer giant converted to a new kind of pension plan in 1999.

"I'm absolutely thrilled," Cooper, 53, said yesterday in a telephone interview. Cooper, the lead plaintiff in the pension case, would be among the employees owed back pay. She declined to say how much.

IBM is appealing the ruling, said company spokeswoman Kendra Collins. "We stand by our defense and continue to believe our pension plan is legal and sound," Collins said. "We believe we will win on appeal."

On Feb. 12, U.S. District Court Judge G. Patrick Murphy ruled that IBM owes the back pay to the employees, estimated by some sources at $6 billion.

Murphy's ruling in that matter - and in another, more significant ruling he made last July saying IBM's so-called "cash balance" retirement plan amounts to age discrimination because it unfairly penalizes older workers, has caused concern at some 1,200 companies where cash-balance plans are in place.

"Everybody is watching this case," said Karen Friedman, policy director at The Pension Rights Center, a consumer watchdog group in Washington, D.C. "It's a wake-up call for Congress and the business community."

If IBM's appeal fails and cash-balance plans are held to be illegal, companies would have to spend millions of dollars scrapping them and coming up with alternatives, pension experts said.

The Bush administration is backing legislation to ensure the survival of cash-balance retirement plans. Congress is likely to consider the measure this year.

Northrop Grumman Corp., Wells Fargo and Edison International are among the giant companies that have adopted cash-balance plans.

Traditional pension plans reward employees for staying with a company, granting them more retirement benefits during their last years of service, when their salaries are usually at their highest.

Cash-balance plans provide employees with individual accounts that they can track. But they cannot allot any of their own salary to the plan or decide how it is invested. A major advantage is that workers can take the money with them if they switch jobs, which makes such plans more appealing to younger employees.

Cooper said that she was unhappy in 1995, when IBM made some changes to its pension plan that she felt were harmful to older employees.

"Then in 1999 IBM changed to a cash-balance plan," Cooper said. "Again, I recognized IBM was harming senior employees. This time, I sought an attorney." She filed suit Nov. 1, 1999, but has remained at IBM.

David Certner, director of federal affairs for the AARP, the nation's largest seniors' organization, said Murphy's decisions have been a step forward. But Lynn Dudley, vice president and senior council for the American Benefits Council, which represents employers, said she is concerned. She called the plans "valid" and said that they were based on guidance from the IRS and the Treasury Department.