IBM settles pension dispute
International Business Machines Corp. agreed to pay a group of former employees more than $15.5 million to settle a pension dispute that benefits experts say could have far-reaching implications for efforts to change retirement plans at many U.S. companies.
The agreement was approved Monday by the U.S. District Court in Lexington, Ky. Under the agreement, the settlement will be divided among about 300 IBM (NYSE:IBM) retirees, according to their attorneys.
The former employees, who worked at an IBM plant in Louisville, opted to take an early-retirement offer from the company that expired Dec. 31, 1990. Several weeks later, IBM adopted a new pension plan that was considered more attractive. The retirees filed suit in 1992, arguing that IBM failed to inform them of the pending pension changes, which might have kept them from taking the retirement offer.
Closely watched case
Monday's agreement stems from a ruling in January by a federal appeals court in Kentucky. That ruling, reversing an earlier decision in favor of IBM, said that IBM had a responsibility to inform employees of the shift under the Employee Retirement Income Security Act of 1974.
G. Kennedy Hall, the attorney who represented the IBM retirees, said Monday's agreement "fully and finally concludes" a seven-year litigation process. In a statement, IBM said that because the case had dragged on for so long, the company felt it "would be prudent to settle on what we felt were reasonable terms."
Monday's agreement is being closely watched by pension experts because of the issue of disclosure. As hundreds of large employers convert their traditional pension plans to cash-balance pension plans that make retirement benefits more portable, the Labor Department has received complaints from hundreds of employees who say they aren't being given sufficient information about how they are affected.
In many cases, employees say they can't compare the value of the benefits in their old plan to the new, so they can't tell if they are better off leaving the job and building a pension elsewhere or staying.
The disclosure issues are particularly acute in companies that provide transition benefits, or a choice between staying in the old plan or moving into the new one. In addition, with many of these conversions there are often significant catches that make the decision actuarially complex.
IBM announced plans to switch to a cash-balance plan in July. The new plan means reduced pensions for thousands of veteran IBM workers, and has been met with opposition from midcareer employees. The switch also has led some workers to begin a push to unionize some IBM facilities in Vermont and New York. IBM, the world's largest computer maker, has never had unions in the U.S.
IBM says the cash-balance plan is designed to provide incentives for younger employees, many of whom aren't expected to stay at IBM their entire career. Unlike traditional pension plans, in which employees accrue a large portion of their pension benefit in their last years at a company, the cash-balance plan provides a low but steady accrual throughout a worker's career. But older employees often suffer significant losses after a cash-balance shift.
International Business Machines Corp. agreed to pay a group of former employees more than $15.5 million to settle a pension dispute that benefits experts say could have far-reaching implications for efforts to change retirement plans at many U.S. companies.
The agreement was approved Monday by the U.S. District Court in Lexington, Ky. Under the agreement, the settlement will be divided among about 300 IBM (NYSE:IBM) retirees, according to their attorneys.
The former employees, who worked at an IBM plant in Louisville, opted to take an early-retirement offer from the company that expired Dec. 31, 1990. Several weeks later, IBM adopted a new pension plan that was considered more attractive. The retirees filed suit in 1992, arguing that IBM failed to inform them of the pending pension changes, which might have kept them from taking the retirement offer.
Closely watched case
Monday's agreement stems from a ruling in January by a federal appeals court in Kentucky. That ruling, reversing an earlier decision in favor of IBM, said that IBM had a responsibility to inform employees of the shift under the Employee Retirement Income Security Act of 1974.
G. Kennedy Hall, the attorney who represented the IBM retirees, said Monday's agreement "fully and finally concludes" a seven-year litigation process. In a statement, IBM said that because the case had dragged on for so long, the company felt it "would be prudent to settle on what we felt were reasonable terms."
Monday's agreement is being closely watched by pension experts because of the issue of disclosure. As hundreds of large employers convert their traditional pension plans to cash-balance pension plans that make retirement benefits more portable, the Labor Department has received complaints from hundreds of employees who say they aren't being given sufficient information about how they are affected.
In many cases, employees say they can't compare the value of the benefits in their old plan to the new, so they can't tell if they are better off leaving the job and building a pension elsewhere or staying.
The disclosure issues are particularly acute in companies that provide transition benefits, or a choice between staying in the old plan or moving into the new one. In addition, with many of these conversions there are often significant catches that make the decision actuarially complex.
IBM announced plans to switch to a cash-balance plan in July. The new plan means reduced pensions for thousands of veteran IBM workers, and has been met with opposition from midcareer employees. The switch also has led some workers to begin a push to unionize some IBM facilities in Vermont and New York. IBM, the world's largest computer maker, has never had unions in the U.S.
IBM says the cash-balance plan is designed to provide incentives for younger employees, many of whom aren't expected to stay at IBM their entire career. Unlike traditional pension plans, in which employees accrue a large portion of their pension benefit in their last years at a company, the cash-balance plan provides a low but steady accrual throughout a worker's career. But older employees often suffer significant losses after a cash-balance shift.