Age-Discrimination Claims Against Cash Balance Plans Still Have Life

Two recent decisions show there is still life in age-discrimination claims against cash balance plans. In In Re J.P. Morgan Chase, the district court for the Southern District of New York denied the plan’s motion to dismiss an age-discrimination claim, applying an analysis that considers all cash balance plans inherently age-discriminatory. In Richards v. FleetBoston, the district court for the District of Connecticut denied FleetBoston’s motion for reconsideration of the court’s original denial of a motion to dismiss an age-discrimination claim earlier this year. The court also denied FleetBoston’s request for an interlocutory appeal on the issue.

While neither decision is a final judgment against the plan, the rulings clearly indicate that some courts still view cash balance and other hybrid plans as potentially age-discriminatory. Both cases concern the age-discrimination standards in effect before the Pension Protection Act (PPA). 

Both rulings are from district courts, which makes the outcomes of cases pending before appellate courts in the Second Circuit even more important for hybrid plan sponsors. The Third Circuit Court of Appeals is considering the PNC Financial case, in which the U.S. District Court for the Eastern District of Pennsylvania found that PNC’s cash balance plan was not age-discriminatory. Another case is reportedly pending in the Ninth Circuit Court of Appeals, and the J.P. Morgan Chase ruling increases the chances that the Second Circuit will also consider the age-discrimination issue. 

In the J.P. Morgan Chase ruling, the court based its determination on the accrual rate of the normal retirement annuity benefit. The court acknowledged the salutary nature of policy arguments indicating that cash balance plans provide an age-neutral benefit, but felt the terms of the law dictated a different result. When the district court renders a final judgment, it will create a split within the Second Circuit, where two other district courts have held that cash balance plans are not age-discriminatory. 

FleetBoston’s motion to dismiss was denied earlier this year, but the plan requested an interlocutory appeal or, alternatively, reconsideration of its motion to dismiss. In an interlocutory appeal, a higher court reviews a potentially controlling issue in a case still pending before a lower court. FleetBoston based its request for the interlocutory appeal or reconsideration on the Seventh Circuit’s ruling that IBM’s cash balance plan was not age-discriminatory, as well as on a similar ruling in another case in the same circuit, both of which were decided after the original denial of the motion to dismiss.

Holding that an interlocutory appeal should be reserved for “exceptional circumstances” not present in the current case, the court denied FleetBoston’s request. The court also denied its request for reconsideration of the motion to dismiss. While acknowledging that its interpretation contradicted that of several other courts, the court found that cash balance plans clearly violate ERISA’s age-discrimination standard. The court’s denial of both requests means that FleetBoston must obtain a final judgment, which will almost certainly find that the plan is age-discriminatory, before appealing the case.