Duke Energy ERISA Decision

We've got an update on a case that Paul posted on a couple of years ago.  At issue in George v. Duke Energy Retirement Cash Balance Plan (D. S.C.) was whether the employer's conversion to a cash balance plan violated ERISA or the ADEA.  As the BNA's Daily Labor Report (subscription required) reports, the district court, among other things, rejected the plaintiffs' ERISA and ADEA disparate treatment claims, but allowed the ADEA disparate impact claim to go forward: 

Duke Energy Corp.'s cash balance pension plan does not violate the Employee Retirement Income Security Act's anti-discrimination and anti-backloading provisions, the U.S. District Court for the District of South Carolina ruled June 2 in joining several other federal courts that have addressed similar issues.  

Looking to ERISA's anti-discrimination rule for defined benefit pension plans, the court found that to determine whether a cash balance plan discriminates against older workers, the relevant inquiry is whether the plan sponsor's "inputs" in the plan discriminate against older employees, not whether the "outputs" the employees receive at retirement are less than what younger employees receive. "Under Duke's Cash Balance Plan, the pay credits and interest credits are applied to each employee's hypothetical cash balance account in an age neutral fashion," Judge R. Bryan Harwell wrote. "Cash balance plans are not rendered discriminatory simply because younger employees have more time within which to accrue interest credits than older employees." . . .

The court further found that the plan did not violate ERISA's anti-backloading rule because the rate of benefit accrual under the cash balance plan was the result of a plan amendment and thus the only relevant formula for purposes of the anti-backloading rule was the cash balance plan formula with no consideration of the plan's prior traditional defined benefit formula. . . .

The court also dismissed claims that Duke Energy's cash balance plan resulted in disparate treatment of older workers in violation of the Age Discrimination in Employment Act. But the court refused to dismiss claims that the plan's "wear away" effect disparately impacts employees over the age of 40, in violation of the ADEA.

As Paul predicted, the tea leaves were not looking good for the ERISA claims.  We'll see what the Fourth Circuit does if there's an appeal.

-JH