Saturday, February 11, 2006

Pension Lawsuit Filed Against Duke Energy for Cash Balance Plan Conversion

From GreenvilleOnline:

Six former and current Duke Energy Corp. employees, including a Seneca resident, claim the company committed age discrimination and violated pension laws when it made changes to its retirement plan in the 1990s, according to a lawsuit filed in federal court.

The lawsuit, which seeks class-action status and could affect thousands of Duke employees, wants a court-ordered overhaul of the company's retirement plan and an independent auditor to review the plan. It also seeks unspecified restitution for lost benefits and interest.

The lawsuit claims "older workers lost thousands of dollars in the value of their pensions, after putting in decades of work" for the Charlotte-based company when it converted its traditional pension to a cash-balance plan.

"We believe that the conversion of the pension plan was done properly," Duke spokesman Randy Wheeless said Friday. "We are still looking at the lawsuit, reviewing it, but we will be ready to address it as the suit moves forward."

The conversion, the plaintiffs said, trapped employees in "wearaway," in which their cash balances would take years to move ahead of their pension benefits, which were frozen under the old plan.

And since age was factored into the calculation, older employees received less in interest credits than younger workers, the plaintiffs said.

In one example, Henry Miller, a Duke employee from North Carolina and one of the plaintiffs, had accrued pension benefits of $258,000 under the old plan, according to the lawsuit. It said that under the new plan, his opening account balance was $129,000.

I have written before on cash balance plan conversions here.  The recent Register case against PNC in the Eastern District of PA discussed in that post does not bode well for these Duke Energy plaintiffs. That being said,

Th[e Register] holding is in direct opposition to the Southern District of Illinois' finding in Cooper v. IBM Personal Pension Plans, 274 F. Supp. 2d 1010 (S.D. Ill. 2003), which concluded that cash balance plans almost inherently violate the benefit accrual rate age discrimination provisions of ERISA because the employee's benefit accrual must be determined solely in terms of a single life, normal retirement age annuity. 

The Register Court disagreed and concluded that, "the accrual rate should be 'the change in the employee's cash balance account from one year to the next.'"

A decision by a Carolina district court on either side might make its way to the 4th Circuit and add further to a split among the federal circuit courts.  As I noted in my previous post, this circuit split could eventually lead to a Supreme Court decision in this important area of employee benefits law.


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