Third Circuit Follows IBM Decision on Cash Balance Plan Conversions

We had previously written about the decision in Register v. PNC, in which the Eastern District of Pennsylvania had concluded that cash balance plan conversions were not age discriminatory.  The Third Circuit has now affirmed, largely following the 7th Circuit's IBM decision.  The case is Register, et al., v. PNC Financial Services Group, No. 05-5445 (3rd Cir. Jan. 30, 2007).

Here are some excerpts from Lyle Denniston's post on the Third Circuit's decision at the SCOTUSblog:

The Third Circuit, saying that "much is at stake here," concluded that the challengers were focusing wrongly on the potential output of a cash balance plan upon retirement. The focus, the Court said, should be on the inputs -- the credits added to each employee's account annually. All participants get the same interest credit added to their accounts each year, so there is no age-related bias, the Court found. Its reasoning closedly tracked that of the Seventh Circuit in the IBM litigation.

What an employer puts into a worker's pension plan, the Third Circuit said, is more valuable when contributions are made to younger employees since the contributions "have a longer time to grow. That unremarkable consequence of a contribution growing in value because of earnings on it is no different than that when a bank deposit is drawing interest. The longer the deposit remains in the bank in an interest bearing account, the more it is worth. We do not find any support for [the] argument that Congress wanted to prohibit such a consequence with respect to cash balance plans..."

The battle goes on, but it does seem that the momentum is on the side of those that find such conversions non-discriminatory.

PS