S.D.N.Y. Notes Split within Second Circuit Re Whether Cash Balance Plans Are Discriminatory under ERISA

Per In re Citigroup Pension Plan Erisa Litigation, --- F.Supp.2d ----, 2006 WL 3613691 (S.D.N.Y. Dec. 12, 2006):

Under a cash balance pension plan, an employer guarantees each participant a retirement benefit premised on a hypothetical account that has been established in each participant's name. These accounts grow over time according to a predetermined formula, driven by two components: (1) the employer's hypothetical "contributions," expressed either in dollars or a specified percentage of the participant's current yearly salary (making it a "career average" formula); and (2) hypothetical earnings expressed as interest credits, which can either increase at a fixed rate or be tied to an extrinsic index, such as 30-year Treasury bonds. Employer contributions and interest credits are usually allocated to the accounts annually. Each year participants receive a balance statement so they can review the value of their pension.

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ERISA's anti-age discrimination provision for defined benefit plans states that "[a] defined-benefit plan shall be treated as not satisfying the requirements of this paragraph if, under the plan, an employee's benefit accrual is ceased, or the rate of an employee's benefit accrual is reduced, because of the attainment of any age." Presently, there is a split within this Circuit as to whether cash balance plans violate this provision. Two district courts have held that cash balance plans are age discriminatory, [FN66] and two have held they are not. [FN67] For reasons set forth in Part IV.D below, I join in finding that cash balance plans unlawfully discriminate on the basis of age.


FN66. See Hirt, 441 F.Supp.2d 516; Laurent v. PriceWaterhouseCoopers, LLP, 448 F.Supp.2d 537 (S.D.N.Y.2006). Hirt is now pending before the Second Circuit Court of Appeals (notice of appeal filed Oct. 13, 2006).

FN67. See In re J.P. Morgan Chase Cash Balance Litig., No. 06 Civ. 732, 2006 WL 3063424 (S.D.N.Y. Oct. 30, 2006) ("J.P.Morgan" ); Richards v. Fleet Boston, 427 F.Supp.2d 150 (D.Conn.2006).