NEW YORK--A federal judge in a case involving JPMorgan Chase & Co.'s cash balance plan has rejected a landmark federal appeals court decision that cash balance pension plans do not discriminate against older employees.

When cash balance plan benefits are expressed as a retirement-age annuity, an older employee who started working at the same time as a younger employee will receive a smaller benefit, which is age discrimination, Judge Harold Baer Jr. of the U.S. District Court for the Southern District of New York ruled Monday.

Judge Baer's decision, which rejected JPMorgan Chase's motion to dismiss the age discrimination charge, is the first to go against employers since the 7th U.S. Circuit Court of Appeals in Chicago ruled in August that the plans do not discriminate against older employees.

More than 1,000 U.S. employers sponsor cash balance plans.

Since the appellate court ruling, which involved IBM Corp.'s cash balance plan, at least two other district court judges--including one in the same judicial district as Judge Baer--have dismissed cash balance plan age discrimination charges, with both judges citing the appeals court ruling in their opinions.

Some cash balance plan supporters had hoped that the reasoning of the appeals court in the IBM case would persuade many other courts considering the issue that the plans are not age discriminatory. The appeals court had ruled that the plans are age neutral since the benefit and interest credits employees earn are not based on age.

But Judge Baer rejected that analysis. "It is immaterial that the terms of the plan appear age neutral. Despite the fact that every employee receives pay credits based on their completed years of service and the same interest rate is applied to each employee's account balance, that is not the yardstick by which to test, not the means to avoid, age discrimination results," Judge Baer ruled.

What matters, Judge Baer ruled, is a "simple arithmetic." When converting employees' account balances to a retirement age annuity, that conversion results in a smaller benefit for older employees because they have fewer years in which to earn interest, he ruled.

Judge Baer's ruling sets the stage for a future decision by the 2nd U.S. Circuit Court of Appeals. In four decisions, including Judge Baer's, lower courts in the 2nd Circuit have split on the age discrimination issue.

"The decisive action will be in the 2nd Circuit and in other appeals courts," said Larry Sher, a principal and director of retirement policy at Buck Consultants L.L.C. in New York.

A spokesman for New York-based JPMorgan Chase, which is the nation's third-largest bank, declined to comment.