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NEW YORK--Rejecting the reasoning of a federal appeals court, a federal district court judge says cash balance pension plans discriminate against older employees.
The plans are age discriminatory because when an account balance is converted to a retirement annuity, "cash balance plans are not age-neutral," wrote Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York.
Judge Scheindlin's ruling, handed down Tuesday, came in a suit filed against Citigroup Inc. by several employees of the New York-based financial services giant. Citigroup asked the court to dismiss the age discrimination charge and several other charges.
In her opinion, Judge Scheindlin said when an account balance is converted to a retirement age annuity, younger workers are credited with more interest on their accounts.
"Therefore, as a matter of plain arithmetic, a greater value is added to a younger employee's account than an older employee's account," she wrote.
As a result, an older worker receiving the same salary and with the same number of years of service will receive a smaller retirement benefit than a younger employee simply because he is older, according to the ruling.
Judge Scheindlin's decision comes about four months after the 7th U.S. Circuit Court of Appeals in Chicago ruled in a widely publicized decision involving IBM Corp. that the plans do not violate age discrimination law.
The appeals court ruled that the plans are not age discriminatory because the benefit credits provided to plan participants are age-neutral. Additionally, the difference in the accumulated benefit--expressed as a retirement annuity--results from the time value of money, which is not age discrimination, the appeals court said.
Since the appeals court ruling, two district court judges in other cash balance plan suits have rejected age discrimination charges, while two judges, including Judge Scheindlin, have found the plans to be age discriminatory in their design.
The split in the courts shows that it will be some time before the age discrimination issue will be resolved, said Nancy Ross, a partner with McDermott, Will & Emery L.L.P. in Chicago.
Congress, though, as part of a broad pension funding reform bill it passed this summer, protects new cash balance plans from age discrimination suits. That law, though, is not retroactive, leaving it to courts to resolve the issue for plans already established.