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Cash balance plans not biased against older workers: Court

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DENVER—El Paso Corp.'s cash balance pension plan does not discriminate against the Texas natural gas and pipeline company's older employees, a federal judge has ruled.

Looking at the numerous rulings on the age discrimination issue, Judge Walker D. Miller of the U.S. District Court for the District of Colorado noted that in the majority of rulings, the term "benefit accrual" has been interpreted by courts to refer to the benefit credits employers provide to employees. As long as an employer gives at least the same credits to older employees as younger employees, there is no age discrimination.

In a minority of rulings, Judge Miller wrote, courts have found the plans to be age discriminatory because the same benefit provided to a younger employee and to a older employee will generate a bigger retirement annuity for the younger employee because the younger employee's credits will have more time to earn interest.

Judge Miller said he was persuaded by the majority interpretation, noting that the minority interpretation results in what he described as an "untenable discrepancy."

Under the minority view, "it would be permissible for a younger employee in a defined contribution plan to benefit from the time value of money, while making it illegal for a younger employee in cash balance plan to do the same."

Judge Miller's ruling comes in the wake of a ruling this month by a federal judge in Illinois that dismissed cash balance plan age discrimination charges against Boeing Co. The majority of courts that have ruled on the issue have rejected age discrimination allegations.

"On the basic age discrimination issue, things are looking very promising. The trend for plaintiffs has not been very encouraging," said Christopher Rillo, a principal with the Groom Law Group in Washington, which represented both Boeing and El Paso.

Still, the age discrimination issue is far from resolved, with several appeals courts expected to rule on the issue over the next year or so. The two appellate courts that have ruled on the issue--the 7th U.S. Circuit Court of Appeals in a widely publicized case involving IBM Corp., and the 3rd U.S. Circuit Court of Appeals in a case involving PNC Financial Services Group Inc.--both found that the design of cash balance plans does not discriminate against older employees.

Employers now sponsor about 1,200 to 1,500 cash balance plans, which are so named because benefits are expressed as a cash lump sum. Congress, as part of major pension funding reform legislation it passed last year, shielded new cash balance plans from age discrimination suits, but left it to the courts to resolve the issue for plans already established.