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NEW YORKVerizon Communications Inc.'s cash balance pension plan does not discriminate against older employees, a federal court has ruled in yet another legal victory for employers on the issue.
Verizon's plan is not only age neutral, but in fact, provides "pay credits at a rate that is more generous for older employees than for younger employees," ruled Judge Denny Chin of the U.S. District Court for the Southern District of New York.
For example, while participants whose combined age and service are less than 35 years received annual credits equal to 4% of pay, participants whose combined age and service is between 50 and 64 years received annual pay-related credits of 6%, and those with 65 or more total years received annual pay credits of 7%.
While a pay credit provided to younger employees eventually will be worth more than the identical credit provided to an older employee with the same salary, that difference is not age discrimination but is the result of the younger employee's benefit having more time to earn interest, Judge Chin wrote.
Judge Chin's ruling is at least the seventhsix by district court judges and one by an appeals courtsto reject age discrimination charges against cash balance plans since the 7th U.S. Circuit Court of Appeals in August 2006 ruled that the plan design in general and IBM Corp.'s plan in particular does not discriminate against older employees.
However, two judgesboth in the U.S. District Court for the Southern District of New Yorkhave ruled that the plans are age discriminatory.
Unrelated to the litigation, New York-based Verizon last year froze the cash balance plan, which covers nonmanagement employees, and significantly improved its 401(k) plan match.
Legislation passed by Congress protects new cash balance plans that meet certain basic standards from age discrimination suits, but federal legislators left it to the courts to resolve the issue for already-established plans.