Do Cash Balance Plans Violate ERISA?
Under the Employment Retirement Income Security Act (“ERISA”), a defined benefit plan “must provide for a definitely determinable, non-forfeitable, ‘accrued benefit.'” In addition, a plan violates ERISA if “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.” Just this past July, a federal court, in applying these ERISA requirements, found that the cash balance plan IBM instituted discriminated against participants based on their age. In Cooper v. IBM Personal Pension Plan, IBM’s cash balance plan required the company to credit benefits into each participant’s hypothetical account based on “pay credits” (5% of the employee’s salary), and “interest credits” (set at a fluctuating rate of one percentage point above the interest bearing on one-year treasury notes). When a participant’s employment with IBM ended, either at retirement or before, the participant could then elect an immediate lump-sum distribut
