On July 31, 2003, the trial court ruled in favor of the employees in a class action against IBM Corporation and the IBM Pension Plan on behalf of certain employees who allege that the company's changeover from a traditional retirement plan to a newer cash balance plan has cheated them out of part of their retirement. The employees claims that the new plan does not treat identically situated employees equally, but gives less to older ones, causing age discrimination in violation of federal labor laws. The action seeks amendments to the pension plan so that it will provide proportionately equal benefits to all retirees. Benefits will not be available to class members until all possible appeals have been exausted.

The class has been certified as all IBM employees who would lose benefits under the new cash balance plans. This group of people is made up of as many as 140,000 IBM employees who had invested a significant number of years into IBM's former pension plan before the switch to a cash balance plan. The action alleges that the tables have been turned on many middle age workers who have put in half or more of their careers under the traditional pension plan that confers meager benefits in the first few years on a job and skews benefits toward those nearing retirement.

52-year-old named plaintiff Kathi Cooper allegedly stands to receive an annual pension of $21,475 under the first of the two disputed pension plans, which were instituted in December 1994 and July 1999. If she were a year younger she would allegedly get slightly more, $21,666, and $22,221 if she were five years younger--even with no change in the number of years she worked for the company. Even though these amounts may not seem like much, they allegedly add up to hundreds of millions of savings for the corporation at the expense of loyal employees who spent their lives in service to it.

Just when many midcareer employees were entering the period in which they could earn benefits that were more generous under the traditional plan, the new formula was allegedly introduced. It allegedly provides enhanced benefits for young employees, but the middle-aged workers don't get them because the benefits are not retroactive.

Cash balance plans operate under the same federal framework as traditional pensions that are paid as a monthly check, usually beginning at 65. But unlike traditional pensions that are offered for life, cash balance plans also offer and often promote the option of retirement benefits paid in one lump sum.

Phrases that you should know:

Annuity: A retirement benefit that guarantees payment to an individual at some future time, generally beginning at age 65. The amount is often paid monthly. Pensions are a type of annuity, paid for the recipient's lifetime. A surviving spouse may continue to receive them. Privately purchased annuities often cover a limited time, such as 20 years.

Cash balance pension: A type of defined-benefit pension that can be paid as a lifelong annuity like a traditional pension. However, the employer that provides the retirement benefit calculates the benefit differently and illustrates the value to the employee in the form of an account balance. The account balance looks like a 401(k), but employees suffer no loss if retirement plan investments perform poorly. In a cash balance plan, workers often accumulate benefits at the same rate no matter how long they are employed. Cash balance plans also offer lump-sum payments, which are not usually available in traditional pension plans.

Defined-benefit plan: An employer-financed retirement plan whose benefits are guaranteed at the standard retirement age of 65.

Defined-contribution plan: A retirement plan that requires workers to set aside a portion of their wages for investment. Employees bear the investment risk.

401(k): A tax-deferred retirement plan that allows workers to contribute a percentage of their pre-tax salary for investment in stocks, bonds or other securities. Sometimes a company will match all or part of employees' contributions.

Lump sum: A one-time payment of retirement benefits.

Traditional pension: A benefit plan that a company or union contributes to while employees are working so the workers can receive a predetermined benefit, based on the time worked for a company and salary, for the rest of their lives upon retirement. Benefits increase as workers stay on the job longer.