Court Dismisses Cash Balance ADEA Charges

An employer’s cash balance plan did not cut older employees’ accrual rate because of age so it did not violate the Age Discrimination in Employment Act (ADEA), a federal judge has ruled. 

U.S. District Judge Walker D. Miller of the U.S. District Court for the District of Colorado granted a request by the employer, El Paso Corporation, to throw out the ADEA claims in a long-running lawsuit challenging El Paso’s 1997 cash balance conversion.  Miller ruled that the cash balance conversion by the Houston-based natural gas provider did not violate ADEA Section 623(i)(4) because the provision only makes it illegal to cut off or reduce the rate of an employee’s benefit accrual because of age.

A group of employees sued the company and alleged the ADEA violation because El Paso set the initial cash balance accounts for older employees who had been with the company longer at lower levels than the value of their accumulated annuities under the old plan. They also alleged that the cash balance plan violated the Employee Retirement Income Security Act (ERISA) age discrimination rule, anti-backloading rule, and nonforfeiture provisions – claims that Miller mostly dismissed in 2007 and 2008. In March 2007, the district court dismissed the employees’ ERISA age bias claim.

Miller eventually also threw out the ADEA claim has having been filed too late, just before President Obama signed the Lilly Ledbetter Fair Pay Act. The lead plaintiff in the case cited the Ledbetter measure as “intervening change in the controlling law” and asked the court to reinstate the ADEA claim.

The court eventually accepted the plaintiff’s argument and ruled that while Ledbetter law does not apply to the payment of pension benefits, it can be applied in the pension context to age discrimination claims that challenge the rate at which pension benefits accrue before they are paid out.

The case is Tomlinson v. El Paso Corp., D. Colo., No. 04-cv-02686-WDM-MEH.