Register v. PNC Financial: Age Discrimination in Cash Balance Plans
In light of the recent furor over the decision in LaRue, I thought it would be worthwhile to revisit an issue decided in January of 2007 by the 3rd Circuit Court of Appeals that dealt with age discrimination in a cash balance defined benefit plan. In Register v. PNC Financial, the 3rd Circuit consider a challenge that conversion of a traditional defined benefit pension plan to a cash balance defined benefit plan resulted in age discrimination to older participants.
A "cash balance" plan is a defined benefit plan that results in hypothetical accounts for participants because they do not reflect actual contribution, gains or losses to a particular account. Instead, the employer imputes the value of the hypothetical account in the form of annual credits ("pay" or "earnings" credits and "interest" credits). Participants receive a pay or earnings credit and a right to future interest credits projected out until a normal retirement age. In this particular case, the Plaintiff challenged the plan as discriminatory because they claimed the interest credit decreased in value as the participant moved closed to normal retirement age. A person retiring at age 50 with 20 years of service would have an annual benefit larger than someone at age 65 with 20 years of service.
To solve the issue, the court looked at the definition of "benefit accrual" and determined that, in cash balances plans, "benefit accrual" refers to the stated account balance and that is how the benefit is defined. It is the credits deposited in the account that are significant, not the actual cash value of the credits when they are realized. The plan is not discrimination to the extent the credits allocated are not done so with age as a consideration. In other words, while the value of the credits may be impacted by age and time, the credits themselves (benefit accrual) was not at issue.
While this case is not directly analogous to LaRue, it does provide some illumination into the distinction between the individual account balances in a defined benefit plan and account balances in a defined contribution plan. In LaRue, the damages were claimed as decreased monetary value as a result of the actions of the administrator. In this case, the claim for decreased value could not be sustained because the credits were the measuring factor, not the actual monetary payment to the participant. So the distinction between valuations in defined benefit and defined contribution plans can be significant.
