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Alvin Lurie: More on cash balance plans

Alvin Lurie, the former assistant IRS commissioner and expert on ERISA law, contributed a column here in November on the tangled litigation over cash balance employee retirement plans (more on the topic). Now, after a flurry of further developments on the issue, he writes in with the following commentary (� A.D. Lurie 2007):

One couldn�t be blamed for experiencing a touch of vertigo after the whirling turns to which a cash balance plan watcher was subjected in following the fate of that much beleaguered pension design in just the several months after a decision blessing the IBM plan was thought to make the world safe again for plan sponsors. Readers of the author�s column posted on this site just this past November, titled "On the Rebirth of Cash Balance Plans", were well advised to read the title as suited to the piece, that ended on the promising note that "the strength of the 7th circuit�s reasoning (in the IBM case) will probably carry the day." Little could they know that yet another dizzying turn was about to occur.

Almost before the ink was dry on that important case an inferior court (meant to be read to signify its status in the judicial hierarchy) in the Southern District of New York, in the J.P. Morgan case, completely rejected the IBM decision, and ruled that company�s plan age discriminatory, just as the original trial court had done several years before in the IBM case, that sent the pension community spinning (or, more accurately, halting that community in its collective tracks). Alright, technically the Southern District courts, part of the 2nd circuit, were outside the suzerainty of the 7th circuit, and not subject to judicial disciplining for not following the precedent set by a higher court in another circuit. But the decision nevertheless was something of a shocker, and could be explained away as a sport. It would undoubtedly be appealed, it was reasoned; and the greater wisdom of the higher level of the judiciary, if not the collegiality that might be expected to obtain between the exalted appellate judges of one circuit for those of another, would set the world right again, it was further reasoned.

Then a real shocker occurred. Just one month later another district judge in the Southern District of New York, in another cash balance case involving the plan of another financial giant, Citigroup, came to the identical conclusion. Now even the followers of the hope-over-experience school were given pause. Just how sure could one be of the eventual outcome in the 2nd circuit court of appeals. There had been an earlier decision of a lower court in that circuit that also ruled the plan before it to be age discriminatory, albeit before the decision of the 7th circuit, while two additional decisions, also in the 2nd circuit, had rejected the discrimination charge and ruled in favor of the plan. Now with a modest, but not insignificant, 3-to-2 tilt in its lower courts in favor of the aged participants crying "foul", how confident could one really feel that help awaited in the Greek temple of the appeals court on Foley Square?

Then a couple of not just shocking, but almost seemingly deus-machina-like, things occurred this January, not in the 2nd circuit, but not far away, in the 3rd circuit, first in the district court in Newark, and then four days later in the 3rd circuit court of appeals in Philadelphia, where each of the courts, with a most explicitly deferential nod to the 7th circuit decision, plus extensive additional analysis besides in each of the opinions, soundly repudiated the plaintiffs� claims of discrimination. You�ll want to remember the names of the cases. Again they involved the plans of household names: Dun & Bradstreet in the Newark federal court; PNC Financial Services Group in the appeals court.

The opinions in these two cases, together with the IBM opinion, are now the three most important documents in the field. The IBM decision, for its pointed repudiation of the district decision in its circuit that had had such unbelievable repercussions, and, just as importantly, for its seminal position as the first decision at the circuit court level, stands tall. But the two decisions in the 3rd circuit are, in a sense, more useful to a proper understanding of the critical factors at play in this troubling area; for, where the 7th circuit�s opinion relied heavily -- not solely, obviously -- on the solid and sound instincts of Judge Easterbrook, who wrote a remarkably terse (one might almost say simplistic) opinion for the unanimous court, the two opinions in the 3rd circuit are lengthy, more deeply analytical, and meticulously founded on the usual badges of legal scholarship.

It is therefore to be suspected that the proper study of the cash balance plan henceforth will concentrate at least as much on what the judges in the 3rd circuit have written as on the 7th circuit opinion; although, if brevity be the soul of wit, the IBM case had much to say. Where the judges in J.P. Morgan and Citigroup could almost disdainfully brush aside the IBM decision with their display of legal citation and judicial restraint, giving precedence to the words of Congress over considerations of policy, economic impact and just "common sense" (so highly scored in Judge Easterbrook�s opinion), future judges, confronted with the D&B and PNC opinions in deciding the fate of cash balance plans, will not so cavalierly overcome the force of those opinions.

Each of these two new cases in the 3rd circuit does a complete 180 degree turn away from the New York opinions. As I said of the IBM opinion at the conclusion of my previous piece in this venue, and now repeat with even more conviction, the strength of the combined reasoning of this trio of opinions will surely (n.b., an escalation from "probably" in my previous commentary) carry the day.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.