Good News for Cash Balance Plans - They Are Not Discriminatory

Within a week’s time span, there have been two developments that clarify the legality of cash balance plans. First, the Seventh Circuit Court of Appeals ruled that IBM’s cash balance plan did not unlawfully discriminate against older workers. This highly anticipated ruling is the first of its kind by a Court of Appeals. Second, Congress passed the Pension Protection Act of 2006 (Act), which provides a safe harbor for hybrid plans - including cash balance plans - effective as of June 30, 2005. The Seventh Circuit’s ruling in IBM and the Act both favor the continued use of cash balance plans as a way of providing retirement income.