IBM office building.
Last September, the Department of Labor asked a U.S. Court to Appeals to reopen a class action lawsuit, Joshua Knight v. International Business Machines, filed against IBM and its pension plan administrator in 2022 in support of employees, who alleged they were shorted on pension payments.
Last week, a three-judge Appeals Court panel in New York has decided to revive the lawsuit that accuses IBM of shorting retirees on pension payments.
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“Plaintiffs allege that the Plan continues to utilize outdated mortality assumptions when calculating joint and survivor benefits for Participants," Judge Nelson Roman had said in his dismissal order issued in April 2024.
However, rather than simply dismissing the lawsuit after finding the case had been filed too late, the appeal court judges should have open the door to additional document discovery, the panel found.
In 2022, the tech company was sued by three long-time employees of using an "outdated mortality table" and inflated interest rate assumption to determine the value of annuity benefits paid out by the pension plan, alleged in the DOL appeal.
The three long-time employees – Joshua Knight, Michael Campbell and Ernest Fabrizio – began participating in IBM's Personal Pension Plan prior to 1999 and selected "various forms of joint and survivor annuities upon retirement," alleges the lawsuit.
The IBM Personal Pension Plan, which is worth $25.5 billion in assets for 250,000 participants, calculates benefits as a "single life annuity, meaning a series of monthly benefit payments beginning at retirement and continuing until a participant's death," alleges the lawsuit.
However, the default benefit payment for married participants "is a 50% joint and survivor annuity that pays the participant's surviving spouse … 50% of whatever amount the participant received during his lifetime," according to the lawsuit.
Plan participants alleged IBM failed to disclose that participants would receive less than the actuarial equivalent value of their accrued, vested pension benefit it they selected a joint an survivor annuity. The employees alleged that IBM's "Mortality Table is more than 40 years out of date, despite dramatic increases in longevity of the American public,” and that the pension plan violated the Employee Retirement Income Security Act, particularly those relating to actuarial equivalence, anti-forfeiture and joint and survivor annuity requirements.
Related: DOL backs IBM retirees, urges lower court to reopen firm’s ERISA pension plan lawsuit
IBM, once a leader in the shift away from defined benefit (pension) plans to 401(k) plans in the '80s and '90s, began taking a different approach to retirement plans in 2023 by switching employees to a Retirement Benefit Account. IBM notified employees that it would suspend the 401(k) match an 1% automatic contribution beginning in 2024 and will instead make a monthly account credit toward a new "hybrid pension" plan, consisting partially of a DC plan and partially of a DB plan. Industry commentators compared the plan to a cash balance plan.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
