DOL backs IBM retirees, urges lower court to reopen firm's ERISA pension plan lawsuit
The IBM lawsuit caught the attention of Labor Department, which claims the three-year deadline to bring a fiduciary claim doesn’t apply because workers didn’t have “actual knowledge” of the ERISA violation.
The Department of Labor is asking 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 allege they were shorted on pension payments.
The DOL said the lower court was wrong to rule on April 9 that their Employee Retirement Security Act lawsuit was filed beyond its three-year statute of limitations deadline and “flies in the face” of U.S. Supreme Court precedent.
In June 2022, the tech company was sued by three long-time employees of using an “outdated mortality table” and inflated interest rate assumption to determine the value of annuity benefits paid out by the pension plan.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 filed on August 23.
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. Also, the employees alleged that IBM’s “Mortality Table is more than 40 years out of date, despite dramatic increases in longevity of the American public.”
Related: IBM just flipped the script: Are companies now going to bring back pensions?
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.