The following article from the Poughkeepsie Journal highlights what, I think, is becoming an area of litigation which more and more companies will have to deal with as baby boomers continue to age and as companies try to deal with the rising costs of health care and pension liabilities for older workers: “Ex-IBMers: Data show age bias.” The article notes how an IBM employee allegedly compiled data showing that older workers at IBM were being terminated at rates that exceeded those of their younger worker counterparts. Apparently, the employee started going through the data, making charts, and “was struck by what he saw happening.” (According to the article, the employee states that, in his group, 16 were let go and all were over 50, some having 33 years with the company.) The article notes that a complaint was filed October 7, 2003 against IBM alleging violations of the ADEA, the OWBPA, and ERISA. With respect to the ERISA claims, the complaint alleges employees were terminated in order to avoid increasing pension cost obligation for employees with greater years of service.
A more famous case involving a section 510 ERISA claim that received a great deal of publicity this year was the case of Millsap v. McDonnell Douglas Corp., No. 94-CV-633-H, from the Northern District of Oklahoma, which is in the process of being appealed. You can access some articles here and here discussing the Millsap case. The case was particularly significant because some of the evidence used to prove the ERISA 510 claims were certain memos from the actuaries showing that the defendants had analyzed the reduction in benefits which would occur if the plant were closed and such information had been memorialized in memos. One such memo prepared by the actuaries considered “various “what if” scenarios, analyzing the effect on costs and savings if the company decided to reduce heads.” The kinds of costs analyzed included “pension cost, savings cost, savings plan cost, health care cost, and just direct overhead cost.”
With more and more benefits work being done by consultants (as in the Millsap case), plaintiffs lawyers could have an easier job of proving their section 510 ERISA claims since employers who obtain advice from consultants will likely have more of these “smoking gun” type of memos in their files which demonstrate that certain employees were chosen for termination due to benefits costs. Because these memos are being derived from consultants, they will not be protected by attorney-client privilege, and could be used in an ERISA section 510 case to prove that the employer terminated employees based on benefits.
The court in Millsap stated as follows:
Plaintiffs’ prima facie case establishes that Defendant valued its pension surplus in a number of ways and it provided income on the corporation’s balance sheet. [Defendant] was being instructed by its outside actuaries with respect to how it could maximize the pension surplus by selecting for layoff or plant closing its older, more senior employees. Defendant also knew that there were significant costs that would occur if the Tulsa plant stayed open after 1993, when many employees would cross over to age 55 and qualify for greater pension benefits. This $24.7 million in cost savings would be material in a transaction the company says would have otherwise saved it $19 million.”
By the way, on a different note, the Wall Street Journal today notes a development in the IBM cash balance plan case: “IBM Says Pension-Plan Members Are Using ‘Unreasonable’ Formula.” Also, from the Seattle Post-Intelligencer: “IBM tells court it doesn’t owe back pay.”