This report examines the issue of whether a type of defined benefit pension plan, the cash balance plan, violates federal laws that prohibit age discrimination. The discrimination provisions are found in the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC), and the Age Discrimination in Employment Act (ADEA). This report briefly describes a typical cash balance plan and discusses the claims that such plans violate the federal laws that prohibit age discrimination, as existed prior to the Pension Protection Act of 2006. The Act's provisions apply only to periods beginning on or after June 29, 2005, and leave unsettled the law for earlier periods. Two primary claims have been made that cash balance plans or the conversions to such plans violate the law. The vast majority of courts, including all of the appellate courts to examine this issue, have found that cash balance plans do not violate the pre-Act age discrimination provisions. Violation of the Age Discrimination Provisions

The age discrimination provisions in ERISA, the IRC, and the ADEA prohibit an employee's rate of benefit accrual from being decreased on account of age. One case to examine this issue, Cooper v. IBM Pers. Pension Plan , has received significant attention. In 2003, a U.S. district court held that IBM's cash balance plan violated ERISA § 204(b)(1)(H). This issue was perhaps most contentious in the Second Circuit, where multiple district courts held that cash balance plans violated the age discrimination prohibitions. Pension Protection Act of 2006

		P.L. 109-280 ). The Act also makes clear that certain circumstances do not violate the age discrimination provisions.
Both federal courts and Congress have recently addressed the issue of whether cash balance pension plans violate federal laws that prohibit age discrimination. The relevant age discrimination provisions are found in the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (IRC), and the Age Discrimination in Employment Act (ADEA). Two primary claims have been made: (1) that cash balance plans inherently violate the age discrimination provisions because the rate of benefit accrual is decreased on account of age and (2) that the conversion of traditional defined benefit plans to cash balance plans violates the ADEA because of the negative impact on older workers.
While certain district court decisions have held that cash balance plans violate the age discrimination provisions, all appellate courts to evaluate this issue have found that the plans are not age discriminatory. In a case that has received significant attention, Cooper v. IBM Personal Pension Plan, 457 F.3d 636 (7th Cir. 2006), the Seventh Circuit reversed one of the district courts and found that IBM's cash balance plan did not violate ERISA's age discrimination provision.
The Pension Protection Act of 2006 (P.L. 109-280) sets out new standards that a cash balance plan must meet in order to comply with the age discrimination provisions. These new standards apply only to periods beginning on or after June 29, 2005, and leave the age discrimination issue unsettled under prior law.
This report describes cash balance plans, discusses the claims that cash balance plans do and do not violate the pre-Act age discrimination provisions, and provides an overview of the Pension Protection Act, as it applies to this issue.