A U.S. District Court judge has called Citigroup’s cash-balance pension plan “a bold and exploitative contortion” of the fractional rule, which guarantees that pensions accrue uniformly over an employee’s career.
The court granted summary judgment to a class of Citigroup employees who argued that the plan discriminated against older employees. The plan applies the fractional rule only at the date of separation instead of annually, back-loading accrual.
While cash-balance plans are legal, they must pass one of three tests to ensure steady accrual. The court ordered Citigroup to reformulate its plan, but didn’t require an interest credit for the plaintiffs.
Advice: Leave pension changes to the professionals. The rules are complicated, and the best way to avoid litigation is to have a qualified pension specialist or law firm that specializes in pension law recommend and implement your plan.