updated 9/17/2004 4:53:22 PM ET 2004-09-17T20:53:22

The judge presiding over a massive pension suit against IBM, which could cost the company more than $6.5 billion, agreed Friday to a short delay while settlement talks continue.

The suit, which contends the "cash balance" pension plan the company adopted in the 1990s discriminated against 140,000 older workers, has been closely watched by scores of large companies that switched to similar pension plans in the 1980s and 1990s.

The judge overseeing the case ruled in favor of the workers earlier this year. If IBM does not settle the case, a judgment could cost it at least $6.5 billion, the computer hardware and services company said in a quarterly filing with the Securities and Exchange Commission. That would be the largest pension judgment in history.

"A large number of cash balance plans now exist, the overwhelming number of them conversions, just like IBM's," said Bruce Wolk, a law professor at University of California, Davis, School of Law. "The holding in that case would hold every one of these plans in violation of the law. It's put a bit of a scare in the boardrooms."

The class-action lawsuit challenges IBM's cash balance plan. Such plans, which mushroomed in popularity in the 1990s, resemble 401(k) plans in that they let workers track the growth of their money in a hypothetical individual "account." Unlike a 401(k), however, workers can't allot any of their own pay to the plan or decide how it is invested.

Traditional pension plans reward workers for sticking with a company over time, increasing their retirement benefits at a much faster rate during their last years of service. Cash balance plans are computed using a formula that awards benefits at a steady rate through a worker's tenure.

Opponents say cash-balance plans instituted when experienced workers are already nearing retirement age deprive employees of anticipated gains and leave them without enough working years to accrue cash balance benefits equal to what they would have received had the company kept a traditional pension.

IBM agreed this week to settle part of the lawsuit involving 15,000 workers who were IBM employees for less than five years when the company changed its pension plan. IBM refused to disclose details of that settlement. Lawyers for the company and the plaintiffs did not return calls. Both sides expect to present that settlement during the third week of October, according to the filing.

The Illinois judge presiding over the case had been expected to announce damages soon. But IBM on Friday asked him to postpone the decision on payments to other employees, saying the company is "in discussions regarding a possible resolution of some of the remedies, issues and/or claims in the suit."

IBM has argued it shouldn't be forced to make retroactive payments because it could not have foreseen the judge, G. Patrick Murphy of the U.S. District Court for the Southern District of Illinois, would declare the cash balance plan illegal.

Murphy wrote in his decision that IBM wasn't justified in claiming it was blindsided.

"The prohibition against age discrimination existed long before the appearance of cash balance plans," he wrote in his Feb. 12 ruling. "All that has changed is IBM's clever, but ineffectual, response to law that it finds too restrictive for its business model."

Since the ruling, both sides have been waiting for him to announce the size of IBM's payout.

IBM has said it plans to appeal the judge's ruling that its cash balance plan was illegal.

Proposals before Congress would change pension law to spell out the legality of the plans. Such a change in law would not affect the IBM suit.

The proposals would also change some aspects of the plans themselves. For instance, for some older workers, the adoption of a cash balance plan means their benefits might not increase one cent in the years immediately after the plan is adopted, because the benefits they earned under their company's former plan are already higher than the new plan's formula allows. Some of the proposals Congress is considering would ban that practice.

As it stands, the practice is most likely legal, "but it's a punch in the stomach for those workers," Wolk said.

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