If changes to a retirement plan benefit – or hurt – one group of employees more than another, it could trigger a discrimination lawsuit.
Duke Energy Corp. learned that the hard way when it was charged with violating the Employment Retirement Income Security Act (ERISA) after converted its defined-benefit pension plan to a cash balance plan.
A lawsuit representing 20,000 current and former Duke employees claimed instead of receiving retirement benefits based on years of service, the new plan combined the characteristics of a pension plan with that of a 401(k) — to which employees would contribute a portion of their wages to.
Suit: Older workers were hurt most
As a result, the lawsuit claimed Duke broke age-discrimination laws because the changes disproportionately harmed plan participants over 40, due to the fact that many of them lost up to half of their accrued benefits.
Duke denied those claims, saying cash-balance plans allow employees to accrue more benefits over a working career than traditional plans, according to a report by the Charlotte Observer.
A court allowed the lawsuit to proceed. And once that happens, an expensive settlement is often the result. This case was no different.
While it admitted no wrongdoing, Duke agreed to settle the suit for $30 million.