Representing the Employee Benefits Interests of America’s Largest Employers

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The  ERISA  Industry  Committee

Representing the Employee Benefits Interests

of America’s Largest Employers

1400 L Street NW, Suite 350, Washington, DC 20005 Phone: (202) 789-1400 Fax: (202) 789-1130

Are Cash Balance Plans Inherently Unlawful
Under the Age Discrimination in Employment Act?

In the traditional defined benefit pension plan, often called a final average pay plan, the benefit is an annuity that is based on a formula that takes into account years of service with the employer, some measure of compensation (such as average annual earnings in the last five years of employment), and a multiplier (such as one percent for each year of service). Since annual earnings tend to correlate with seniority or years of service, the largest portion of the annuity benefit typically is earned in the last few years of employment.

Cash balance plans also come within the legal definition of a defined benefit plan, but are structured quite differently, with the result that a much higher proportion of the retirement benefit is earned in the early years of employment. Are cash balance plans invariably illegal under the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621, et seq., because of the difference in the ways in which the retirement benefits are earned? We think not.

I. The Predicate Underlying The Contention That Cash Balance Plans Are Inherently Unlawful Under The ADEA Is "Frontloading"

Most claims of age discrimination are fairly straightforward. The plaintiff alleges that he was wrongfully terminated — or not promoted, paid less, or suffered in other ways — because of his age. The plaintiff offers either direct evidence of discriminatory intent (the employer said, "I don't like old workers") or attempts to prove intentional discrimination through circumstantial evidence, most commonly by the so-called indirect method of proof articulated in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), and its progeny. For example, a plaintiff might contend that while the employer's stated reason for terminating the plaintiff was non­discriminatory, perhaps poor performance, the stated reason was a mere pretext for age discrimination because younger co-workers who performed as poorly as the plaintiff were not terminated.

One can readily imagine particular provisions or features of cash balance plans that would be unlawful under the ADEA using this traditional disparate treatment analysis.1 A cash balance plan that, for example, eliminated allocations to an employee's hypothetical account as soon as the employee reached or exceeded some specified age such as 65 would appear to be on its face age-based discrimination, and, so clearly so, that intent to discriminate could be inferred simply from the fact that such a provision was adopted.

One commentator has gone much farther, however. Under this author's thesis, cash balance plans are inherently unlawful under the ADEA. See Sheppard, "The Down-Aging of Pension Plans," 82 Tax Notes 171 (Jan. 11, 1999).2 The path leading to Sheppard's conclusion requires a fairly detailed understanding of cash balance plans, the Internal Revenue Code, and the ERISA regulatory framework applicable to cash balance plans.

The starting point is ADEA Section 4(i)(1), 29 U.S.C. § 23(i)(1):

(1) except as otherwise provided in this subsection it shall be unlawful . . . to establish or maintain an employee pension benefit plan which requires or permits -

(A) in the case of a defined benefit plan the cessation of an employee's benefit accrual or the reduction of the rate of an employee's benefit accrual, because of age. . . .3

Although they resemble in some respects defined contribution plans, such as the popular 401(k) plans that many private employers offer, cash balance plans are defined benefit plans and regulated as such. Each participant in a cash balance plan has an account that receives in each year of active employment a "pay credit," consisting of a hypothetical contribution corresponding to a stated percentage of annual compensation, and an annual "interest credit" equal to a specified percentage of the cumulative balance in the participant's account. When the participant retires, the account balance is converted into an annuity, as the Internal Revenue Code and ERISA require for defined benefit plans, although many cash balance plans offer a lump sum option. Unlike 401(k) plans, however, the risk of investment is borne by the employer and participants' benefits are protected by the Pension Benefit Guaranty Corporation.

What portion of that retirement annuity is earned or accrued in any one year of employment? If each year's pay and interest credit to an individual's account balance were treated as having accrued in that year, the annual interest credit in the last few years before retirement would, for a person with many years of service, exceed by many fold the combined pay and interest credits in the first few years of plan participation, due to the effect of compounding interest over a long period.

But this method of determining accruals is not used. Instead, the IRS has said that, to avoid violations of the statutory restrictions on the "backloading" of defined benefit plans, the interest credit on each year's pay credit in a cash balance plan should be projected out, with compound interest, to the normal retirement age specified by the plan, and the sum of all of that interest should be treated as accruing in the year of the pay credit. The effect of this rule is that cash balance plans are "frontloaded," meaning that a significantly greater proportion of the annuity benefit at normal retirement age is treated as having accrued in the first few years of participation in the plan. When a high proportion of the final benefit accrues in the years immediately preceding retirement, a defined benefit plan is deemed to be "backloaded." Final average pay plans by their very nature tend to be "backloaded." For many years Congress and regulators have been concerned that "backloading" results in little or no retirement benefit for those who participate in the plan for a relatively short period; as a result, the amount of permissible "backloading" is restricted by statute.

A younger employee, by definition, has more years than an older employee before reaching any specified normal retirement age. Thus, the hypothetical contribution on behalf of the 25-year old employee, including the imputed compound interest credit projected out to normal retirement age, accounts for a higher proportion of the annuity that begins at normal retirement age than the comparable contribution on behalf of an older employee who is closer to normal retirement age.4

Sheppard concludes from all this that frontloaded cash balance plans violate ADEA Section 4(i)(1)(A) because "benefit accruals," or at least the rate at which benefits accrue, necessarily declines as the individual grows closer to normal retirement age. Indeed, so powerful is the time value of money that a disparate rate of "benefit accrual" may exist even when pay credits under the plan are skewed in favor of older employees, e.g., the percentage of compensation awarded as a pay credit to the account of older employees is higher than the percentage awarded on behalf of younger workers.5

II. The Anomalies That Would Result From Treating Cash Balance Plans As Inherently Unlawful Under The ADEA Raise Serious Doubts As To The Soundness Of The Theory

To determine whether the Sheppard theory has any merit, it is appropriate to look at (1) the statutory framework and the legislative history of ADEA Section 4(i)(1); (2) the relevant regulations and (3) the case law interpreting Section 4(i)(1) and the ADEA generally. Before doing this, however, three significant anomalies are worth noting.

First, if the Sheppard theory is meritorious, Congress effectively outlawed cash balance plans when it adopted ADEA Section 4(i)(1) in 1986.6 That Congress had any such intention seems improbable. Cash balance plans use the frontloaded approach only because they are compelled to do so by IRS interpretations of the restrictions on backloading. Further, the frontloading approach that Sheppard sees as producing an ADEA violation in the case of cash balance plans was specifically sanctioned by Congress prior to 1986 for certain other defined benefit plans.7

Second, defined contribution plans, which function very much like cash balance plans, clearly are not prohibited by ADEA Section 4(i)(1).8 Indeed, if the Sheppard theory were sound, one could have two otherwise identical employers, one of which adopts a cash balance plan and the other a defined contribution plan, with each plan offering the same annual contributions or pay credits and offering equivalent methods of crediting or calculating subsequent earnings (interest credits), the only practical difference being that the employer that opted for a cash balance plan has done something that is illegal under the ADEA while the other employer has no problem. Such a difference in outcome makes no sense in terms of the purposes and policies underlying the ADEA.

Third, the age discrimination alleged to be inherent in cash balance plans does not reflect an employer's decision to treat its older workers less favorably and is not the product of employer bias against older workers. On the contrary, the source of the alleged age discrimination is a regulatory framework requiring that future interest credits be deemed to have accrued immediately. If the IRS changed its interpretation of the restrictions on backloading, or if Congress repealed those restrictions, the ADEA issue disappears.

Standing alone, these anomalies do not obviate the need to examine the statutory framework and legislative history, the relevant regulations, and the case law. However, unless those sources provide compelling support for the Sheppard thesis, and they do not, these anomalies suggest that the thesis should be rejected.

IIIA. The Statutory Framework And Legislative History Are Not Consistent With The Sheppard Theory.

Viewed in terms of traditional age discrimination analysis, the Sheppard theory clearly falls in the disparate impact as opposed to a disparate treatment category. On its face, a cash balance plan is unquestionably age neutral. Each individual, regardless of age, receives the same percentage of compensation as a pay credit, except for those cash balance plans that give higher percentage pay credits to older workers. The rate at which annual interest credits are calculated is also identical, regardless of age. The cash balance plan can be viewed as disadvantaging older workers only because, by definition, they have fewer years than younger workers before reaching the normal retirement age specified by the plan. Yet reading ADEA Section 4(i)(1)(A) as condemning cash balance plans on disparate impact grounds is hard to reconcile with the fact that other parts of subsection (i), adopted at the same time as Paragraph (1)(A), quite explicitly sanction various pension plan design features that unquestionably have a disparate impact on older employees.9 While no provision of subsection (i) explicitly sanctions the supposed disparate impact of cash balance plans on older workers, it is difficult to fathom why a Congress that expressly sanctioned considerable disparate impact intended at the same time to outlaw cash balance plans on disparate impact grounds.

The legislative history does not indicate that Section 4(i)(1)(A) and the mirror image provisions of the Code and ERISA were adopted for the purpose of outlawing cash balance plans. Indeed, there appears to be no mention of cash balance plans in the legislative history. Rather, the purpose was to insure that employees who elect to work beyond normal retirement age will continue to accrue additional pension benefits for such service, subject to some significant exceptions. The precursor of Section 4(i)(1)(A) was introduced on the floor of the Senate in September 1986 as a proposed amendment to what became OBRA. The sponsors explained their objective was to require employers to continue to accrue pension benefits for employees who choose to remain employed past the age of 65. 132 Cong. Rec. 24903-05 (Sept.19, 1986).

A month later the Conference Committee opted to "generally follow the Senate amend­ments with certain modifications." H.R. Conf. Rep. No. 1012, 99th Cong., 2d Sess. 378. The Conference Report goes on to explain that

Under the conference agreement, the rules preventing the reduction or cessation of benefit accruals on account of the attainment of age are not intended to apply in cases in which a plan satisfies the normal benefit accrual requirements for employees who have not attained normal retirement age. Under the benefit accrual rules, the rate of benefit accrual for an employee may vary depending on the number of years of service an employee may complete between date of hire and the attainment of normal retirement age. Id., at 379.

In short, Congress was addressing the type of discrimination described at the very outset of this paper — plan restrictions on further accruals after a participant reaches a specified age (65) — not a theory of discrimination derived from the regulatory framework in which cash balance plans have been placed and the mathematical fact that the sum of compounded interest over a longer period is worth more than the sum of compounded interest over a shorter period. The focus in 1986 was on the cessation or reduction in benefit accruals after normal retirement, so that workers who choose to work beyond normal retirement age could continue to accrue additional benefits toward retirement. In contrast, the Sheppard thesis, by definition, relates only to benefit accruals before normal retirement, and presumes that everyone retires or stops accruing benefits at normal retirement age.

IVA. The Authoritative Regulations Are Inconsistent With The Theory That Cash Balance Plans Are Inherently Unlawful Under ADEA

Paragraph (7) of ADEA Section 4(i) provides that:

(7) Any regulations prescribed by the Secretary of the Treasury pursuant to clause (v) of section 411 (b)(1)(H) of Title 26 and subparagraphs (C) and (D) of section 411(b)(2) of Title 26 shall apply with respect to the requirements of this subsection in the same manner and to the same extent as such regulations apply with respect to the requirements of such sections 411(b)(1)(H) and 411(b)(2).

Accordingly, Treasury pronouncements on the proper interpretation and application of the companion provisions in ERISA and in the Code to ADEA Section 4(i) are entitled to considerable weight.

On April 11, 1988, shortly after the effective date of subsection (i), the IRS issued proposed regulations that are inconsistent with Sheppard's disparate impact theory for holding cash balance plans in violation of the ADEA. Proposed Reg. § 1.411(b)-(2)(a) provided that a defined benefit plan does not come within the Paragraph (1) prohibition "solely because of a positive correlation between increased age and a reduction or discontinuance in benefit accruals or account allocations under a plan." 53 `F.R. 11876 (Apr. 11, 1988). Also, Proposed Reg. § 1.411(b)-(2)(b)(2)(ii) explicitly sanctioned such "frontloaded" plan provisions in a final average pay plan as a 2 percent credit for the first 15 years of service and a credit of only 1 percent for each subsequent year of service.10

Later, in the preamble explaining its 1991 final regulations, which created a safe harbor from the restrictions on discrimination in favor of highly compensated employees for "frontloaded" cash balance plans, the IRS opined that

The fact that interest adjustments through normal retirement age are accrued in the year of the related hypothetical allocation [i.e., the pay credit] will not cause a cash balance plan to fail to satisfy the requirements of [Code] section 411(b)(1)(H), relating to age-based reductions in the rate at which benefits accrue under a plan. 56 F.R. 47528 (Sept. 19, 1991).11

Sheppard dismisses this statement as "obiter dicta" and as appearing to say "that the very thing that causes the age discrimination problem does not cause an age discrimination problem." But in reality it is Sheppard who is trying to find an age discrimination problem as a result of a governmental requirement (frontloading) that has nothing to do with age discrimination in the usual sense in which that concept has evolved under the ADEA. Further, Sheppard is trying to do this despite the IRS, as the author of the frontloading requirement on which Sheppard's theory rests, having stated it was not its intention to create an age discrimination issue when it created the frontloading safe harbor for cash balance plans.

VA. The Case Law Provides No Support For The Notion That Cash Balance Plans Are Inherently Unlawful Under The ADEA

To date, no reported case has been found that upheld an ADEA claim incorporating the Sheppard thesis. Indeed, only one case applying ADEA Section 4(i)(1)(A) is of even passing interest. Indeed, only one case applying that provision is of even passing interest. In Atkins v. Northwest Airlines, Inc., 967 F.2d 1197 (8th Cir. 1992), several current and retired pilots, all of whom worked as flight engineers after reaching the normal retirement age for pilots of age 60, alleged a violation of Section 4(i)(1)(A), claiming that the rate of accrual for pilots age 55 to age 60 was higher than the rate of accrual for those who worked past age 60, because the benefit reduction factor for early retirement (0.25 percent for each month under the age of 60) meant that, as a practical matter, benefits accrue at a higher rate from age 55 to 60 than after age 60. As the court saw it, the plaintiffs were arguing for a "late retirement bonus" of 0.25 percent for each month after age 60 in order to bring the post-60 rate of accrual up to the rate of accrual from age 55 to age 60. Reasoning that early retirement discounts are not part of "accrued benefits," the court affirmed summary judgment for Northwest. 967 F.2d at 1200-01. In passing, the court noted that plaintiffs might have "a valid argument for the bargaining table," but not under ERISA or ADEA. Id. at 1200. Although many pilots who worked past age 60 would not enjoy any increase in the pensions they could have received if they retired at age 60, while pilots age 55-60 would be earning greater pensions,12 that outcome did not result from age discrimination. It merely reflects that the early retirement discount is exhausted. Id. at 1201.

In the case of cash balance plans, the more rapid buildup of accrued benefits in the early years of service is not age discrimination but rather a by-product of the regulatory dictate to "frontload" cash balance plans. Frontloading benefits all participants, regardless of age, who work for only a short period with any one employer. It is not age discrimination.

Aside from case law dealing directly with Section 4(i)(1)(A), there are some signposts in the existing case law dealing with the more general ADEA provisions that clearly point toward rejection of the Sheppard thesis.

For one thing, differences in treatment based on factors that are highly correlated with age, such as years of service and level of compensation, do not for that reason alone amount to age discrimination within the meaning of the ADEA. Five years after the IRS announced that reductions or cessations in benefit accruals based on factors other than age (but which correlate with age) do not violate the Code provision that mirrors ADEA Section 4(i)(1)(A), the Supreme Court reached the same conclusion with respect to the general prescriptions on age discrimination in the ADEA. Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993). The plaintiff in that case was fired at age 62 when he was within weeks of completing 10 years of service and thus becoming vested under the defendant's pension plan. Because age and years of service are "analytically distinct," the employer's conduct, however reprehensible it might be, was not something that the ADEA was designed to prevent.

Earlier cases have held that a flat monthly supplement offered as an inducement to retire early does not amount to age discrimination merely because, in terms of actuarial equivalency, that supplement is "worth" more to younger employees (because of their longer life expectancies) than to older employees. Dorsch v. L.B. Foster Co., 782 F.2d 1421 (7th Cir. 1986). Similarly, a compensation policy that awards larger annual salary increases to employees with the lowest current salaries (and who as a group are nearly always younger than the highest paid employees holding the same job) is not unlawful age discrimination because its purpose is to create pay equity. E.g., Davidson v. Bd. of Governors of State Colleges & Univs. for Western Ill. Univ., 920 F.2d 441 (7th Cir. 1990); Tagatz v. Marquette Univ., 861 F.2d 1040 (7th Cir. 1988). As has been seen, the Sheppard thesis is at bottom based on the disparate impact analysis.13 Whether the disparate impact analysis is viable under the ADEA is quite problematic. Biggins at the least suggests that the disparate impact theory is not available to ADEA plaintiffs. Following Biggins, three circuit courts have squarely rejected the notion that disparate impact claims may be asserted under the ADEA.14 In three other circuits, in dicta or in concurring opinions, the courts of appeals have expressed doubt that the disparate impact analysis survives after Biggins.15 In three of the circuits in which no controlling court of appeals decision has been found, there are district court decisions holding that disparate impact claims cannot be asserted under the ADEA.16

Only in the Eighth and Ninth Circuits, and in the Second Circuit with a significant qualification, is there case law indicating that ADEA disparate impact claims will be entertained.17 Even in these circuits, the mere availability of the theory does not mean that the plaintiff attacking cash balance plans will necessarily prevail.

VIA. Conversions Of Final Average Pay Plans To Cash Balance Plans Are Not Inherently Violative Of The ADEA

Most of the controversy and the allegations of ADEA violations occur in the context of conversions of existing final average pay plans to cash balance plans. Two issues unique to the context of a conversion, are discussed here. First, long service employees, particularly those who are not offered a choice of the better of the two plans18, contend in some cases that they had assurances that lead them to expect at normal retirement age a much larger benefit under the final average pay plan than they now expect to receive as a result of the conversion. Second, another common complaint is that, due to the way in which the conversion was designed, some employees will experience no growth in their accrued benefits for some years following the conversion (this is the so-called "wear away" problem), while others with relatively few years of service (and generally younger persons) experience a growth in their retirement benefits immediately upon conversion.

The first of these claims are really claims for breach of contract rather than age discrimination. Whether such claims for breach of contract have merit will very much depend on the particular facts of each case.19 But the question whether employees may or may not have a legitimate contract claim is quite different from the contention that their rights under the ADEA have been violated. The ADEA does not protect contract rights or insulate older employees from such adverse personal actions as the cutback or elimina­tion of certain benefits (health insurance, for example), the imposition of restrictions on salary increases, and other measures that may disproportionately disadvantage older workers because the measures take into account factors such as high pay that correlate with age. E.g., Davidson v. Bd. of Governors of State Colleges & Univs. for Western Ill. Univ., supra; Tagatz v. Marquette Univ., supra; Wooden v. Board of Educ. of Jefferson County, Ky, 931 F.2d 376, 380 (6th Cir. 1991); MacPherson v. University of Montevallo, 922 F.2d 766, 773, 775-76 (11th Cir. 1991); Britt v. Grocers Supply Co., 760 F. Supp. 606 (S.D. Tex. 1991).

As for the "wear away" issue, that phenomenon is attributable more to the years of service than to the age of the affected employees. An older individual with few years of service because she is a mid-career hire is not likely to have a wear away problem even though a younger colleague with many more years of service may be subject to a "wear away" period. As noted above, age and service are "analytically distinct." Hazen Paper Co. v. Biggins, supra. Further, the fact that one person with a relatively large vested benefit is not increasing that benefit still further while another employee with only a small vested benefit is receiving additional accruals appears to be no different for ADEA purposes from the situation in which the generally older workers at the top of the pay scale for a particular job are receiving little or no salary increases while others in that job with smaller salaries are "catching up" to their peers.


Had Congress and the IRS encouraged or required backloading of cash balance plans, the contention that those plans invariably violate the ADEA would never arise. Did the IRS intend in creating the frontloaded safe harbor for cash balance plans to insure that those plans would for that reason be illegal under the ADEA? The IRS quite explicitly stated it had no such intention when it stated that cash balance plans would not violate the restrictions on age-related discrimination in the Code merely because of frontloading. In short, the Sheppard theory that would condemn under the ADEA every cash balance plans has no merit.

Michael S. Horne, Esq.
Covington & Burling

For more information, contact:

Mark Ugoretz, President
Janice Gregory, Vice President
Robert Davis, Legislative Representative

1 Besides disparate treatment, an employment practice or policy, although neutral on its face, may be unlawful if it has a "disparate impact" on a protected class and the practice or policy cannot be justified by the employer on grounds of "business necessity." A minimum height requirement, for example, typically disqualifies many more women than men. But this "disparate impact" theory has been widely, albeit not uniformly, rejected in the context of the ADEA.

2 Sheppard is by no means alone. Several lawsuits challenging cash balance plans have been filed, and various plaintiffs' lawyers, journalists and politicians have weighed in against cash balance plans. But Sheppard was one of the first to do so, and, unlike others, has attempted to justify her position with more than mere rhetoric. Accordingly, this paper focuses on Sheppard's arguments.

3 Nearly identical restrictions on age discrimination are found in IRC § 411(b)(1)(H) and ERISA § 204(b)(1)(H). These "mirror image" provisions were enacted as part of the same legislative package in which the ADEA provision quoted in text was adopted.

4 An illustration not involving cash balance plans may be helpful. Suppose an employer gives a 3 percent annual bonus to workers who promise to invest the money in a mutual bond fund until reaching the normal retirement age of 65. A 64 year-old employee with $150,000 in annual compensation receives a $4,500 bonus and one year later, when he reaches normal retirement age, he has $4,770, assuming a 6 percent earnings rate for the fund. A 25 year-old employee earning $30,000 per year receives a bonus of only $900, but when he reaches age 65, 40 years later, the portion of his account attributable to that $900 bonus may be worth $8,000 or so depending on interest rates over the 40-year period of compound growth.

5 In the illustration in the foregoing note, if the older employee receives a bonus of 4 percent and the younger employee's bonus remains at 3 percent, one year later the older employee's account is $6,360 (the $6,000 bonus plus one year's interest of $360), but this is still less than the account of the younger employee 40 years later.

6 Section 4(i) (1) was adopted with an effective date for most purposes of January 1, 1988, as part of the Omnibus Budget Reconciliation Act of 1986 ("OBRA").

7 ERISA Section 204(c) and Code Section 411(c) require a defined benefit pension plan that accepts mandatory employee contributions to use a method that is similar to the method cash balance plans use to determine the accrual of employees' annuities at normal retirement age. Under these provisions, the accrued benefit attributable to mandatory employee contributions is defined as the sum of the employee's accumulated contribu­tions (including accrued interest on the basis of prescribed interest rates) projected forward to a normal retirement age. Because they require the use of a frontloaded approach, ERISA Section 204(c) and Code Section 411(c) strongly indicate that, in enacting the age discrimination provisions, Congress did not intend to prohibit cash balance plans from using this frontloading approach.

8 ADEA Section 4(i)(1)(B), which parallels Section 4(i)(1)(A)'s restriction on defined benefit plans, provides that defined contribution plans are unlawful if contributions to the employee's account terminate or are reduced on account of age. Thus, so long as the employer's contributions are equivalent, it is irrelevant for ADEA purposes that the younger employee-participant in a defined contribution plan will have greater accumulated earnings than the older employee if both work to normal retirement age.

9 Paragraph (2), for example, permits pension plan provisions that limit the total amount of benefits that a plan provides and that "cap" the number of years of service or years of participation which are taken into account in determining benefit accruals under the plan. Thus, traditional defined benefit plans may and in some cases do limit credit for service with the employer to the first 25 or 30 years of service, a limitation on benefits that can have an adverse affect (assuming the employer in the past has complied with the child labor laws) only on individuals who are more than 40 years old. Paragraph (5) provides that highly compensated employees (who disproportionately are older employees), whose accruals are reduced in order to comply with the restrictions on discrimination in favor of highly compensated employees, will have no claim for age discrimination under Paragraph (1). Paragraph (6) provides that a plan will not violate Paragraph (1) because the subsidized portion of an early retirement benefit is disregarded in determining benefit accruals.

10 Although the regulations were not final regulations, the Notice of Proposed Rule­making provided that taxpayers may rely on the proposed regulations pending the issuance of final regulations. 53 F.R. 11878.

11 Later, in IRS Notice 96-8, the Service indicated that it was proposing to approve only cash balance plans that were frontloaded, because it did not believe that backloaded interest credit plans could satisfy the accrual rules. 1996-1 C.B. 359.

12 This outcome was probable because the Northwest plan "capped" the years of service used in calculating the benefit, and final average pay was not likely to increase because, pursuant to requirements of the Federal Aviation Administration, pilots had to step down to flight engineer positions at age 60, which meant lower salaries.

13 The disparate treatment and disparate impact analyses are two different ways of linking the unfavorable treatment (lower pay, failure to hire, lesser pension accruals) with the protected class or characteristic, which in this case is age. The first looks to the actor's (employer's) intent; the second looks only to consequences. Since both Section 4(i)(1)(A) and the general prohibition on age discrimination require linkage between age and the unfavorable treatment, both surely require either a disparate treatment or a disparate impact analysis, and the case law dealing generally with the propriety of using the disparate treatment analysis in the ADEA context should also be applicable to Section 4(i)(1)(A) claims.

14 See Mullin v. Raytheon Co., 164 F.3d 696, 699-704 (1st Cir.), pet. for cert. filed No. 98-1779, 67 U.S.L. Week (May 5, 1999) (discussing in depth the legislative history and case law on the issue of disparate impact and the ADEA and holding that "the ADEA does not impose liability under a theory of disparate impact."); Salvato v. Illinois Dep't of Human Rights, 155 F.3d 922, 926 (7th Cir. 1998) (noting that "[I]n this circuit, at least, the ADEA does not permit liability based solely on disparate impact."); Ellis v. United Airlines, Inc., 73 F.3d 999, 1009 (10th Cir. 1996) (holding that "plaintiffs cannot bring a disparate impact claim under the ADEA").

15 See Gantt v. Wilson Sporting Goods Co., 143 F.3d 1042, 1048 (6th Cir. 1998) (dicta); Rhodes v. Guiberson Oil Tools, 75 F.3d 989, 1004 (5th Cir. 1996) (en banc) (DeMoss, J., concurring in part and dissenting in part, in which Judges Smith and Barksdale joined) (concurring opinion); DiBiase v. SmithKline Beecham Corp., 48 F.3d 719, 734 (3d Cir. 1995) (doubted the viability of the disparate impact theory in light of the Hazen Paper decision, writing that "Congress recognized that neutral policies not motivated by discriminatory intent may be permissible employment practices"; Turlington v. Atlanta Gas Light Co., 135 F.3d 1428, 1436-37 n.17 (11th Cir.), cert. denied, 119 S. Ct. 405 (1998) (reserving for later decision whether the ADEA permits disparate impact claims).

16 See Fobian v. Storage Tech. Corp., 959 F. Supp. 742, 746 (E.D. Va. 1997); Davidson v. Quorum Health Group, Inc., 1 F. Supp. 2d 1321, 1326 (N.D. Ala. 1997); Evans v. Atwood, 38 F. Supp. 2d 25, 30 (D.D.C. 1999).

17 Smith v. City of Des Moines, Iowa, 99 F.3d 1466, 1470 (8th Cir. 1996); E.E.O.C. v. Local 350, Plumbers and Pipefitters, 998 F.2d 641, 646, 648 n.2 (9th Cir. 1993); Criley v. Delta Air Lines, Inc., 119 F.3d 102, 105 (2d Cir. 1997), cert. denied, 118 S. Ct. 626 (1997) (plaintiffs can succeed on disparate impact theory only if they show "a disparate impact on the entire protected group, i.e., all workers aged 40 and over").

18 In some cases, the most senior employees are offered the option of staying with the old plan or are assured that they will receive the better of the benefits calculated under the new and old plans. But there can be some who are too young or have too little service to qualify for such treatment, but who would be better off if the old plan remained in effect and the employees continued working to normal retirement age.

19 An employer that gave employees unqualified assurances that their retirement benefits would reach some specified level at normal retirement age may indeed be liable in contract to those employees. On the other hand, an employer that has taken care to point out that retirement plans may be amended or terminated at any time and that the only benefits that are protected are those which have accrued, has not created a level of expectations that are likely to be treated as amounting to an enforceable contract.

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