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Federal Court Upholds Ruling in Favor of Bell Atlantic
Dismissal of Cash-Balance Lawsuit Affirmed
August 26, 1998
NEW YORK -The Third Circuit U.S. Court of Appeals has upheld the
dismissal of a lawsuit that challenged the methods used by pre-merger Bell
Atlantic when it converted the company's pension to a "cash balance"
plan design. In a ruling July 31, a three-judge panel in Philadelphia
unanimously agreed that the case should be dismissed.
The plaintiffs, nine Bell Atlantic management employees, had questioned
various provisions of the conversion to a cash balance plan from the
previous Bell Atlantic management pension plan design. Last October,
the United States District Court for the Eastern District of Pennsylvania
also ruled in Bell Atlantic's favor, saying that the cash-balance
amendments protected the plaintiffs' pre-amendment, pension-plan rights.
The plaintiffs appealed.
"Bell Atlantic implemented this cash balance plan after a great deal of
study and careful planning," said Tom Burns, Bell Atlantic, vice president-
-Benefits and Compensation. "Our goal has always been to provide
employees with a plan that is fair, understandable and portable."
"The growing popularity of cash balance pension plans among both
employers and employees has resulted in conversions from traditional
defined benefit plans," said Michael Banks, a partner with Morgan, Lewis
<&> Bockius LLP, the law firm that handled the original case and the appeal
for Bell Atlantic. "This conversion is a complex undertaking and the
clarification offered by the appellate court's affirmation of the lower
court's decision provides welcome guidance."
On Dec. 31, 1995, Bell Atlantic converted its traditional pension plan
design to a cash balance plan design. Under the traditional plan, the
amount of an employee's pension was determined using a complex
formula based on age and years of service at retirement. That amount was
shown as a complicated monthly annuity.
Under the cash balance plan design, Bell Atlantic credits contributions and
interest on a monthly basis to retirement accounts that are established for
each employee, like a tax-sheltered savings account. The credits are based
on a percentage of the employee's pay. Interest on the account is credited
monthly. The value of an employee's pension is expressed as a simple
"The court's decision also reaffirms the validity of the conversion method
used for the new cash balance plan for the former NYNEX companies,
which merged with Bell Atlantic in 1997," said Barry Peters, Bell Atlantic
senior attorney. "This plan, which was effective on Dec. 31, 1997, used a
conversion method that mirrored the Bell Atlantic process."
Bell Atlantic is at the forefront of the new communications and
information industry. With more than 41 million telephone access lines
and more than seven million wireless customers worldwide, Bell Atlantic
companies are premier providers of advanced wireline voice and data
services, market leaders in wireless services and the world's largest
publishers of directory information. Bell Atlantic companies are also
among the world's largest investors in high-growth global
communications markets, with operations and investments in 23 countries.