IBM will take a $320m (£178m) charge this quarter to settle some claims and cap its liability on others in a long-running class-action dispute about changes made in the 1990s to its pension plan.
A federal judge ruled against IBM in July 2003 on a case charging that IBM's move from a defined-benefit to a cash-balance pension plan discriminates against older workers because they have less time available before retirement than younger workers to accrue interest on the contributions.
The controversial ruling, which contradicted a decision on a similar case by another district court, could have a ripple effect if upheld at the appellate level, as companies try to determine the legality of their retirement benefit plans.
IBM estimated in its last quarterly report that its liability could run to $6.5bn if it is ordered to comply with the plaintiffs' relief requests. IBM's new agreement caps its liability at $1.4bn if it loses on appeal.
IBM's settlement agreement still needs approval from the court. If approved, the deal will settle all but two claims.
The first claim is that IBM's cash-balance formula is age discriminatory. The second claim is that IBM acted illegally when it provided plan participants with starting balances that were equal to what they would have had if they had always been on the cash-balance plan.
IBM will continue with its appeal on those two issues. The company estimated that the approval-and-appeal process will take another 15 to 27 months to complete.
Stacy Cowley writes for IDG News Service