Employees who claimed to be negatively affected by a company’s conversion of its defined benefit pension plan from one based on final average pay to one based on cash balance have timely discrimination charges when applying the Lilly Ledbetter Fair Pay Act, a federal district court rules.

The company had used a five year transition period before full implementation of the new plan, during which employees accrued benefits under both the old plan and new plan, and retiring employees could elect whichever option was most beneficial to the retiree. Once the transition period expired, the retiree could still choose either option, but the old average pay plan was “frozen” at whatever benefits the employee earned as of the end of 2001, and benefits under the new cash balance formula would continue to accrue. For some workers, this meant that their overall benefits did not grow until their cash balance benefits caught up and exceed their frozen benefits under the old plan, and charged that this violated the Age Discrimination in Employment Act.

The federal district court initially dismissed the claim as untimely, since the complainants had 300 days to file the charge after the plan became effective. In light of the Ledbetter Act, however, the court revives the complaint based on the argument that the discriminatory act occurred each time benefits were calculated. “The Ledbetter Act preserves the existing law concerning when a discriminatory pension distribution or payment occurs, i.e., upon retirement, not upon the issuance of each check. [The claimant’s] charge of discrimination, however, was filed when he was an active employee and did not concern payment of retirement benefits,” the court reasons. Rather, a pay credit that accrued within 300 days of his charge and which “allegedly did not result in any increase in his pension benefit during the wearaway period…could plausibly bring it within the ambit of the Ledbetter Act,” the court says. Tomlinson v. El Paso Corp.