By Michael Cohn

IBM has dodged a legal bullet after the United States Supreme Court decided against hearing a case brought by employees who were suing Big Blue for age discrimination after a controversial change in the tech giant’s pension plan.

The Supreme Court declined to hear the age discrimination case Tuesday, saving the Armonk, New York-based tech giant an extra $1 billion on top of the $320 million that current and former employees had already won from IBM in a settlement.

IBM is one of many older tech and communications companies that have been paring back on their pension plans to save money on the bottom line.

In the past two years, IBM, Verizon Communications, Hewlett-Packard, and other behemoths have been switching to or favoring 401(k) plans, the direction in which much of corporate America has been moving in the past two decades (see IBM Cuts Pension Plan).

IBM Cuts Pension Plan

IBM did not immediately respond to a request for comment.

Despite the news, shares of IBM fell $0.48 to $100.34 in recent trading Wednesday.

Big Tech Dropping Pension Plans

Big Blue made its pension change announcement in January of last year, saying it would contribute up to 10 percent of employees’ salaries toward the 401(k) program.

IBM’s 117,000 employees in the U.S. who participated in the pension plan would stop accruing future benefits at the end of December 2007. The changes would not affect IBM’s 125,000 U.S. retirees. The company said it was also considering pension changes in other countries.

U.S.

To make up for the changes, IBM said it would double the current company match dollar for dollar on up to 6 percent of salary deferrals and make additional automatic contributions of 1 to 4 percent of employees’ pay into their 401(k) accounts.

IBM expected to save $450 million to $500 million in 2006 worldwide on pension expenses as a result of the changes, and $2.5 billion to $3 billion for 2006 to 2010. However, IBM also said its retirement-related expenses would increase by $400 million to $500 million in 2006 compared to 2005.

IBM said at the time its U.S. pension plan was fully funded and contained more than $48 billion in assets. The company’s 401(k) plan contained over $26 billion in assets. More than 90 percent of its U.S. employees already participated in the 401(k), while 88 percent deferred at least 6 percent of their pay into the plan.

U.S.

The pension case was viewed as a kind of bellwether. Big Blue had lost in a previous pension case, back in 2003, when a federal judge ruled the company’s pension changes were illegal and that cash balance plans like 401(k) plans inherently discriminated against older employees. That ruling was later overturned at the appellate level, which called such plans “age neutral.”

Strong Quarter Expected

Meanwhile IBM is scheduled to report its fourth quarter results on Thursday and the tech giant is expected to report strong results.

JPMorgan analyst Bill Shope is looking for revenues of $25.65 billion and earnings per share of $2.21, vs. Wall Street consensus estimates of $25.66 billion and $2.19 for EPS.

He also anticipates service signings of $15 billion. “We expect the company to see a solid rebound in long-term signings owing to the close of several deals that slipped from the third quarter and a solid pace for large deal activity,” Mr. Shope wrote in a research note.