Early Retirement can cross lines of age discrimination
Published 11/18/05

Voluntary early retirement programs that only provide the early retirement benefits to employees who retire before a certain age may violate the Age Discrimination in Employment Act. This point was noted in the August 29, 2005 Federal Eighth Circuit Court of Appeals decision of Jankovitz v. Des Moines Independent Community School District .

In that case, six current or former employees of the school district sued and were successful in arguing that an early retirement incentive plan which only provided benefits for those who retired prior to turning the age of 65 violated the federal Age Discrimination in Employment Act.

The Court noted the purpose of this Act is to promote employment of older persons based upon their eligibility rather than their age; to prohibit arbitrary age discrimination in employment; and to help employers and workers find ways of meeting problems arising from the impact of age on employment. Arbitrary age discrimination occurs when an employer denies or reduces benefits based solely on an employee's age.

The Court was quite clear that it is not unlawful to offer early retirement incentive plans, but it is unlawful for an employer to condition early retirement benefits or reduce early retirement benefits on the employee's age.

The school district provided eligible teachers a lump sum payment based upon the number of unused sick leave days accumulated on the date of retirement. Generally speaking, the plan benefits were based on a $200 credit for each unused sick leave day, yet the employee had to retire prior to age 65 to receive such a benefit.

The Court noted that under the plan two teachers employed by the school district with the same educational background, the same number of accumulated sick days, and the exact same number of years of employment with the district could receive entirely different benefits upon retirement based solely upon their age.

For example, if one employee was 64 years old and the other was 66 years old at the time of their respective retirements, the 64 year old would receive the benefits while the 66 year old would not.

The Court noted that the problem lies with how the school district defines "early" for purposes of retirement since it is based upon the employee's age rather than years of service or salary. What the plan fails to recognize is that one's ability to retire early is typically dependant on a host of factors rather than age: one's years of service with the employer, savings, dependants, health, and so on. The school district could still see a substantial cost savings by limiting participation in the early retirement incentive plan to those with less than a specified number of years of service and/or salary level and this would not be age discrimination.

The Court further noted that an early retirement incentive plan which provides a time related window that does not have as its upper limit a fixed age may still be valid under the Act. Particularly, the Court noted a valid teacher early retirement incentive plan in the Federal Second Circuit Court of Appeals case of Auerbach v. Board of Education of Harbor Fields Central School District in which the participating teacher must retire at the conclusion of the school year in which he or she first becomes eligible to retire in order to secure a certain fixed sum payment and accumulated sick leave payment together with early retirement incentive benefits.

Under that Harbor Fields plan, teachers older than 55 but who had not yet fulfilled the service requirements must retire in the year they complete the service requirements, regardless of their actual age, to receive incentive benefits. Conversely, a teacher who has already completed the service requirements by the time he or she reaches age 55 must retire at the conclusion of the school year during which he or she becomes 55 in order to obtain these benefits. Otherwise, the benefits are forever lost.

In other words, the Harbor Fields plan involved a time-related window but in contrast to the Des Moines plan did not have as its upper limit a fixed age.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and business persons on a variety of legal issues, including employment, and advocating on their behalf. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

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