Age Discrimination in Retirement Plans

by on January 15, 2009 · 0 Comment POSTED IN: HR Info Center

Age based upper limit got employer in trouble

Looking to reduce staff costs through an early retirement program? Beware of the Age Discrimination in Employment Act pitfall an Iowa employer fell into.

The employer offered a severance package to workers between the ages of 55 and 65 to retire early. The program would spare the employer from paying the high salaries of the most senior employees, and its severance terms were attractive.

A win-win, right?

Not as it turned out. Several over-65 workers sued, claiming the program discriminated against them. And the court ruled that it did.

Closing the window
What was the problem with this early retirement incentive program? The fact that it set an upper age limit, the court said. It’s OK to open up a time “window” during which employees must retire if they want incentive payments, but not if the window closes at a given age. Denying benefits solely on the basis of age is discrimination under the ADEA.

To avoid age discrimination lawsuits, choose non-discriminatory criteria for closing the early retirement window

A couple of suggestions:

    Use length of service. If your program starts with a worker’s 55th birthday and ends with his or her 30th anniversary of service, you’re fine.
    Don’t differentiate by age. Not only is it illegal to end the offer at a given age, it’s also illegal under ADEA guidelines to reduce the program incentives on an age-based sliding scale.

Cite: Jankovitz v. Des Moines I.C. School District, No. 04-3401, 8th Cir., 8/29/05.

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