How can you use a retirement program to accomplish the goal of a more efficient workforce? In a BLR webinar titled "Early Retirement Offers: How to Structure and Apply without Legal Headaches," Chris Anderson and Sarah Maxwell outlined some basics around legally creating early retirement incentive plans (ERIPs) and how to create and implement them. When crafting such a plan to avoid layoffs, employers need to be sure to stay in compliance with the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA).

Legal Retirement Programs: What is an ERIP?

What is an Early Retirement Incentive Plan (ERIP)? In the webinar, Anderson explained that an ERIP is "a plan developed by an employer that provides an incentive for employees to retire early, voluntarily." Voluntary participation is the key in implementing such a plan because voluntary participation is what eliminates age discrimination termination claims. Anderson explaind: "employers have to establish that the plan is voluntary, that employees are not coerced into participating in the plan or taking early retirement benefits."

In these plans, the employer typically provides severance benefits in exchange for a release of claims. They are often advantageous over layoffs or reductions-in-force because they offer a "win-win" scenario for both employers and employees. The employer benefits from reducing wages and other costs associated with senior workers, while the employees who take advantage of the plan get benefits that can allow them to retire earlier than they otherwise might.

Keeping Your Retirement Program Legal

You may be wondering whether ERIPs are legal in light of laws that prohibit age discrimination. It may seem that asking older workers to retire shouldn't be a legal route. However, this is where the voluntary participation comes in. To comply with the ADEA, employers may not discriminate based on age when making employment decisions about hiring, firing, promotions, layoffs, compensation, benefits, job assignments, and training. As such, to comply with the ADEA, ERIPs must be voluntary. This should be determined on a case by case basis. Ask yourself: would a reasonable person conclude that there was no choice but to accept the offer?

An additional legal requirement is compliance with the OWBPA, which establishes the amount of time employees must be given to consider release. The employee must be given reasonable time to make a decision: individuals must be provided 21 days to consider and 7 days to revoke, and groups must be provided 45 days to consider and 7 days to revoke.

Retirement Programs: How to Structure ERIPs

So, in order to ensure that your retirement program or ERIP is legally compliant, the first thing to do is to ensure it is voluntary. Anderson noted: "the ADEA has created an exception, or a safe harbor, that insulates employers from liability for a bona fide employee benefit plan that is a voluntary early retirement incentive plan consistent with the purposes of the ADEA. So the ADEA actually expressly recognizes that early retirement incentive plans – if they're voluntary – do not violate the terms of the law."

That said, employers still have some leeway in structuring the ERIP while not violating the law. If the plan is voluntary, the employer may:

• Set a minimum age or length of service at which employees are eligible to participate.
• Offer the ERIP only for a set period of time.
• Offer the ERIP to only a subset of employees such as managers, a particular department, or employees at a specific facility. (Just be sure you can articulate your objective justification for why a certain group was chosen).

However, even if plan is voluntary, the employer cannot offer a lower level of benefits to older employees than to younger, similarly-situated employees, unless it meets one of these exemptions:

• The plan meets the equal cost test (in an equal cost test, an employer can offer a differing level of benefits based on age if they can show a cost justification; one example might be differing life insurance benefit levels for employees of different ages offered for the same monthly cost to the employees)
• The plan provides a “subsidized portion of an early retirement benefit.”
• The plan is a Social Security supplement plan.
• The plan provides supplemental benefits to tenured faculty members only.
• The plan is “consistent with the relevant purpose or purposes of the ADEA.”

The above information is excerpted in part from BLR webinar titled "Early Retirement Offers: How to Structure and Apply without Legal Headaches," with experts Chris Anderson and Sarah Maxwell. For more information order the webinar recording. To register for a future webinar, visit http://catalog.blr.com/audio.

Chris Anderson and Sarah Maxell are affiliated with Miller & Martin PLLC (www.millermartin.com). Anderson counsels business clients on general employment matters and assists them with workplace investigations, disciplinary actions, employee handbooks, employment policies, and terminations. Maxwell practices in the firm's Labor & Employment Department.