Sometimes you need to cut jobs. Maybe you've purchased a new business group, or you just need to reduce your size. Whatever the reason, we offer the following suggestions to help you when you're dropping that employment axe en masse.

The first question to consider is whether to offer a simple severance pay option or an early retirement window through your qualified pension plan.

It's true there is one clear advantage to using a severance pay option - you can individually pick and choose individuals to let go. Of course, if you design an early retirement window through your defined benefit pension plan, there are sometimes very complicated rules to follow. However, there are a number of advantages to using the pension plan.

According to James Andrews, a consulting actuary at the Minneapolis office of Towers Perrin, the main reason to use the qualified pension plan to make early retirement incentive payments is the overfunded status of many plans. "The plan is a source of cash," he says. "If you used a severance program, you'd have to pay cash for those payments. If you use the qualified pension plan, you use what's in the trust to make the payments."

While you can't individually select employees to let go when you offer an early retirement window in a qualified pension plan, you can target particular business units. "You have to pass the nondiscrimination requirements," says Andrews, that are detailed in Code Sections 410(b) and 401(a)(4). You can maintain control over how many employees take advantage of your offer by setting a maximum number of takers. This can be done on a first-come, first-served basis or be based on seniority.

Generally, when companies design early retirement windows, they simply credit age and service to participants to increase their retirement benefit. But sometimes a different benefit option is all that's needed. "A lot of companies don't offer a lump-sum option on a regular basis," says Andrews. If they offer one for a limited period of time, "that alone is often enough to get a very high acceptance rate."

One thing to be careful of, according to Andrews, is the timing of your disclosure about the window. People retiring during the time you're in the planning stages may feel cheated when they find out about the window and claim they would have waited if they had known.

So, exactly when should you disclose your plans? "That's the heart of the legal issue," says Andrews. "You have the obligation as soon as that thought enters someone's mind. One court has actually stated that as soon as you start talking about it, you have the obligation to tell everybody in the company that you're thinking about it."

That may be carrying it to an extreme, of course, but it's best to be forewarned. Andrews thinks a more viable alternative may be to notify anyone asking about retirement that a window is being considered. Or, once the decision is made, go back and retroactively increase benefits for anyone who retired while the discussions were going on. "That's a whole lot easier than telling everybody in your company that you're thinking about something," he says.

Finally, Andrews suggests that your early-retirement window will be successful only if people can be assured of medical insurance. If participants are not yet eligible for Medicare, they will likely wait to retire unless you offer some type of coverage to go along with their pensions. Keep in mind, though, you're making a very specific promise to this group of people. "You can't really change what you promised them," says Andrews. He suggests wording like "we'll give you the same benefit package the current retirees get," rather than specifics as to benefit levels or cost sharing.

It's never pleasant to cut jobs, but with proper planning, it can be a positive move for the company and employees. Just make sure you seek expert advice and use it to its full advantage.