phased retirement legal issues ethan lipsig & patrick w. shea paul, hastings, janofsky &...

PHASED RETIREMENT LEGAL ISSUES

Ethan Lipsig & Patrick W. Shea

Paul, Hastings, Janofsky & Walker LLP

www.paulhastings.com ©2008 Paul, Hastings, Janofsky & Walker LLP Confidential - not for redistribution

INTRODUCTION

This presentation outlines the core legal issues phased retirement efforts normally raise

“Phased retirement” means different things to different people• Incentives for delaying retirement• Incentives for early retirement• Initiatives targeted at particular individuals• Initiatives targeted at classes of employees

Incentives sometimes include part-time status or commencement of pensions during continued employment


USUAL LEGAL ISSUES

Age discrimination• Against older workers • Reverse age discrimination

Other discrimination risks Release issues Plan design issues


DISCRIMINATION AGAINST OLDER WORKERS

Broad-Based

Approach

Individualized

Approach

Retention Incentives

Normally, no risk Normally, no risk

Retirement

Incentives

Normally, no risk if no coercion and release obtained

Potentially high risk


WHY TARGETED RETIREMENT INCENTIVES ARE RISKY

Individualized effort to encourage an older worker to retire could suggest age-based bias

Individual might claim that he or she was coerced to retire on account of age

If individual does not retire, could claim that adverse employment treatment was on account of age, citing the employer’s retirement encouragement effort


HOW TO MINIMIZE THIS RISK

Encourage poorly performing or surplus workers of all ages to resign

Make approaches in writing or by using a written script, in either case, in a manner that minimizes appearance of age bias, e.g., that stresses that decision is purely voluntary and that nothing adverse will be done if employee turns it down

If employee accepts offer, get a valid age discrimination release


REVERSE AGE DISCRIMINATION

Reverse age discrimination is legal under federal law, but not under some states’ laws, e.g., Connecticut

If phased retirement benefits are all ERISA-governed, federal law would preempt state reverse discrimination laws

When providing non-ERISA-governed phased retirement benefits, make sure that state reverse discrimination laws will not be a problem


DISCRIMINATION OTHER THAN AGE

Phased retirement could violate other laws Intentionally offering incentives on the basis of

e.g., sex or race, would be illegal Offering them disproportionately to e.g., white

men, could be illegal Likely only an issue for phased retirement

targeted at individuals Not as frequently encountered as age

discrimination


RELEASE ISSUES

If possible, condition phased retirement incentives intended to encourage retirement on securing a release

Generally allowable, even under qualified retirement plans as to new benefits

Make sure the release waives all federal and state discrimination claims

Make sure it is a valid ADEA release


PLAN DESIGN ISSUES

Immediate lump sum cash payments from employer almost always would be fine

Deferred cash payments might implicate 409A Qualified retirement plans

• Plan must be amended to provide incentives• Only certain kinds of incentives allowable• Incentives usually cannot be discretionary• In-service benefit commencement subject to

limits


PLAN DESIGN ISSUES (continued)

Other plans• Myriad issues• E.g., discrimination in favor of highly paid


CONCLUSION

Most phased retirement initiatives pose little risk if implemented correctly

The one exception are individualized efforts to encourage retirement

If we can provide more guidance, contact• Ethan Lipsig at 213-683-6304 or

[email protected]• Patrick W. Shea at 212-318-6405 or

[email protected]

phased retirement legal issues ethan lipsig & patrick w. shea paul, hastings, janofsky &...

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