The U.S. Equal Employment Opportunity Commission

EEOC Office of Legal Counsel staff members wrote the following informal discussion letter in response to an inquiry from a member of the public. This letter is intended to provide an informal discussion of the noted issue and does not constitute an official opinion of the Commission.


Age: Other Benefits

January 23, 2001

Dear

This is in response to your inquiry about the legality of a proposed early retirement incentive plan. We appreciate your desire to comply with the law and have the following comments.

As you are aware, the Equal Employment Opportunity Commission (EEOC or Commission) enforces the federal laws barring discrimination in employment, including the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. § 621 et seq. (ADEA). The ADEA explicitly permits employers to adopt early retirement incentive programs, and Congress recognized that such programs can be beneficial for employees. Fundamentally, however, the ADEA was passed to bar discrimination based on age in all aspects of employment, including in the provision of employee benefits. Thus, unless a statutory defense applies, the ADEA makes clear that employee benefits must be provided without regard to the age of the recipient.

You ask about a plan in which the employer would provide, as an early retirement incentive, cash payments based on an employee's accumulated sick leave at the time of retirement. As we understand the proposed plan, the payments would terminate once a retiree reached the age of 62 and would not be available at all to those who decided to retire after the age of 62. You state that these payments would not exceed the amount to which a retiree would be entitled in Social Security payments at the age of 62, and suggest that the employer could choose to include such a guarantee in the explicit language of the early retirement plan.

The ADEA clearly permits employers to create plans that pay benefits based on accumulated sick leave to all of those who retire after a minimum age. If there is no age cap on the payment of the benefit -- if, for example, all employees who meet minimum age and/or years of service requirements are eligible for retirement benefits up to a maximum dollar amount whenever they retire - the ADEA is simply inapplicable.

The ADEA also explicitly authorizes employers to adopt "Social Security supplement" plans that "commence before the age and terminate at the age . . . when participants are eligible to receive [Social Security benefits] and that do not exceed such old-age insurance benefits." 29 U.S.C. § 623(l)(1)(B)(ii). This provision clearly allows an employer to pay all - or a defined percentage - of the amount to which those who retire before the ages of 62 or 65 would ultimately be entitled in Social Security benefits. Because older retirees will receive the same total benefit -- from the government and the employer combined -- that younger retirees receive from the employer alone, such a plan does not violate the law despite the fact that it is unavailable to those who retire past the age of Social Security eligibility.

The structure you propose does not precisely mirror either of these types of lawful plans. Because it includes an age cap, your proposed plan must be scrutinized under the ADEA; it is not simply a promise to pay a certain amount in accumulated sick leave at whatever time an employee chooses to retire. Indeed, the age limitation means that similarly situated retirees who are of different ages are treated differently; those who retire before age 62 get an extra payment based on their accumulated sick leave while those who retire after that point, albeit with the same amount of unused sick leave, forfeit that benefit. For this reason, and because the amount of the benefit is not calculated based on the retiree's Social Security entitlement -- the Social Security entitlement serves merely as a cap on the amount that will be paid out - it is not clear that the plan is the type of Social Security Supplement plan that Congress envisioned.

The Commission has not taken a position on the legality of the type of plan that you propose. Even assuming that the plan could be considered a "social security supplement," it is clear that it would be insufficient for an employer merely to "anticipate" that the amounts paid out would not exceed the employee's Social Security entitlement. At a minimum, any such plan would have to state explicitly that the benefit would not exceed the amount of each employee's entitlement.

Given the uncertainty surrounding this issue, we believe that the safest course would be to structure a plan that either removes the age cap (and, as necessary based on financial constraints, substitutes a limit on the number of sick days that will be counted or the amount of money that will be paid) or that is more closely tied to a formula based on each employee's Social Security entitlement. As the law is further developed in the courts, however, other approaches may be found to be permissible as well.

I hope the above information is helpful to you.

Sincerely,

Dianna B. Johnston
Director, Title VII/ADEA/EPA Division
Office of Legal Counsel


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