Early retirement

A type of offering by which employees are encouraged to retire early the incentive being liberal pension benefits plus perhaps a cash payment

To trim their workforce or for other reasons many employers including GM. Verizon have been encouraging employees to retire early. Many plans take the form of early retirement window arrangements in which specific employees (often age 50 plus) are eligible to participate. The window means that for a limited time, the company opens up the opportunity for employees to retire earlier than usual. The financial incentive is generally a combination of improved or liberalized pension benefits plus a cash payment.

Employers should use such programs cautiously. Unless structured properly early retirement programs can be challenged de facto methods for forcing the discharge of older employees against their will. While it is generally legal to use incentives to encourage individuals to choose early retirement the employee’s decision must be voluntary. In one case (Paolillo v Dresser Industries Inc) the employer told employees on October 12 that they were eligible to retire under a totally voluntary early retirement program and must inform the company of their decision by October 18 However, employees didn’t get the details of the program until October 15. The employees subsequently sued claiming coercion. The US Court of Appeals for the Second Circuit (New York) agreed with them, arguing that an employee’s decision to retire must be voluntary and made without undue strain.


Employers must therefore exercise caution in encouraging employers to take early retirement. The Older Workers’ Benefit Protection Act (OWBPA) imposes limitations on waivers that purport to release a terminating employee’s potential claims against his or her employer based on age discrimination. The waiver of future claims must:

1) Be knowing and voluntary
2) Not provide for the release of prospective rights to claims
3) Not to an exchange for benefits to which the employees was already entitled.
4) Give the employee ample opportunity to think over the agreement and to seek legal advice.

Early retirement plans can backfire in other ways. When Verizon Communications offered enhanced pension benefits to encourage what it hoped would be 12,000 employees to retire more than 21,000 took the plan. Verizon had to place 16,000 managers.

Phased Retirement and the Aging Workforce

In a recent SHRM, human resource professionals said the number one demographic trend impacting employers was the aging workforce. The demographic fact of an aging workforce has two implications for employers first, with the population aging with the overall workforce growing more slowly, employer will need to attract and retain older workers. Second, employer will need policies to deal with employees who are older than traditional workers, and who may therefore have somewhat different needs and work preferences.

Employers are dealing with these issues in various ways. A SHRM survey found that 41% of surveyed employers are bringing retirees back into the workforce; 34% are conducting studies to determine projected retirement rates in the organization; and 31% are offering employment options designed to attract and retain semi retired workers.

Give that three out of four employees approaching retirement age say they would rather cut back gradually than retire abruptly; one way to attract and retain these people is to offer phased retirement programs. Here, for instance, retirement-eligible employees may get the option to work half time for several years beyond normal retirement plans. However SHRM reports that the movement toward phased retirement could gain steam if employers have difficulty recruiting skilled workers and need to strategy that retains talent and organizational knowledge.

While time off insurance and retirement benefits account for the lion’s share of benefits costs, must employers also provide various services benefits . These include personal services (such as legal and personal counseling) job related family friendly services (such as child care facilities) educational subsidies and executive prerequisites (such as company cars for its executives).

Personal Services

Many companies provide the sorts of personal services that most employees need at one time or another. These include credit union, legal services counseling and social and recreational opportunities (Some employers use the term voluntary benefits to cover personal service benefits that range from things like pet insurance to automobile insurance).