Terminating the Employment Relationship

Early retirement incentives can be offered in a number of ways. The most common methods are to offer the incentive to one or more employees at a specific time, offering the incentive to a class or group of employees during a “window period , ” or offering the incentive as a standing benefit in an employer’s group benefit package. Whatever the reasons for an early retirement incentive or however an employer may wish to offer an incentive, an incentive must adhere to the following legalities: (1) it must not violate the Age Discrimination in Employment Act (“ADEA”) or California Fair Employment and Housing Act (“FEHA”); (2) it must not violate the Older Worker Benefit Protection Act (“OWBPA”); and (3) if it is a PERS or ’37 Act statutory incentive, it must comply with PERS law or the ’37 Act. In addition, it appears that the Public Employees’ Pension Reform Act of 2013 (PEPRA) prohibits early retirement incentives structured as supplemental defined benefit plans that provide for a defined benefit payout over time. 294 If your agency intends on providing an early retirement incentive, we advise that your agency consults with legal counsel to ensure that it complies with PEPRA. This is not intended to be an exhaustive legal review of early retirement incentives. For example, there may be tax implications for certain early retirement incentives which this workbook does not address. However, this portion of the workbook is designed to address the main issues public employers face when dealing with early retirement incentives: (1) compliance with age discrimination statutes (i.e., ADEA, FEHA, and OWBPA); and (2) if offering a PERS or ’37 Act statutory incentive, then compliance with PERS or the ’37 Act. a. Compliance with ADEA and FEHA The ADEA is a federal law that prohibits employers from discharging or refusing to hire any individual, or otherwise discriminate against any individual with respect to their compensation, terms, conditions or privileges of employment, because of the individual’s status as a person over age 40. 295 However, the ADEA contains a “safe harbor” provision, which provides that it is not unlawful for an employer to observe the terms of a bona fide employee benefit plan that is a voluntary early retirement incentive plan consistent with the relevant purpose or purposes of the ADEA. 296 Moreover, it is not unlawful for an employer to maintain an employee pension benefit plan that provides for the attainment of a minimum age as a condition of eligibility for normal or early retirement benefits. A plan is considered “bona fide” if its terms, including cessation of contributions or accruals in the case of retirement income plans, have been accurately described in writing to all employees and if it actually provides the benefits in accordance with the terms of the plan. 297 1. G ENERAL I NCENTIVES

In order to fall under the ADEA’s safe harbor provision for voluntary early retirement i ncentives, the incentive must not arbitrarily decrease the amount of the incentive or terminate the incentive

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