Discrimination in Employee Benefits and Early Retirement Incentives


Employer-provided benefits are an essential part of job quality, and they contribute significantly to employees’ overall compensation packages. Benefits include health and other types of insurance, such as life and disability. Other examples include paid time off, retirement savings programs, and additional pretax benefits. The availability of these benefits helps people stay in the workforce while managing other life demands. It also helps them maintain their financial resilience. But they are generally available only to regular, full-time employees. Contingent and part-time workers are usually ineligible.

Employers must treat all their regular employees equitability with respect to benefits. The Older Workers Benefit Protection Act (OWBPA) specifies that employee benefits are among the “terms, conditions, compensation and privileges of employment” that are protected under the Age Discrimination in Employment Act (ADEA). The OWBPA also codifies long-standing regulations embodying the “equal benefit or equal cost” rule. This requires employers either to provide older workers and retirees with benefits equal to those of younger workers and retirees or to incur the same cost for providing a benefit regardless of the age of the beneficiary. The OWBPA also establishes stringent standards and information requirements for employers who seek to have workers waive their ADEA rights when they are terminated or when they accept early retirement or exit incentives. Unfortunately, the courts have often either ignored the OWBPA or refused to enforce its clear mandates.

Another form of discrimination can come in the form of the employee benefits tied to exit and early retirement incentives (ERIs). Employers can use changes in employee benefits to pressure older workers to retire prematurely. For example, employers could reduce routine benefits of employment for people who choose to continue working beyond standard retirement age. Or employers could structure the incentives offered for early retirement to decline with increasing age. The OWBPA requires that all voluntary ERIs further the “relevant purpose or purposes” of the ADEA. The lone exception is for incentives offered to tenured faculty at institutions of higher education.



Employee benefits

Policymakers should protect the rights of older workers and workers with disabilities to receive fair and nondiscriminatory benefits.

Any exceptions to the equal benefit or equal cost rule provided for in the Age Discrimination in Employment Act (ADEA) must be narrowly construed to ensure that the rights of older workers and retirees to fair employment benefits are not jeopardized.

The ADEA prohibition against discrimination in employee benefit plans should be broadly interpreted.

The Americans with Disabilities Act should continue to apply not only to employers but also to certain insurance providers and prohibit employers from reducing or denying benefits on the basis of disability.

Early retirement incentives (ERIs)

Employers should use voluntary, nondiscriminatory exit and ERIs for employees of all ages. They should develop nondiscriminatory cost-saving options that do not involve layoffs or terminations. This could include flexible or part-time employment and job-sharing.

The Older Workers Benefit Protection Act’s prohibition of age-limited ERIs must be strictly enforced. It should be broadly interpreted to prohibit plans that deny or reduce early retirement benefits based on pension eligibility.

The Equal Employment Opportunity Commission should develop and promulgate regulations under Title I of the Older Workers Benefit Protection Act to guide employers on the legality of various exit and early retirement incentive plans under the ADEA. Any ambiguities in the statutory language must be resolved in favor of protecting older workers’ rights.

Employers should be required to educate employees about the impact of accepting early retirement on company benefits, Social Security benefits, future wages, and economic security throughout retirement.