Since 1986, the Age Discrimination in Employment Act (ADEA) has eliminated mandatory retirement for most types of employees.
Most states also prohibit forced retirement. However, there are two types of mandated retirement that are allowed: (1) where you are retiring high-level executives, and (2) where there are bona fide occupational considerations.
High-Level Executives. You may impose a mandatory retirement age of 65 on (1) bona fide executives or those in high policymaking positions (for the two-year period immediately before retirement) who (2) are entitled to an immediate non-forfeitable annual retirement of at least $44,000 per year. Because this is an exception to the ADEA, it is narrowly interpreted. The burden is on you as the employer to prove that all elements are met. You will not be allowed, for example, to require retirement for middle managers no matter how great their retirement income. This is strictly limited to the top executive group.
Bona Fide Occupational Qualification (BFOQ). Where safety issues are involved and you can show that age materially affects an employee’s job performance, you may impose a mandatory retirement age. This is becoming a very high standard to meet, however, as many professionals – such as pilots, police and firemen – have proved that age is not always an indicator of ability. In order to impose a BFOQ regarding age, you must be able to show that substantially all older employees are similarly affected and that there is no other way, other than basing the decision on age, to manage this issue.
You may find that retirement age employees are more willing to retire if they have help in preparing themselves financially in anticipation of that transition. Consider offering pre-retirement planning as a benefit to workers over 50 so that they can plan for a retirement date consistent with the needs of the organization. A formal succession planning program will not only help you establish an agreed-upon retirement schedule, but will include the selection and preparation of a qualified replacement team.
- Early Retirement Incentives. Prepare severance packages as a bridge for workers not yet qualified to receive retirement benefits.
- Performance Evaluation. If an older worker no longer meets job expectations, use your regular performance system to address the idea of retirement as an alternative to demotion, transfer or termination.
- Establish Compensation Caps. Establish salary or wage caps for each job grade level so long term employees do not qualify for unlimited wage increases.
- Restructure the organization. Re-evaluate your need for staff at every level. If you are overstaffed, eliminate positions that are no longer needed. Courts are unwilling to disturb an employer’s decision to restructure functions if the restructuring program is undertaken in response to financial concerns.
This publication is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
©2014 Bea & VandenBerk