PHASED RETIREMENT LEGAL ISSUES

1. PHASED RETIREMENT LEGAL ISSUES Ethan Lipsig & Patrick W. Shea Paul, Hastings, Janofsky & Walker LLP

2. INTRODUCTION • This presentation outlines the core legal issues phased retirement efforts normally raise • “Phased retirement” means different things to different people • Incentives for delaying retirement • Incentives for early retirement • Initiatives targeted at particular individuals • Initiatives targeted at classes of employees • Incentives sometimes include part-time status or commencement of pensions during continued employment

3. USUAL LEGAL ISSUES • Age discrimination • Against older workers • Reverse age discrimination • Other discrimination risks • Release issues • Plan design issues

4. DISCRIMINATION AGAINST OLDER WORKERS

5. WHY TARGETED RETIREMENT INCENTIVES ARE RISKY • Individualized effort to encourage an older worker to retire could suggest age-based bias • Individual might claim that he or she was coerced to retire on account of age • If individual does not retire, could claim that adverse employment treatment was on account of age, citing the employer’s retirement encouragement effort

6. HOW TO MINIMIZE THIS RISK • Encourage poorly performing or surplus workers of all ages to resign • Make approaches in writing or by using a written script, in either case, in a manner that minimizes appearance of age bias, e.g., that stresses that decision is purely voluntary and that nothing adverse will be done if employee turns it down • If employee accepts offer, get a valid age discrimination release

7. REVERSE AGE DISCRIMINATION • Reverse age discrimination is legal under federal law, but not under some states’ laws, e.g., Connecticut • If phased retirement benefits are all ERISA-governed, federal law would preempt state reverse discrimination laws • When providing non-ERISA-governed phased retirement benefits, make sure that state reverse discrimination laws will not be a problem

8. DISCRIMINATION OTHER THAN AGE • Phased retirement could violate other laws • Intentionally offering incentives on the basis of e.g., sex or race, would be illegal • Offering them disproportionately to e.g., white men, could be illegal • Likely only an issue for phased retirement targeted at individuals • Not as frequently encountered as age discrimination

9. RELEASE ISSUES • If possible, condition phased retirement incentives intended to encourage retirement on securing a release • Generally allowable, even under qualified retirement plans as to new benefits • Make sure the release waives all federal and state discrimination claims • Make sure it is a valid ADEA release

10. PLAN DESIGN ISSUES • Immediate lump sum cash payments from employer almost always would be fine • Deferred cash payments might implicate 409A • Qualified retirement plans • Plan must be amended to provide incentives • Only certain kinds of incentives allowable • Incentives usually cannot be discretionary • In-service benefit commencement subject to limits

11. PLAN DESIGN ISSUES (continued) • Other plans • Myriad issues • E.g., discrimination in favor of highly paid

12. CONCLUSION • Most phased retirement initiatives pose little risk if implemented correctly • The one exception are individualized efforts to encourage retirement • If we can provide more guidance, contact • Ethan Lipsig at 213-683-6304 or ethanlipsig@paulhastings.com • Patrick W. Shea at 212-318-6405 or patrickshea@paulhastings.com