President Joe Biden recently announced his plans to essentially retire – allowing the torch to be passed to a younger generation. “It’s time for fresh voices; yes, younger voices,” said President Joe Biden in his national address from the Oval Office. While turnover at the White House is on a different scale than corporate succession (and requires a vote), significant legal issues arise for the increasing number of aging company leaders regarding mandatory retirement, voluntary retirement, and related matters in corporate America.

Can an employer require an executive to retire?

Under the Age Discrimination in Employment Act (ADEA), federal law generally prohibits employers from mandating retirement based on age. Before the ADEA was amended in 1986, protections against age discrimination only extended until age 70. However, the amendment removed this age cap, ensuring that even the oldest employees cannot be forced into retirement solely due to their age.

Nevertheless, the ADEA does provide some specific exceptions. In corporate settings, there is a narrow exception for bona fide executives. According to this exception, executives who are 65 or older may be required to retire if they meet certain conditions. Specifically, they must be entitled to an immediate nonforfeitable annual retirement benefit from a pension, profit-sharing, savings, or deferred compensation plan (or any combination of these plans) that totals at least $44,000 annually.

Although the $44,000 threshold may seem low, federal regulations limit the types of income that can count toward this amount. If an executive qualifies under these conditions, they can be mandated to retire at age 65 according to federal law. However, employers must also consider state and local laws, which may not have similar exceptions. In states without such provisions, there is no mandatory retirement age for executives.

Mandatory retirement will likely apply to very few employees.

Can an employer implement a voluntary retirement plan?

Unlike mandatory retirement, voluntary retirement plans are generally allowed under both federal and state laws, though they are not without risks. For instance, if a company offers a voluntary retirement program and subsequently conducts involuntary terminations of older workers, it could be perceived as targeting these employees. This perception could arise if the voluntary program appears to be a strategy to reduce the number of older workers.

To mitigate legal risks while recognizing that age often correlates with retirement, employers can design voluntary severance programs available to all employees, regardless of age. These programs can offer enhanced benefits, such as better severance packages or pensions, to employees with substantial service. While this approach might disproportionately attract older workers, it avoids explicitly targeting them, as eligibility extends to all employees.

Can an employer ask an employee about retirement plans?

Succession planning is essential for every organization, and it is a fact that employees aged 65 are more likely to retire than those aged 45. Given this context, it is legal to ask employees about their retirement plans. Simply asking the question is not unlawful. However, leaders must be aware of certain legal risks and navigate them carefully.

First, it is crucial to frame the question properly. Ensure that it is asked in the context of succession or workplace development planning. Avoid vague or casual inquiries like “just curious.”

Second, clearly communicate that the question does not imply any requirement or encouragement to retire. These assurances should be explicitly stated and documented.

Third, if the employee indicates they have no plans to retire soon or chooses not to answer, do not ask again. Repeated inquiries can suggest that the employer wants the employee to retire due to their age, which could be used as evidence in any potential disputes.

Finally, even if the question is asked appropriately, it may still cause the employee to feel that they are being pushed out due to their age. For this reason, it is generally advisable to avoid asking about retirement plans.

In cases of performance issues, address them directly and respectfully without letting the employee’s age influence the situation. Avoiding performance discussions with older employees can also be perceived as biased and may lead to litigation.

This inclusive strategy ensures that the program benefits are not limited to older workers, thereby reducing the potential for claims of age discrimination.

ASE Connect

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