Early Retirement

We would like to offer some long-term employees an early retirement package (over 20 years of service and over age 55). Does anyone have any suggestions? I'm not sure where to start or what I need to be aware of. I've heard that we should have some sort of agreement drawn up by legal - but what can I offer these employees to "sweeten the pot" a bit and still keep it legal?


  • 6 Comments sorted by Votes Date Added
  • Early retirement incentive packages come in a host of forms.
    For example, some employers provide health care subsidy to
    Medicare eligibility; others take advantage of pension plan
    overfunding to sweeten retirement pay; others provide a cash
    payment based on years of service; others agree to lay off
    the employees and provide an unemployment compensation
    supplement. Much depends on your particular circumstances.

    Ordinarily, you will want employees to sign a general release
    in favor of their employer. This is simply a promise that the
    employee won't sue the employer in return for the benefits
    provided. There are a number of legal hoops you need to
    jump through in order to have an effective general release.

    Daniel K. Kinder
    Powers, Kinder & Keeney, Inc.
  • If part of the early retirement incentive you wish to offer is through a defined benefit pension plan, you will want to first make sure what's allowed by your plan document (i.e. does the attainment 20 years of service/ age 55 allow the participant to draw their monthly benefit or do they have to wait until a later age like 65.) Also, a large number of participants retiring at one time can have a signicant financial impact on the plan as well. Your actuary should calculate the cost to the plan based on the number of people expected to take the package & their benefit amounts. The actuary can also let you if the funding status of your plan may change due to these retirements. Your company may end up needing to make a contribution to the plan because of these changes even if your plan was previously fully funded.

    Another thought: When our employees retire early - between the ages of 55 & 62, their monthly early retirement benefit is calculated. In addition, our pension plan "bumps up" their monthly retirement benefit until they reach the age when they can first draw Social Security (age 62.) At age 62, the "bump up" stops and their benefit reverts to the early retirement amount. Even though the "bump up" stops, if they start drawing Social Security, their overall monthly income stays the same, or is even increased in some cases.

    Hope this helps.
  • One more thing I forgot to mention -- the Social Security "bump up" for early retirees I mentioned is part of our normal pension calculation for all participants. However, there are ways to offer a one-time incentive like the "bump up" to a select group of employees (like the group you described) even through a qualified pension plan. For example, you could say that all employees with at least 20 years of service and at least age 55 who retire by a certain date will be paid an additional $300 per month until age 65.

    This one-time arrangement would have to be written into your plan document, and again, your actuary should be consulted on the financial impact of an offering. Of course, if your plan document provider is separate from your actuary you will need to consult with your document provider as well.

    Good luck.
  • Jen D's last suggestion can also be done directly,
    rather than via plan amendments. If you'd like to
    discuss any of this, please feel free to call.
  • We chose to pay the early retirement incentives through the qualified plan since it was well over-funded. That way, the company didn't have to come up with the payments through general assets. If your plan isn't over-funded, it's probably much easier to offer this type of arrangement outside of the qualified plan.
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