It’s not uncommon during economic downturns for organizations to conduct a RIF and—if the expected savings don’t materialize—to follow up with a retirement-incentive plan. But be aware of one pitfall: If you can’t show that the retirement-incentive plan was planned separately from the RIF, you may be facing legal trouble.
Why? Because federal ERISA law makes it illegal to fire an employee as a way to deny a benefit they’d otherwise have been entitled to. Employees laid off before the incentive plan may be able to sue, claiming that the company terminated them solely to rob them of the opportunity to retire with enhanced benefits.
Recent case: Linda Fletcher worked for Lucent Technologies when she was selected for a layoff. She had 60 days to find another job within the company, or she would be terminated. Shortly after she was let go, Lucent announced a retirement-incentive program, which offered to add five years of service and five years of age to an employee’s retirement calculations if they chose to retire.
Fletcher sued, alleging that Lucent terminated her so that she couldn’t take advantage of the early retirement plan. Lucent showed the court that it conceived and created the ERISA retirement-incentive program after the layoff. Since it did, the court dismissed the case. (Fletcher v. Lucent Technologies, No. 05-3604, 3rd Cir., 2006)