oversight

Age Discrimination: Use of Age-Specific Provisions in Company Exit Incentive Programs

Published by the Government Accountability Office on 1990-02-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United   States   General   Accounting   Office


GAO               Briefing Report to Congressional
                  Requesters



February   1990
                  AGE
                  DISCRIMINATION
                  Use of Age-Specific
                  Provisions in Company
                  Exit Incentive
                  Programs




GAO/HRIWO-87BR
GAO
      United States
      General Accounting  Office
      Washington, D.C. 20548

      Human Resources          Division

      B-234436

      February 27, 1990

      Congressional Requesters:’

      On December 11,1989, you requested information on the use of age-
      specific provisions in company exit incentive programs. These provi-
      sions either bar a certain group of older workers from program
      participation or exclude these workers from enhanced benefits available
      to younger eligible workers. Whether older workers can be either
      excluded from benefits under exit incentive programs or offered lower
      benefits than eligible younger workers has concerned many. Your
      request indicated that this information would be important to delibera-
      tions on proposed legislation to amend the Age Discrimination in
      Employment Act of 1967 (ADEA) in the wake of a 1989 Supreme Court
      ruling2 affecting exit incentive programs with age-specific provisions.

      Companies sometimes use short-term exit. incentive programs to reduce
      their work forces when downsizing their operations. Under these pro-
      grams, eligible workers are offered enhanced benefits, often through the
      company pension plan, as inducement for early departure. In this way,
      younger workers eligible for the program are given improved status in
      the company pension plan so that they may receive benefits comparable
      to those received by older workers who are already at or near the pen-
      sion plan’s normal retirement age.”

      Exit incentive programs can offer various kinds of enhanced benefits.
      These include (1) additional credits that improve early retirement bene-
      fits under the company pension plan; (2) some other specially designed
      incentives, such as a one-time severance allowance, not connected with
      the pension plan; (3) continued or improved health or life insurance cov-
      erage; or (4) a combination of these enhancements.

      ADEAforbids employers from arbitrarily                       discriminating against workers
      on the basis of age. However, under the                     act, company exit incentive pro-
      grams may have age-specific provisions                      that offer benefits that either
      decrease with age or cut off at a certain                   age provided that a program is



      ‘See appendix I for a list of the requesters.

      “Public Employees Retirement System of Ohio v. e,           109 S. Ct. 2854.

      “Older workers who are eligible for retirement under the company pension plan get an unreduced
      pension benefit. In addition, workers 62 and over are entitled to receive social security benefits, and
      workers 65 and over are entitled to Medicare benefits.



      Page 1               GAO/HRLWO-S7RR        Age Discrimina     tion in Company   Ehit Incentive   Programs
                   5234436




                   not a scheme to evade the general purpose of ADEA. For example, a pro-
                   gram could offer eligible workers a retirement supplement until they
                   reach age 62.

                   To determine whether exit incentive programs with age-specific provi-
                   sions conform to ADEA, employers were formerly required to satisfy a
                   cost-justification test. Under this provision, a plan that provided lower
                   benefits for older employees was prohibited unless the employer could
                   show that this was due to greater costs or other economic
                   considerations.

                   Congressional concern about the use of age-specific provisions height-
                   ened following the 1989 Supreme Court ruling. Under the ruling, an
                   employer is not required to meet a cost-justification test when providing
                   lesser benefits to older workers. Among other things, the proposed legis-
                   lation seeks to prohibit age discrimination against older workers in all
                   employee benefit plans except when age-based reductions are justified
                   by significant cost considerations.

                   As agreed with your offices, this briefing report provides information on
                   the use of age-specific provisions for eligibility and enhanced benefits in
                   exit incentive programs. We compiled information on the provisions of
                   these programs from three data sources: (1) programs sponsored by For-
                   tune 100 companies between 1979 and 1988; (2) data obtained from
                   Charles D. Spencer and Associates,4 a private-sector publishing firm;
                   and (3) the Bureau of Labor Statistics.” Our work focused on determin-
                   ing the prevalence of programs that (1) excluded a particular group of
                   older workers by applying an age cap or age bracket on program eligibil-
                   ity and (2) offered certain enhanced benefits only to workers in a spe-
                   cific age group because an age cap or bracket was applied. We
                   interviewed selected officials from Fortune 100 companies who were
                   familiar with their companies’ programs to gain perspective on employ-
                   ers’ motivations for using or not using exit incentive programs with age-
                    specific provisions.


                    Although very few of the exit incentive programs we identified had age-
Results in Brief    specific provisions for eligibility, most used age-specific provisions for
                    enhanced benefits. Specifically, we found that:

                    “See Charles D. Spencer and Associates, “Early Retirement Incentives Offered by 24 Percent of Com-
                    panies in 1986,” Spencer’s Research Reports on Employee Benefits (1987).

                    “Department of Labor, Bureau of Labor Statistics, Employee Benefits Survey (1988)



                    Page 2             GAO/HRD~7RR          Age Disc rimination   in Company   Ihit   Incentive   Programs
        B-234436




l       Only 5 percent (3 of 62) of Fortune 100 company exit incentive pro-
        grams used age-specific eligibility provisions (see fig. 1, p. 12). These
        programs used age brackets or set a cap on the age of workers to which
        the incentive offer was extended. Two programs set age brackets and
        one had an age cap. The age brackets used were 55 to 65 years and 55 to
        62 years. Age 62 was the cap applied in the one program that used it.
        For each program, the bracket’s upper boundary or the applied cap was
        the normal retirement age under the company pension plan. None of
        Spencer’s exit incentive programs had age-specific provisions for
        eligibility.”
    l   A majority of exit incentive programs offered workers age-specific
        enhanced benefits, according to results from the three surveys (see fig.
        2, p. 14). In these programs, certain enhanced benefits were provided to
        younger eligible workers so that they could receive benefits comparable
        to those received by older workers already at or approaching normal
         retirement age.

        Officials of some companies that used age-specific exit incentives indi-
        cated that cost considerations played a role in their companies’ decisions
        (see p. 16). Some others commented that before deciding to target the
        program to younger workers, the company considered the number of
        older workers approaching the pension plan’s normal retirement age.
        They believed that the company could not have met its work-force-
        reduction goal by relying on attrition.

        Officials of companies not using age-specific provisions in exit incentive
        programs generally told us that they believed such provisions were
        unfair. Some also mentioned the desire to avoid an ADEX age-
        discrimination lawsuit as a significant factor. Several company officials
        emphasized that the purpose of exit incentive programs had been to
        reduce staff in general, not to retire older workers.


         We are sending copies of this report to other interested congressional
         committees, and we will make copies available to others who request
         them. If you have any questions concerning this report, please call me




         “The Bureau of Labor Statistics’ Employee Benefit Survey did not report information on program
         eligibility provisions in a manner that allowed us to determine the incidence of age-specific
         provisions.
                                              .


         Page 3             GAO/HRD90-87BR       Age Discrimina   tion in Company   Exit Incentive   Programs
R-234436




on (202) 275-6193. Other major contributors to this report are listed in
appendix II.




Joseph F. Delfico
Director, Income Security Issues




 Page 4        GAO/HR.D96+37BR   Age Discrimination   in Company   Exit Incentive   programs
Page 6   GAO/HRD90#7FlR   Age Discrimina   tion in Company   Exit Incentive   Programs
Contents


Letter
Age Discrimination:                                                                                             8
Use of Age-Specific   Background
                      Age-Discrimination Issues in Exit Incentive Programs
                                                                                                                8
                                                                                                                9
Provisions in         Objective, Scope, and Methodology                                                        10
Company Exit          Age-Specific Eligibility Provisions Rarely Used                                          12
                      Age-Specific Enhanced Benefits Used in Most Programs                                     13
Incentive Programs    Additional Details on Age-Specific Exit Incentives                                       15
                      Comments of Company Representatives                                                      16

Appendixes            Appendix I: Congressional Requesters                                                     18
                      Appendix II: Major Contributors to This Report                                           19

Figures               Figure 1: Eligibility Provisions for Fortune 100 Exit                                    12
                           Incentive Programs
                      Figure 2: Exit Incentive Programs With Age-Specific                                      14
                           Enhanced Benefits
                      Figure 3: Use of Various Age-Specific Enhanced Benefits                                  15




                      Abbreviations

                      ADEA      Age Discrimination in Employment Act of 1967
                      BIAS      Bureau of Labor Statistics
                      EEOC      Equal Employment Opportunity Commission


                      Page 6          GAO/HRDM-J37BR   Age Discrimination   in Company   Exit Incentive   Programs
Page 7   GAO/HRD9OMRR   Age Discrimination   in Company   Exit Incentive   Programs
Age Discrimination: Use of Age-Specific
Provisions in Company Exit Incentive Programs

               In recent years, mergers, competition from abroad, or a general decline
Background     in sales have caused many companies to cut back their work forces. To
               reduce employment, companies sometimes use exit incentive programs,
               which offer employees financial incentives for early departure. These
               programs are generally instituted for a fixed period of time (e.g., 2
               months) during which each eligible employee can accept or decline the
               exit incentive offer. Companies view these programs as alternatives to
               layoffs, and consider them as one way to cut labor costs in the long run.

               Exit incentive programs are frequently offered through company pen-
               sion plans. To encourage departure, younger workers who are eligible
               for the program are given improved status in the company pension plan
               so that they may receive benefits comparable to those received by older
               workers already at or near the pension plan’s normal retirement age.’ In
               this way, employers enhance the provisions of the company pension
               plan so that younger eligible workers will get higher pension benefits
               than normally would be available to them. The following are examples
               of enhanced benefits.

               1. Liberalized early retirement benefits-Monthly    benefits are increased
               by diminishing or eliminating the actuarial factor that is normally used
               to reduce benefits of workers who have not yet reached the pension
               plan’s normal retirement age.

               2. Retirement supplements-A       fixed cash amount is added to monthly
               pension benefits and may be discontinued after workers become eligible
               for social security benefits at age 62.

               3. Age and service credits-Workers      receive additional credits to their
               age and years of service. This permits younger workers to meet the pen-
               sion provisions for eligibility and increases the amount of benefits they
               would have otherwise received.

               Exit incentive programs can provide workers accepting the offer with
               other forms of enhanced benefits. These include one-time severance
               allowances-which     are usually based on years of service-and contin-
               ued or improved medical and life insurance coverage.




               ‘Older workers who are eligible for retirement under the company pension plan get an unreduced
               pension benefit. In addition, workers 62 and over are entitled to receive social security benefits, and
               workers 65 and over are entitled to Medicare benefits.
                                              .


               Page 8              GAO/HRD9O-87RR        Age Discrimina   tion in Company    Rxit Incentive   Programs
                     Age Mscriminstion:  Use of Ag&pecific
                     Provisions in Company Exit
                     Incentive Program8




                     Exit incentive programs have become widespread in recent years. We
                     estimate that 80 percent of the Fortune 100 companies sponsored an
                     exit incentive program at least once during 1979 through 1988.2 A study
                     conducted by Hewitt Associates shows that about 55 percent of a sam-
                     ple of large companies (25,000 or more employees) offered such pro-
                     grams at least once between 1981 and 1985.3 The Hewitt study also
                     reports that companies with 50,000 or more employees were most likely
                     to use exit incentive programs.


                     Protecting the rights of elderly Americans has been a policy goal of the
Age-Discrimination   Congress for many years. In 1967, the Congress passed the Age Discrim-
Issues in Exit       ination in Employment Act (ADF.A),which protects the employment
Incentive Programs   rights of workers age 40 and over. ADEAgenerally precludes an
                     employer from discriminating against workers on the basis of age with
                     respect to compensation, terms, conditions, or privileges of employment.

                     AJXA does not forbid an employer from having an employee benefit plan
                     that differentiates on the basis of age, so long as the plan is not a
                     scheme to evade the general purpose of ADEA.Under the act, employee
                     benefit plans may have benefits that either decrease with age or cut off
                     at a certain age.

                     Similarly, exit incentive programs may use certain so-called age-specific
                     provisions. For example, a program with age-specific eligibility provi-
                     sions could extend the exit incentive offer only to workers within a
                     specified age bracket or below a certain age. A program with age-
                     specific enhanced benefits could extend the exit incentive program to all
                     workers but offer certain enhanced benefits only to workers in a speci-
                     fied age group. The Congress permitted age-specific provisions in part to
                     avoid making older workers more expensive to employers than younger
                     workers because of age-related costs.

                     The Equal Employment Opportunity Commission (EEOC), the agency
                     charged with implementing ADEA,issued regulations pertaining to age-
                     specific provisions in employee benefit plans. Under EEOCregulations, a
                     plan which provided lower benefits for older employees was prohibited




                     3SeeHewitt Associates “Plan Design and Experience in Early Retirement Windows and in Other
                     Voluntary Separation Ibns” (1986).



                     Page 9              GA0/HRIb9047RR      Age Discrimination   in Company   &it   Incentive   Programs
                       Age Diadmhatiom     use of Agespecific
                       Provisions in Company Ed
                       Incentive Progmms




                       unless the employer could justify the difference by showing increased
                       costs or other economic considerations.

                       In 1989, the Supreme Court invalidated the EEOC cost-justification test
                       and established a new test.4 Under the Supreme Court ruling, an
                       employer is not required to meet a cost-justification test when providing
                       lesser benefits to older workers. Instead, a worker must show that an
                       employee benefit plan was intended to discriminate against the
                       employee in hiring and firing, wages and salaries or, in the words of the
                       Supreme Court, in some other “nonfringe-benefit aspects of the employ-
                       ment relationship.”

                       Concern about the use of age-specific provisions heightened following
                       the Supreme Court decision. In response, some congressional members
                       have proposed the Older Workers Benefit Protection Act (S. 1511 and
                       H.R. 3200) to amend ADEA.If passed, the legislation will, among other
                       things, prohibit age discrimination against older workers in all employee
                       benefit plans except when age-based reductions are justified by signifi-
                       cant cost considerations.


                       On December 11,1989, the Chairman of the Senate Subcommittee on
Objective, Scope,and   Labor and others requested that GAO review the use of age-specific pro-
Methodology            visions in company exit incentive programs. We agreed to provide infor-
                       mation on age-specific provisions for eligibility and enhanced benefits
                       offered to workers under these programs.

                       To respond to the congressional request, we compiled information on the
                       provisions of exit incentive programs. We relied primarily on informa-
                       tion for programs sponsored by Fortune 100 companies between 1979
                       and 1988, which we obtained for a previous GAO study. These companies
                       were the largest 100 companies in Fortune magazine’s listing of the top
                       500 industrial corporations for 1987. The number of Fortune 100 exit
                       incentive programs varies throughout this report because programs
                       were omitted when information was not available.5

                       To observe the use of age-specific provisions across different data
                       sources, we compared the information for Fortune 100 companies with


                       4F’ublic Employees Retirment System of Ohio v. e,     109 S. Ct. 2864 (1989).

                       5We reviewed eligibility provisions for 62 Fortune 100 exit incentive programs and enhanced benefit
                       provisions for 42 programs.



                       Page 10             GAO/HRD9O-87BR       Age Disdmhation      in Company   Exit Incentive   m
AgeM       ”   tionz use of Ag&3pecific
Provisions in Company Exit
Incentive Pmgrams




that gathered from (1) Charles D. Spencer and Associates, a private
sector publishing firm, on 45 exit incentive programs offered in 1986fi
and (2) our analysis of information collected by the Department of
Labor’s Bureau of Labor Statistics (BEi) on 100 exit incentive programs
sponsored by medium and large employers from 1983 through 1988.’
Because of time constraints associated with this request, we did not ver-
ify the accuracy of the Spencer and BE3 information.

We identified the prevalence and characteristics of age-specific provi-
sions for eligibility under exit incentive programs. To do this, we (1) cat-
egorized eligibility provisions and (2) looked for evidence of age
bracketing (for example, exit incentive programs offered only to
employees ages 50 to 55) or age capping (for example, programs
extending eligibility only to employees under a certain age). For pur-
poses of this report, we did not consider eligibility provisions with an
age floor and no upper limit to be age-specific.

We also focused on identifying programs offering enhanced benefits
only to workers within specific age groups or under a certain age. We
identified the use of bracketing and age caps that limited the availability
of liberalized retirement benefits, supplemental retirement payments,
and other forms of employee benefits provided as part of the exit incen-
tive program.

For our analysis, we did not attempt to compare the cost to the employer
of providing benefits under exit incentive programs to older and
younger workers. Nor did we ascertain whether some of the benefits
offered as part of an exit incentive program were also included as part
of a company’s routine employee benefit package.

To gain perspective on employers’ motivations for using or not using
age-specific provisions for eligibility and enhanced benefits under com-
pany exit incentive programs, we interviewed officials from several For-
tune 100 companies who were cognizant of their company’s program
features.




%ee Charles D. Spencer and Associates, “Early Retirement Incentives Offered by 24 Percent of Com-
panies in 1986,” Spencer’s Research Reports on Employee Benefits (1987).

 7Department of Labor, &reau of Labor statistics, Employee Benefits Survey (1988).



 Page 11             GAO/HRB9M7RE         Age Dhrhination    in Company   Exit Incentive   Programs
                                               Age Dhrhination:    Use of AgeSpecific
                                               Provisions in Company Exit
                                               Incentive Programa




Figure 1: Eligibility Provisions for Fortune   S
100 Exit Incentive Programs
                                                    11                                               No Age Provision
                                                                                                     Point System




                                                                                                     Minimum Age Provision




                                               N = 62 programs



                                               We found very few instances where exit incentive programs used age-
Age-Specific Eligibility                       specific provisions for eligibility. Only 3 of 62 Fortune 100 programs
Provisions Rarely                              used these provisions (see fig. 1). Two programs set age brackets and
Used                                           one had an age cap on the age of workers to which the incentive offer
                                               was extended. The age brackets used were 55 to 65 years and 55 to 62
                                               years. Age 62 was the cap applied in the one program that used it. For
                                               each of the three programs with age-specific provisions for eligibility,
                                               the age bracket’s upper boundary or the applied cap was the normal
                                               retirement age under the company pension plan. One of the programs
                                               with an age bracket was offered repeatedly during the lo-year period
                                               from 1979 through 1988. None of the exit incentive programs in the
                                               Spencer study had age-specific provisions for eligibility.8




                                                “BE% Employee Benefits Survey did not report information on program eligibility provisions in a
                                                manner that allowed us to determine the incidence of age-specific provisions.



                                                Page 12             GAO/Hl?S9O-87BB     Age Discrimination   in Company   Exit Incentive   Programs
                                           Age Diacrhination:  Use of AgeSpecific
                                           Provisions in Company Exit
                                           Incentive Programs




Additional Information on Our
                           alsoanalysis
                               showed    of eligibility provisions
                                        that                                                for Fortune 100 company programs
Eligibility Provisions for
Exit Incentive Programs . Two-thirds of programs offered exit            incentives to employees over a cer-
                                 tain age, normally to those at least age 55, with some specified years of
                                 service;
                               l just under 20 percent of programs had no age provision; and
                               . 13 percent of programs used a point system that coordinated workers’
                                  ages and service to determine eligibility. For example, a program could
                                  require that workers have combined age and service totalling 75 points.

                                           Similarly, most of Spencer’s programs (84 percent) offered exit incen-
                                           tives to employees over a certain age, 55 on average, with some speci-
                                           fied years of service. Seven percent of the programs had only a service
                                           provision for eligibility, while the remaining 9 percent used other crite-
                                           ria (for example, a point system based on a combination of workers’ age
                                           and years of service).


                                           A majority of exit incentive programs offered age-specific enhanced
Age-Specific Enhanced                      benefits to eligible workers (see fig. 2). In these programs, certain
Benefits Used in Most                      enhanced benefits were provided exclusively to younger eligible work-
Programs                                   ers so that they could receive benefits comparable to those received by
                                           older workers who were already at or near the pension plan’s normal
                                           retirement age. Programs with age-specific enhanced benefits generally
                                           offered workers at certain ages at least one of the following provisions.

                                   l Liberalized early retirement benefits. This provision lessens or elimi-
                                     nates the actuarial reduction factor usually applied to early retirement
                                     benefits. It does not apply to workers who have reached normal retire-
                                     ment age.
                                   l Age credits. This provision credits additional years to workers’ actual
                                     age to make them eligible for retirement benefits, or to liberalize early
                                     retirement benefits, or both. Of course, workers above the pension plan’s
                                     normal retirement age are not helped by this provision.
                                   . Retirement supplements until a specified age. This provision gives work-
                                     ers below the specified age a benefit not available to older workers.
                                     Health or life insurance coverage until a specified age. This provision
                                       l


                                     provides benefit coverage for workers below the age limit but not above
                                     it.




                                            Page 13            GAO/IDUMO-87BR       Age Dbdmination   in Company   Exit Incentive   Programs
                                         Age Discrimination:  Use of Age-Specific
                                         Provision   in Company Exit
                                         Incentive Programs




Figure 2: Exit incentive Programs With
Age-Specific Enhanced Benefits
                                         60   Percent    of Programs




                                         60


                                         60


                                         40


                                         30


                                         20


                                         10




                                               Fortune      Spencer    BLS
                                               100
                                               Dais Sources



                                         Similarities exist among the various sources regarding the use of age-
                                         specific enhanced benefits. As shown in figure 3, most programs with
                                         age-specific enhanced benefits, about 60 percent, liberalized the pension
                                         plan’s early retirement provisions. A substantial portion of programs,
                                         from 28 to 57 percent, placed an age cap on retirement supplements,
                                         usually 62 or 65. Less than 40 percent gave age credits. Also, a minority
                                         of programs imposed an age cap on health or life insurance coverage,
                                         normally age 65.

                                         A few exit incentive programs in BIAS Employee Benefits Survey gave
                                         workers age credits and offered retirement supplements that capped at
                                         a certain age. Our analysis shows that only 8 percent of these programs
                                         offered the two enhancements concurrently. None of the programs
                                         among the Fortune 100 or those reported on by Spencer did this.




                                          Page 14                 GAO/HRD-90-87FSR   Age Disc rimination   in Company   Exit Incentive   Programs
                        Age Discrimination:  Use of Age-Specific
                        provisions  in Company Exit
                        Incentive Programs




Enhanced Benefits
                             Percent of Programs

                        70

                        60

                        60

                        40

                        30

                        20

                        10


                         0
                             1
                              Fotlutw 100
                              Data Souroee

                                    ] Age Cap on Retirement Supplement

                              ’     I Added Years to Workers’ Ages
                                      Liberalized Eariy Retirement
                                    I
                                    I Age Cap on Health or Life Insurance

                        BLS did not inquire about age caps on health and life insurance coverage.


                         We found several programs that used age-specific enhanced benefit pro-
Additional Details on    visions in unique ways when compared with other programs. A brief
Age-Specific Exit        description follows.
Incentives               In two programs, enhanced benefits were graduated by discrete age
                         brackets. One such program, which provided a retirement supplement
                         and liberalized early retirement benefits, allowed workers ages 55 to 59
                         to receive a supplement totalling up to 18 months of their base salary.
                         Workers in the under-55 and those in the 60-and-over age groups, how-
                         ever, were allowed supplements of only up to 15 months of their base
                         salary. The other program provided workers in lower age brackets a
                         greater number of enhanced benefits than older workers. Although this
                         program offered all eligible workers a basic cash supplement, workers
                         ages 55 to 60 could receive two additional enhanced benefits-a retire-
                         ment supplement and cash allowance. Those ages 60 and 61 could



                         Page 15             GAO/HRDSO-87BR         Age Discrimination   in Company   Exit Incentive   Programs
                      Age Discrimination: Use of AgeSpecific
                      Provisions in Company Exit
                      Incentive Programs




                      receive the retirement supplement but not the cash allowance. Those
                      ages 62 and over were offered only the basic cash supplement.

                      One Fortune 100 company program based the enhanced benefit on an
                      age and service point system. Under this system, if workers had below
                      the requisite points, the pension plan’s actuarial reduction factor nor-
                      mally associated with early retirement was not applied.

                      For purposes of calculating pension benefits, another program provided
                      employees with service credit equal to one-half the difference between
                      their actual ages and age 65. In operation, this program would give
                      fewer service credits to older workers.



Comments of           using age-specific exit incentives. Officials of some companies that used
Company               age-specific exit incentives indicated that cost considerations played a
Representatives       role in company decisions. Others commented that before deciding to
                      target the programs to younger workers, the company had considered
                      the number of older workers approaching normal retirement age. They
                      believed that the company could not have met its work force reduction
                      goal by relying on attrition. Typical comments were:

                  . “Workers at or above normal retirement age did not need an incentive to
                    leave since they were entitled to full benefits under the pension plan.”
                  . “The program was intended to encourage employees below the plan’s
                    normal retirement age to leave.”

                       Officials of companies that applied age caps on retirement supplements
                       or insurance coverage stated that the caps were instituted at the point
                       when workers were eligible for government sponsored programs. Offi-
                       cials of companies with an age cap on retirement supplements com-
                       mented that the payments were programmed to stop approximat,ely
                       when workers became eligible for social security benefits. Officials of
                       companies with a cap on health coverage said that they wanted to
                       extend company benefits until workers reached age 65 and were eligible
                       for Medicare benefits. Other comments were:

                  .    “The retirement supplement would allow retirees to receive approxi-
                       mately the same retirement income before social security payments
                       began as they would afterwards.”




                       Page 16             GAO/HRD!3O-8WR      Age Disc rimination   in Company   Exit Incentive   Program,
    Age Discrimination: Use of Age-Specific
    Provisions in Company Exit
    Incentive Programs




. “It was not considered a cap, but the age that coordinated with the
  Social Security Administration’s age for starting social security
  payments.”
. “The idea was to make younger workers whole until normal
  retirement.”
. “We capped health benefit coverage at age 65 because we didn’t want to
  give early retirees an advantage over those who normally retired at 65,
  since we didn’t extend coverage for them.”
. “The age bracketing in the exit incentive program was identical to that
  in the regular pension plan. We wanted to show employees what more
  they could gain from the exit incentive program.”

    Officials for companies not using age-specific provisions generally told
    us that they believed such provisions were unfair to older workers.
    Some also mentioned the desire to avoid an ADEA age-discrimination law-
    suit as a significant factor. Several company officials emphasized that
    the purpose of exit incentive programs had been to reduce staff in gen-
    eral, not to retire older workers. Other statements follow.

.   “It isn’t fair to tell someone age 65 they can participate, but someone
    age 67 cannot.”
.   “Morally, so to speak, you owe more to people who have been with the
    company longer.”
.   “It would get us into more hot water in that it sounds like a pretty good
    basis for an ADEA age discrimination case.”
.   “If misconstrued, establishing age brackets or age caps might have
    adversely impacted on the program objective of reducing the total head
    count.”
.   “A program that discriminated against older workers would not be cost
    effective because, generally, the older the employee, the more they
    earn.”




     Page 17            GAO/HRD904i7BR        Age Discrimha   tion in Company   Exit Incentive   Programs
Appendix I

CongressionalRequesters


              The Honorable Howard M. Metzenbaum
              Chairman, Subcommittee on Labor
              Committee on Labor and Human Resources
              United States Senate

              The Honorable James M. Jeffords
              Ranking Minority Member, Subcommittee on Labor
              Committee on Labor and Human Resources
              United States Senate

              The Honorable David H. Pryor
              Chairman, Special Committee on Aging
              United States Senate

              The Honorable John Heinz
              Ranking Minority Member
              Special Committee on Aging
              United States Senate

              The Honorable William Clay, Chairman
              Subcommittee on Labor-Management Relations
              Committee on Education and Labor
              House of Representatives

              The Honorable Augustus F. Hawkins, Chairman
              Committee on Education and Labor
              House of Representatives

              The Honorable Edward R. Roybal, Chairman
              Select Committee on Aging
              House of Representatives

              The Honorable Matthew G. Martinez, Chairman
              Subcommittee on Employment Opportunities
              Committee on Education and Labor
              House of Representatives




                                  .

              Page 18       GAO/HRIXKM7BR   Age Discdhation   in Company   Exit Incentive   Program5
Appendix II

Major Contributors to This Report


                        Donald C. Snyder, Assistant Director, (202) 535-8358
Human Resources         Glenn G. Davis, Project Manager
Division,               Sheila R. Nicholson, Evaluator
Washington, D.C.

                        Dayna K. Shah, Assistant General Counsel
Office of the General
Counsel,
Washington, D.C.




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