Under certain circumstances, employers may provide higher benefits to younger employees. For example, an employer may, as an early retirement incentive, eliminate the reduction that it would normally make if employees retired before normal retirement age. This benefits younger workers more since the reduction which would otherwise apply to them would be greater. The ADEA also permits employers to offer Social Security supplements to employees who retire before they are eligible for Social Security, and allows age-based reductions in early retirement benefits provided to tenured faculty by colleges and universities. Otherwise, the ADEA does not permit employers to reduce or terminate early retirement benefits to older workers based on their age.
Employers have substantial flexibility in designing their pension plans.
What an employer may not do is to stop or reduce accruals in or contributions to an employee's pension benefits based on the employee's age. Employers also may not exclude an employee from participation in a pension plan simply because the employee is close to the plan's normal retirement age when hired. For example, a cap on the health insurance benefits that an employer will pay for AIDS is a disability-based distinction. A benefit plan provision that applies to a number of dissimilar conditions, and that affects both individuals with and individuals without disabilities, is not a disability-based distinction. A subterfuge is a disability-based distinction that an employer cannot justify.