Opinion ID: 786790
Heading Depth: 3
Heading Rank: 2

Heading: The Safe Harbor Provision of the ADEA and OWBPA

Text: 20 Once the plaintiff has established a prima facie case of age discrimination, the defendant bears the burden of showing that his actions are lawful under the Act. Auerbach, 136 F.3d at 112; see 29 U.S.C. § 623(f)(2). The School District and the Union contend that the ADEA's safe harbor provision permits them to carry this burden. The ADEA, as amended by OWBPA, provides that: 21 It shall not be unlawful for an employer, employment agency, or labor organization — ... 22 (2) to take any action otherwise prohibited under subsection (a), (b), (c), or (e) of this section — ... 23 (B) to observe the terms of a bona fide employee benefit plan — 24 (i) where, for each benefit or benefit package, the actual amount of payment made or cost incurred on behalf of an older worker is no less than that made or incurred on behalf of a younger worker ...; or 25 (ii) that is a voluntary early retirement incentive plan consistent with the relevant purpose or purposes of this chapter. 26 29 U.S.C. § 623(f). Thus, an employee benefit plan that otherwise discriminates on the basis of age may still be valid under the ADEA if: (1) it adheres to the equal benefit or equal cost principle under which the employer expends equal amounts on both younger and older workers, or (2) it is a voluntary early retirement incentive under which an employer need not expend an equal amount as long as the plan is voluntary and consistent with the ADEA's goals of protecting workers from arbitrary age discrimination. Auerbach, 136 F.3d at 112. Here, the School District and the Union do not contend that Option # 2 is saved by the equal benefit or equal cost rule. 27 They do, however, claim that Option # 2 is a voluntary retirement incentive plan exempt from the Act under § 623(f)(2)(B)(ii). They argue that Option # 2 is truly voluntary, is made available for a reasonable amount of time, and does not arbitrarily discriminate on the basis of age. But these contentions miss the mark since they only address whether an actual early retirement plan is voluntary and thus valid under § 623(f)(2)(B)(ii). Auerbach, 136 F.3d at 112-13 (quoting S.Rep. No. 101-263, at 28 (1990)). They tell us nothing about the answer to the predicate question of whether the plan is, in fact, an early retirement incentive plan. 28 In Auerbach, we began our analysis with the determination that the sick leave benefit is, in fact, a retirement incentive under the plan because the sick leave benefit is not paid out unless and until a teacher retires under the plan. Id. at 112. The teachers would have us read this statement as a requirement that any plan that does not mandate actual retirement cannot be an early retirement incentive plan. We decline to decide whether such a broad interpretation of our statement in Auerbach is appropriate, since it only asserted that if a plan mandates retirement in exchange for a benefit then it is an early retirement incentive plan. The teachers incorrectly conclude that the converse must also be true — that if a plan does not mandate retirement, then it is not an early retirement incentive plan. It is unnecessary for us to resolve the question of whether such a converse rule should apply because we have no trouble concluding, on a different basis, that Option # 2 is not an early retirement plan. 29 Regardless of whether an early retirement incentive plan must invariably mandate retirement in exchange for a benefit, an early retirement plan must, at a minimum, provide some incentive to retire. In other words, the plan must make retirement a relatively more attractive option than continuing to work. Consider, for example, the plan in Auerbach, which offered a $12,500 payout if the teacher retired in the first year of eligibility. In the absence of the plan, a teacher could choose to continue to work and earn her usual salary or choose to retire in the year she met the criteria and begin drawing a pension. With the plan, retirement became more attractive than continuing to work because the teacher received an additional $12,500 payout from retirement, while continued employment yielded the same salary as before. 30 Here, Option # 2 provides no real incentive to retire because it does not make retirement a relatively more attractive financial option than continuing to teach. In the absence of Option # 2, a teacher meeting all the criteria for the first time can retire or continue teaching. With Option # 2, the teacher has the identical option of retiring when first eligible and starting to collect a pension — the same pension as in the absence of Option # 2. Thus Option # 2 has not made retirement more attractive relative to continuing to work for this teacher and, therefore, has not supplied any incentive to retire. On the contrary, Option # 2 actually supplies the incentive to continue working. Without Option # 2, the teacher could continue working with the usual salary increases but now, with Option # 2 in place, the same teacher could continue working and receive an extra $7,000 per year for three years. So, if anything, Option # 2, by supplying $7,000 salary increases, makes continued employment relatively more attractive than retirement and actually encourages teachers to work for at least three years beyond when they first become eligible for retirement. 31 The School District and Union argue that Option # 2 was intended to induce early retirement and that common sense ... indicate[s] that those who choose Option 2 would in fact be expected to retire immediately, or not long, after the three-year period ends. Applt. Br. of Wappingers Congress of Teachers at 19. This common sense argument hinges on what appellants term the laws of economics and psychology. Id. at 20. They posit that a teacher who selects Option # 2 but then does not retire at the end of the three-year period would suffer a significant drop in salary when the $7,000 payments ceased and would, therefore, have to work a substantial number of additional years in order to receive a pension equivalent to one that included the $7,000 in the final annual salary on which a pension would be calculated. 3 The School District and Union believe that this means an incentive exists to retire after three years because — in their words — the marginal utility of continued employment declines thereafter due to the time it would take a teacher to boost his pension payment over that reached using the three-year period as the final average salary. See Abrahamson v. Bd. of Ed. of the Wappingers Falls Cent. Sch. Dist., 2002 U.S. Dist. LEXIS 11054 at  (S.D.N.Y. July 21, 2002). 32 But a teacher's marginal utility of working extra years is not limited to the prospect of increasing her final pension payout — it also includes the marginal income generated by another year's employment. Thus, a teacher who elects Option # 2 and finishes the three-year period of service at the increased salary will not face any incentive to retire then either. The teacher could elect to retire at the end of the period and collect the increased pension payments. Alternatively, the teacher could work one more year, collect an extra year's salary, retire, and then collect exactly the same pension payments as she would have had she retired at the end of the three-year period (by electing the three Option # 2 years in the calculation of her final average salary). See N.Y. Educ. Law § 501(11)(a), (b). In fact, she could work any number of extra years and always elect the three Option # 2 years in the calculation of her pension benefits. Because a teacher who elects Option # 2 can always choose to have those years serve as the basis for her pension calculations, retirement is made no more attractive relative to further employment, and there is, therefore, no incentive to retire at the end of the three-year period. The School District's and Union's argument that it was their intention to induce early retirement through Option # 2 is irrelevant where, as here, the actual effect of the plan is to induce teachers not to retire but to teach for at least three more years. 4 We therefore conclude that Option # 2 is not entitled to safe harbor protection as a valid early retirement incentive plan.