Elder Law FAX -- September 12, 2005

Court Says Public School System's Early Retirement Plan Discriminates Against Older Employees
The Des Moines, Iowa, Public School system's early retirement plan unlawfully discriminated against older employees because it barred those 65 years old and older from participating, an appellate court ruled.

Before May 15, 2001, the school system offered its employees early retirement benefits that included payment of health insurance premiums until the age of 65 and a onetime cash payment equal to approximately 30 percent of the employee's annual salary.

Effective May 15, 2001, the school system changed its early retirement benefits plan. Eligible teachers now could receive a lump sum payment based upon the number of unused sick leave days accumulated as of the date of retirement. Generally speaking, after the change, retirement plan benefits were based on a $200 credit for each unused sick leave day.

Robert Jankovitz and five other teachers filed suit against the school system alleging a violation of the federal Age Discrimination in Employment Act (ADEA) and state employment protections. What was the basis for the lawsuit? During the 2002-2003 school year, Mr. Jankovitz notified the school system of his election to retire at the end of the school year and requested, upon retirement, payment of early retirement benefits under the amended early retirement benefits plan.

Mr. Jankovitz's request was denied because he was over the age of 65. Under the new rules enacted in 2001, eligible teachers could get their unused sick leave paid in a lump sump, but only if they were 55 to 65 years old.

Had Mr. Jankovitz retired at age 64, his sick leave payment would have been $112,200.

''When the district changed the plan, they did not give the plaintiffs a chance to participate,'' Jim Sayre, the teachers' attorney, told the Associated Press. ''The only reason they did not have an opportunity to participate was because they were 65 or older.''

In the present case, two teachers employed by school system with the same educational background, the same number of accumulated sick days, and the exact same number of years of employment with the school system could receive entirely different benefits upon retirement based solely upon their age (if, for example, one were 64 years old and the other 66 years old at the time of their respective retirements). In ruling for Mr. Jankovitz, the federal district trial court concluded: "This type of plan conflicts with the ADEA."

The problem lies with the fact that the retirement plan defines "early" retirement in terms of the employee's age, rather than years of service or salary, wrote district court judge Ronald Longstaff. "What the Plan fails to recognize is that one's ability to retire early is typically dependent on a host of factors other than age: one's years of service with the employer, . . . savings, dependents, health, and so on."

The school system took an appeal to the Eighth Circuit Federal Court of Appeals, which sided with the federal district court.

''Arbitrary age discrimination occurs when an employer denies or reduces benefits based solely on an employee's age,'' wrote Circuit Judge Theodore McMillian for the appeals court, holding that the school district's actions violated the federal Age Discrimination in Employment Act.

"While it is not unlawful to offer ERIPs [early retirement incentive plans], it is unlawful for an employer to condition early retirement benefits or reduce early retirement benefits on the employee's age. That is precisely what defendant's amended ERIP does."

Jankovitz v. Des Moines Independent Community School District, August 29, 2005.

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