Phased Retirement Plan - Employer Discretion

[Carol V. Calhoun]

Has anyone considered the issue of whether a retirement plan can permit the employer discretion over whether to approve an employee's application for phased retirement without violating the definitely determinable benefits rule?

Basically, the idea behind allowing phased retirement is that they want to hold onto a valued employee on a part-time basis so the employee can train a replacement.  But they don't want to offer phased retirement to someone in other situations--e.g., if there are many other employees with the same skills, so they don't need the outgoing one to train the incoming one.

It's a governmental plan, so we're not concerned about discrimination in favor of highly compensated employees.  And I wouldn't have any issues if they said from the beginning something like, "Phased retirement is available only to employees in the X department," or "Phased retirement is available only to employees who are level Y or above."  But can they retain the discretion to decide when the employee applies whether or not to grant that employee phased retirement?

My concern would be that Employee A requests phased retirement, and gets it.  Employee B is denied phased retirement, but then requests and receives part-time status.  So in effect the employer has exercised its discretion in such a way that Employee A gets benefits from the retirement plan, and Employee B does not, even though both are otherwise in the same situation.

[Peter Gulia]

I think you’ve spotted an issue.

 

Beyond the definitely-determinable issue, consider also whether a discretion of the kind you describe could lead to related problems under civil-rights law, employment law, labor-relations law, or a law special to government employment, such as a civil-service or merit-protection law.

 

[Luke Bailey]

I have not had to deal with this in practice, but the post does raise an interesting question. I would think that the plan would need to set some objective test for what was phased retirement, e.g. dropping below some threshold work requirement as certified by the employer, or perhaps just a certification by the employer that the employee had been permitted to go on a  reduced schedule indefinitely, and the discretion would be exercised by the employer as such, e.g. determining whether it met the employer's needs to allow the employee to go on a reduced schedule. Of course, the employee would need to have attained the plan's NRA or age 62.