Employee benefits
INTRODUCTION
I. Overview
The Age Discrimination in Employment Act of 1967 (ADEA), (1) the Americans with Disabilities Act (ADA), (2) and Title VII of the Civil Rights Act of 1964, (3) ban discrimination against protected groups in compensation and terms, conditions, and privileges of employment. The Equal Pay Act (EPA) (4) prohibits sex-based wage discrimination. These laws require that all employee benefits be provided in a non-discriminatory manner unless a statutory exception provides otherwise.
Many charges alleging discrimination in employee benefits — including leave, profit sharing, and educational stipends — can be resolved using standard theories of disparate treatment and disparate impact. The issues with regard to these types of benefits will typically be whether the differential was based on a protected classification or had the effect of discriminating, and whether the employer has a defense to that discrimination.
This Section of the Compliance Manual focuses on employee benefits that raise unique issues: life and health insurance benefits, long-term and short-term disability benefits, severance benefits, pension or other retirement benefits, and early retirement incentives. Based on explicit statutory provisions in the ADEA and the ADA, these benefits raise issues that cannot be resolved through standard disparate treatment or impact analyses. This Section addresses in depth specific issues that are likely to arise when discrimination in these benefits is alleged.
II. Benefits Covered :
- Life insurance benefits
Life insurance benefits provide a monetary benefit for the insured and/or the insured’s beneficiaries in the event of the insured’s death. The benefits usually are paid in a lump sum or, occasionally, in the form of an annuity, through which the beneficiary gets periodic benefit payments for life.
- Health insurance benefits
Health insurance benefits cover all or part of costs incurred for medical care. Coverage may be limited to the employee or may be extended to others who have a relationship with the employee, including the employee’s spouse and/or dependent children. The amounts or types of coverage available may also be capped or limited.
- Long-term and short-term disability benefits
Disability benefits provide salary replacement for employees who are unable to work due to illness or injury. Some employers also provide a right of recall so that disabled employees can return to their jobs once they have recovered. Long-term benefits are typically paid for an extended period of time, although many plans differentiate between mental and physical impairments in determining the duration of the benefit program. Short-term benefits are those available for more temporary conditions where the employer anticipates that the employee will be able to work again in a relatively short period of time. There is no precise amount of time that differentiates long-term from short-term disability benefits, and their purpose is the same.
- Disability retirement benefits
Like long-term and short-term disability benefits, disability retirement benefits are paid to employees who are unable to work due to illness or injury. Unlike other disability benefits, however, disability retirement benefits are typically payable until death, unless the employee is able to resume working. Therefore, they operate as a retirement benefit for former employees. Disability retirement benefits should be distinguished from service retirement benefits, which are paid to employees who have reached retirement age, have the requisite number of years of service, and/or meet the employer’s other eligibility criteria.
- Severance benefits
Severance benefits are benefits offered to employees who are terminated from their jobs. In many instances, severance benefits will be provided when an employee is terminated for reasons other than his/her performance or conduct — that is, most typically, in reductions-in-force or downsizing due to economic or business concerns. Severance benefits can be provided based on a unilateral decision by the employer or through the terms of a collective bargaining agreement. The amount of severance benefits paid also varies by employer. For example, some employers pay a set amount to all separated employees. Others may pay a week’s salary for each year of service rendered by separating employees.
- Service retirement benefits
Retirement benefits provide former employees with a source of income after completion of their employment. These benefits are called service retirement or pension benefits. They can be distributed in a lump sum or as annuities that are paid periodically for life.
Among other criteria, employers typically require employees to reach a “normal retirement age,” and/or to have rendered a particular number of years of service, in order to receive full — “unreduced” — retirement benefits. Employers sometimes permit employees who leave the work force before reaching the required age or years of service to retire with reduced pension benefits.
In most cases, retirement benefits are offered through defined benefit or defined contribution plans (or through a combination of the two). Under a defined benefit plan, the employer applies a specific formula to calculate each employee’s retirement benefit and promises to pay that benefit once the employee becomes eligible. Formulas vary by employer and can be based on an employee’s age, years of service, salary level, or some combination of these or other criteria.
Under a defined contribution plan, the employer makes set contributions to individual accounts for each plan participant. The amount of the retirement benefit then depends on the earnings of the employee’s account. A “401(k)” plan is an example of a defined contribution plan. As is true of defined benefit plans, the amount of the employer’s contributions, as well as the formula by which those contributions are calculated, will depend on the particular employer.
- Early retirement incentives
In some cases, employers may offer employees the opportunity to retire early — that is, before they have reached normal retirement age or served the requisite number of years – in exchange for additional benefits to which those employees would not otherwise have been entitled. Employers sometimes offer these incentives, which are intended to encourage employees to take early retirement voluntarily, as a means of addressing financial concerns that might otherwise lead to layoffs.