Should Older Workers Have to Pay More for Their Pensions?

You've undoubtedly heard the advice again and again: If you are close to retirement age, you should max out your contributions to employer-sponsored retirement plans.

Wijnand Loven

But requiring older employees to contribute more than younger ones to a pension fund is another matter entirely, a federal appeals court in Baltimore held last week. "Certain older Baltimore County employees were forced to pay more for their pensions than younger co-workers," David Lopez, the general counsel of the Equal Employment Opportunity Commission, said in a statement. "That's age discrimination, plain and simple."

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The EEOC brought the case on behalf of two corrections officers (ages 51 and 64) and others in the same situation. Counting from the officers' initial complaint to the EEOC, the case has dragged out more than 15 years.

The decision stemmed from a policy the county put in place in 1945. It required older workers to contribute more to the county's pension fund than younger workers, even if they were not planning to retire at the set retirement age. In 2007, the county changed the policy to require all workers to contribute the same amount, regardless of age.

The county argued that employees could receive a pension on retirement starting at age 65, even if they had only been county employees for a short time. Therefore, it said, older workers should pay more to make up for the fact that their contributions would earn less interest over a shorter time than those of younger workers.  The court rejected this argument, saying that the county's plan violated the Age Discrimination in Employment Act because its contribution rates "were determined by age, rather than by any permissible factor."

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Beginning in 1973, county employees could retire after 30 years of service, even if they were not yet 65. But according to the court, "at no time were the contribution rates adjusted to take account of the early-retirement option."

The old policy may have resulted in tens of millions of dollars of damages to older workers, and a trial court will now determine the exact amount owed to those who were wronged by it.

 

Photo: wloven/iStockphoto

 

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