Announcing your retirement is often seen as a courteous gesture, providing your employer ample time to manage transitions and hire a replacement. However, what if, after making your intentions known, your employer decides to terminate your employment before your planned retirement date?
At-will employment and its implications
In the USA, most of the employment relationships are subject to “at-will” employment doctrines. In these, either employer or employee can end the employment relationship at will and for whatever or no reason at all with or without notice. Therefore, even after declaring your retirement, your employer can terminate your employment, as long as the reason is not illegal.
Legal protections against unlawful termination
Though at-will employment is very lenient for employers, some federal statutes do provide employees with protections from wrongful dismissal:
- Age Discrimination in Employment Act (ADEA): Under the ADEA, employers cannot discriminate against workers 40 and older because of their age. If your dismissal was done purely on age grounds, then you might be eligible to have an ADEA claim.
- Employee Retirement Income Security Act (ERISA): ERISA protects workers against termination for the purpose of disqualifying them from receiving vested pension benefits. If your job termination by your employer seems to be for the purpose of thwarting your retirement, this will be ERISA’s abuse.
Effect on retirement benefits
Your termination prior to your retirement plan can greatly affect your retirement benefits:
- 401(k) contributions: Your own contributions to a 401(k) plan are always vested and yours no matter what happens to your employment. Employer contributions are not always vested. If you’re not fully vested when you leave, you can forfeit some or all employer-contributed money.
- Pension plans: In general, eligibility for pension benefits depends on achieving specific service milestones. Being terminated prior to achieving these milestones may endanger your right to receive certain pension benefits.
What to do if fired before retirement
If you are terminated after making the public announcement of retiring, do the following:
- Consult an employment attorney: Get the opinion of an employment attorney to determine whether your termination was a violation of any labor laws, such as ADEA or ERISA. An attorney will guide you in filing a lawsuit.
- Read severance agreements cautiously: Severance packages are occasionally presented by employers requesting you to waive specific rights. Read carefully prior to signing. Seeking advice from a professional attorney may introduce you to a better deal.
- Unemployment benefits: Depending on your state’s law and the circumstances surrounding your termination, you might be eligible to receive unemployment benefits. Unemployment benefits can provide temporary financing while you re-evaluate your retirement plan.
- Review health insurance coverage: Losing coverage through the employer is not easy. You would have such options as staying on COBRA or getting insurance from a health insurance marketplace. If above 65, you would buy Medicare coverage.
- Check retirement timing: Delaying the initiation of Social Security may result in a bigger benefit per month, if at all. Alternatively, some part-time work or consultancy might bridge the gap.
Preventive measures before declaring retirement
To avoid risking premature ending after retirement announcement:
- Timing of announcement: Attempt to notify your employer of your intended retirement in advance, say two or three months. This reduces the period within which an employer would have the opportunity to make a decision to terminate your period of employment.
- Record of performance: Maintain a written record of your performance at work and your achievements. This will serve as evidence against charges of poor performance in the event of termination.
- Financial preparedness: Ensure you have a strong financial plan with provision for sudden shifts in job. This is done by holding an emergency fund and being keen on the state of your pension benefits.
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