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Early Retirement : The Golden Handshake--or Shove?

Times Staff Writer

American Airlines, like many companies scrambling to stay competitive, sought to trim its payroll. So last October--for the 11th time in five years--it offered employees between 50 and 55 years old a special invitation to quit.

The biggest attraction: special $400 monthly pensions until age 55, when retirement benefits normally became available. About 700 workers signed up--so many that the airline had to ask some to stick around an extra few months just to make sure its airplanes were adequately cared for.

As American Airlines demonstrated, corporate America has found a stunningly effective method for cutting payrolls.

Range of Industries

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Known to some as the “golden handshake,” to others as the “golden shove,” cash inducements for older workers to give up their jobs are being embraced across a broad range of U.S. industries--from oil to banking, airlines to chemicals--as companies contend with wrenching and fundamental economic changes.

Within the last year, such employers as DuPont, BankAmerica, Firestone Tire & Rubber, Owens-Illinois and Phillips Petroleum have turned to such retirement programs to squeeze the excess out of their work forces. Atlantic Richfield in Los Angeles recently launched an early retirement drive as part of a restructuring program designed to cope with pervasive weakness in the oil industry.

Executives at Arco and other companies tout their plans as humane, generous alternatives to layoffs, with the added benefit of enhancing opportunities for younger employees. Indeed, for people who are about to retire anyway, or who seek new careers--such as an official who left Aerospace Corp. a few years ago to run an avocado ranch--such offers are frequently too good to refuse.

Self-Worth Questioned

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Other observers say, however, that the growing reliance on early retirement programs is raising critical issues for older workers. Employees in their 40s or 50s--people who thought that their careers were secure--find themselves questioning their self-worth, their career futures, their proper place in the working world.

Some critics contend that the programs end up forcing out employees who are too old to find a new job easily and too young to stop working. Many employees, they say, really do not want to retire but cannot risk sticking around to see if they are laid off.

At Arco, for example, officials are waiting to see how many employees take voluntary retirement before they announce layoffs. Although those let go would qualify for a farewell severance payment, benefits generally would fall far short of the early retirement offer.

An Arco secretary in her 50s described the tension: “You go to work one day and there’s this memo which says we’re restructuring. Even though they tell you the plan is entirely optional, it’s foolhardy not to take it. If you don’t take it and in July they say, ‘You’re out,’ you’re out without any of the extra benefits. The stresses and strains of this kind of situation are enormous.”

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The secretary, who will need a new job to supplement her $300 monthly Arco pension, added: “The happy people are the ones who can walk off with a lot of money. They’re the high-level employees with many years at the company.”

Employers push early retirement for various reasons: to cut costs caused by merger and takeover concerns or simply in response to changing conditions, such as deregulation of the airline industry or a drop in the price of oil. Christine Seltz, a partner with the Hewitt Associates consulting firm, said a precise count on the prevalence of such programs is not available and estimated that 20% of companies may be offering or contemplating them, about the same level as during the recession in the early 1980s.

The programs clearly have been effective. As a tool for cutting staff, however, they can resemble the meat cleaver more than the surgical knife, especially if benefits are generous. Between February and May, 11,200 employees marched out of DuPont, double the number predicted, many with monthly pensions inflated by hundreds of dollars.

Conflicting Views

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DuPont officials cite the exodus as evidence of the program’s success. “We would hope that this would greatly diminish the need for forced layoffs,” said H. Gordon Smyth, a company vice president.

Others have a different view. “Leaner doesn’t necessarily mean better,” said Kenneth Henley, an attorney representing the International Brotherhood of DuPont Workers. “The program would have been successful if 6,000 workers left. But over 11,000 left. They lost the cream of the crop.”

Noted James (Kimo) Bogardus, a personnel official with American, whose special retirement plans over the years have led 2,500 older employees to leave the airline: “You never know who’s going to accept the program. If a large number of well-trained people leave, you might wipe out the capability of a department.”

Such special early retirement deals emerged on a major scale during the late 1970s and early 1980s, when employers sought to cut costs during economic recessions. Congress also may have promoted the approach, if unintentionally, with the 1978 passage of an age discrimination law that prohibits arbitrary dismissal of older workers.

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“I think that companies got more into the mind-set of ‘If you can’t force them out, how do you move them out?’ ” said Pauline Robinson, professor at USC’s Andrus Gerontology Center.

Arco President William F. Kieschnick described his company’s retirement drive as a way to help preserve its long-term strength in the least painful way possible.

‘Most Responsible Way’

“If you want to design something for the health of the whole, for all the employees that remain, a few employees have to go,” he said in an interview. “So then the issue is not whether they go, but what’s the most responsible way you can let them make choices.”

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When DuPont offered its retirement incentives earlier this year, Clarence and Dolly Bowe chose to say goodby to the company that had employed them for 37 years, together taking home more than $500 a month more than they would have gotten without the special deal. Bowe, 58, who formerly ordered construction materials for DuPont’s plant in Deepwater, N.J., is using his leisure time to build a five-foot model of the Battleship Missouri and to indulge an interest in Civil War history. His wife, Dolly, 56, has extra time to sew, practice photography and improve her oil painting.

“We would have had to work five years more to get what we got,” Bowe said. “I’ve only been off three weeks, and it’s fantastic.”

Some warn, however, that the golden handshake, for all its allure, does not guarantee a golden future. Those who cannot afford to retire but conclude that their welcome has worn out at their current jobs may confront age discrimination on the job market or discover that they lack the resources to launch their own enterprises. And if they live long enough, they may see a once-healthy pension eaten away by inflation.

“Many people have gone out with the expectation of finding another job, but they never find one. Then they’re stuck, and they might be in dire straits financially,” said American’s Bogardus.

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‘It’s Very Demoralizing’

“I’ve had calls from several employees and families of employees,” he said. “It’s very demoralizing for the family and upsetting psychologically for the employee.”

The big retirement drives represent an about-face from the usual approach, built into pension formulas, of rewarding long-term workers with bigger pensions and financially penalizing those who retire early. Instead, companies may offer employees extra years of age and extra years of service for pension calculations, often boosting benefits by thousands of dollars a year. For instance, companies might calculate the benefits for a 50-year-old with 20 years of service as if he were 55 years old with 25 years of service.

The plans put extra pressure on employees because they usually are given relatively little time to decide whether they should sign up, often just two or three months.

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Age requirements vary, but older workers invariably are the target. The attractions are obvious. At Arco, for example, a 55-year-old employee with 20 years of service and a salary of $45,000 would qualify for a pension of $8,615 under normal circumstances. If the same person were to accept the current offer, he would be treated as if he were 60 with 25 years of service and would walk out with $15,278 a year. Arco is further sweetening the retirement pot by offering its new retirees cash gifts equal to as much as 36 weeks’ pay, depending on length of service.

In some cases, companies limit their inducements to temporary cash payments rather than fiddling with the pension formulas. For example, BankAmerica lured 900 out the door with an offer of an extra year’s pay.

No Legal Prohibition

Although such programs promote the wholesale removal of older workers, they apparently are not in violation of federal age discrimination laws as long as participation is voluntary.

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Chris Mackaronis, an attorney for the American Assn. of Retired Persons’ worker equity department, questioned, however, whether a retirement drive is “voluntary” when an individual’s decision is clouded by fear of layoff.

“A plan that is carried out with the uncertainty of imminent layoffs smacks of subtle coercion,” Mackaronis said. “I’m not sure where the line is (between a voluntary and involuntary program), but when you cross the line you violate the law.”

Some observers question whether such programs are consistent with a national interest in promoting economic independence for the elderly, as more and more people live many years beyond retirement age.

“As a nation with an increasingly aging population, early retirement schemes are creating serious problems,” said Senate Aging Committee Chairman John Heinz (R-Pa.). “As we live longer and work shorter, there is an increasing burden on retirement income programs like Social Security and private pensions. With longer life expectancy, we should be encouraging longer periods of employment rather than discouraging them.

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“I do have sympathy for employers, however,” he added. “Most employers offer these incentives with the most humane intentions in mind. Unfortunately, the results can be disastrous for the older worker who jumps at the chance to retire early without careful thought about how he or she will survive down the road.”

Opportunities Cited

Employers depict the offers as exceptional opportunities for veteran workers rather than as examples of age discrimination. They also acknowledge that the departure of many senior employees may open up career paths for younger workers. Charles F. Bisett, manager of benefits planning and compliance at Arco, suggested that opportunities for the baby-boom generation would improve as a result of the company’s retirement incentives.

“You’re giving the older worker the opportunity to enjoy the fruits of his labor a little earlier than he would have been able to do so,” Bisett said. “At the same time, you’re providing opportunities for the advancement of the younger generation that’s coming along.”

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In some cases, the younger generation may be asked to do the same job for less pay. American Airlines is methodically replacing its retirees with lower-paid workers in an effort to keep its costs competitive with such discount carriers as People Express Airlines. Replacements typically are paid 30% to 50% less, according to Vice President Lowell Duncan.

DuPont, faced with the unexpected exodus, has replaced some of its retirees with contractors and part-time and temporary workers, and the company still anticipates savings of $230 million a year. BankAmerica said its plan ultimately will save $21 million.

Although the savings may be impressive, the programs exact a hard-to-gauge toll on the companies that offer them. In the short run, productivity may nose-dive as workers wrestle with the critically important choice that suddenly confronts them.

Sacrifice of Talent

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More significant is the long-term sacrifice of talent, creativity and organizational know-how that goes with any big retirement push.

USC’s Robinson said that the risk of such a program is that the company may lose its most ambitious employees. “They are the ones who can figure out what to do with the rest of their lives,” she said.

Robert S. Rubenstein, former personnel director at Aerospace Corp., an El Segundo-based engineering firm that specializes in Air Force space projects, recalled that when the company offered retirement incentives six years ago, employees took off to grow avocados, raise horses, sell bakery equipment, run a gift shop in Idaho and join the competition. One who chose to quit was a well-regarded vice president.

Nancy Bronstein, a BankAmerica vice president, said the firm’s experience with special retirement deals was disruptive because the mass departures cut off established relationships between experienced employees and clients.

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“I consider a program like this a pretty drastic measure, and I would use it sparingly,” she said. “It’s not something that I would ever want to do again.”

She pointed out, however, that the retirement drive cut 900 senior employees from the payroll, with most of their jobs remaining vacant to this day. And, as at other companies that offer the golden handshake, that was the goal.


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