While on a vacation in Florida a few years ago, CTV field producer Heinz Avigdor received a phone call from work that shook his world. The network informed him his show was cancelled and that they strongly wanted the 57-year-old to consider taking early retirement. "I was devastated," he says. "It totally ruined my holiday."
Every year, employers face a growing number of reasons to thin their ranks of older workers beyond the simple need to downsize. While it's true that senior employees often cost more than younger workers, sometimes - as in Avigdor's case - positions simply need to disappear. Companies often find themselves with an overlap of expertise after a merger, for example, or a new management team may want to bring in new staff.
Early retirement packages can be a cost-effective yet mutually agreeable way for a company to lighten its workforce of employees over 55. Unfortunately, as Avigdor can attest, it can also be as emotionally disruptive and financially unsettling for the employee as an old-fashioned pink slip.
Faced with an early retirement package, how does an employee tell a good offer from a bad one? And how can you turn the latter into the former?
First, Know Your Rights
"Even though it's called this nice name - 'early retirement' - in reality the law considers it a termination, and therefore you are entitled to a severance package," says employment-issues lawyer Elizabeth Forster, a partner at Blaney McMurtry Stapells Friedman in Toronto.
"The law also says you are entitled to reasonable notice. And what an early retirement package really is, it's designed to compensate someone for the fact that they are being terminated without being given reasonable notice," she says.
The concept of what constitutes "reasonable notice" differs from province to province. Although a few companies, such as airlines, railways and broadcasters, are governed by the federal Canada Labour Code, most employers are governed by provincial employment standards.
"So you need to make sure your employer has met the minimum requirements in the employment standards act that sets out minimum notice and minimum severance pay requirements," advises Forster.
Michele Wood-Tweel, a CA, certified financial planner and principal at KPMG in Halifax, agrees that potential early retirees should look to the law first. "The fairness of the package is really determined by labour law standards and case settlements," she says, "as opposed to an accountant saying, 'That seems like a good package.'"
Their Opener
Typically, an early retirement package contains:
"Essentially, you want the same benefits going forward that you would have if you were left in your position," says Robert Berkovitz, a partner at the accounting firm Fuller Landau. "The idea in the law is to be kept whole."
You now have a few questions you can ask:
"You would like to see a month of severance for every year you have been in service," says Berkovitz. But careful about accepting this severance in a lump sum, he warns, "If you get a lump sum payment, it's going to all be received at your top marginal tax rate." You might look at taking a salary continuance, because that may be taxed at a lower rate. If you have no choice but to take your severance in a lump, Elizabeth Forster suggests that you still have ways to soften the tax blow.
"Depending on your situation," she says, "you may want to look at taking some of your severance in one tax year and deferring some of it until the following tax year rather than getting one whopping big sum."
You might also be able to transfer part of a lump-sum severance payment - or perhaps all of it - directly into an RRSP. Revenue Canada will let you transfer a maximum of $2,000 for each whole or partial year you worked for the employer before 1996 and $1,500 for each year prior to 1989. Michele Wood-Tweel, the KPMG accountant, likes this option: "You might be better off rolling it in at first and then winding it out of the RRSP and paying tax as you go."
Beyond Severance
Once you've analyzed the severance component of your early retirement offer, you still need to think about the things you'll be giving up beyond salary, such as benefits, perquisites and all the amenities you take for granted at the office.
"It's not just your salary, it's all these other pieces as well," says Robert Berkovitz. "If they are going to let you go, they have to be fair in terms of what they're doing."
The thing most people forget, Berkovitz says, is the benefits component of the package. "For instance, if you've been carrying a life insurance policy with an employer for 20 years and now you're 55 and have to go out and buy your own term insurance, that's getting to be an expensive proposition."
Although disability coverage always ceases on termination of employment (there is no way under a group disability plan for a company to continue the coverage even if it wanted to), other benefits are usually flexible enough that if your employer is prepared to pay for them, all things are open. There is nothing to preclude an employer from offering these benefits to you, and there's no legal limit to the continuance of non-disability benefits.
Other non-salary items to think about:
Early retirement packages can also offer tangible assistance for your upcoming job search. These so-called "career transition services" might be offered in-house or handled by a company specializing in providing such assistance. Andrea Waines, a partner with the Toronto outplacement firm Miller Dallas Inc., says a good career transition component can add $5,000 to $50,000 to the value of an early retirement package - and if it helps an early retiree land another job, it will be worth that and more.
Career transition services encompass a wide range of options, including:
Says Waines: "I find that the sooner the employer and employee start talking, the more opportunity there is for the two of them to design an early retirement package that will meet the needs of the individual - as opposed to the employer trying to construct a traditional, financial package in isolation."
Questions for the Mirror
Beyond what your employer can offer, you also need to consider a few personal factors before you decide to retire early:
"I think every package is negotiable," says Robert Berkovitz. "I don't think there is ever anything that is cast in stone. And, generally, a firm's first offer is not their last offer."
Elizabeth Forster agrees that take-it-or-leave-it early retirement offers are not common, but she notes that employers' willingness to negotiate varies from company to company. "I can only recall one situation in 20 years where a company has actually pulled the package and then had to be sued. For the most part, employers are prepared to talk and, if not to change the package, at least to explain their rationale."
KPMG's Michele Wood-Tweel observes, "The last thing in the world a company would want to do would be to put in place a downsizing program and then be taken to court for it. Right off the bat, they'd pay more money for legal fees - and for the time that senior management would be trapped in court. When these programs are put together, they are typically very well thought out. Legal counsel on their side has looked at the package in terms of its fairness - but I've seen some packages done not quite so carefully. They've left room for movement and the employee has seized it."
Recognizing and seizing the upper hand while negotiating is the reason Berkovitz advises employees to seek professional advice before coming back with a counter-offer.
"It is important to spend a little bit of time with a lawyer and an accountant," he says.
The Guilt Piece
According to Robert Berkovitz, within an hour, an accountant or lawyer will have a fairly good idea of your rights and what types of other things you should be asking for in a termination agreement. You could probably spend $500 or $600 in legal or accounting time, but compared to the potential tax savings and additional benefits, that could be relatively inexpensive. You might even get the fees reimbursed as part of your package.
"I think there's no such thing as a company that likes to early-retire people, and there's always guilt feelings around letting long-time employees go," says Berkovitz. "The sooner employees realize that there is this guilt piece and that they're allowed to negotiate, I think they are in a position to come back fairly quickly."
However, Berkovitz cautions, "I really would counsel people not to drag it out too long. I think the sooner you negotiate and get it over with, the better. Positions tend to harden over time, so I say strike while the guilty iron is still hot."
Closing Credits
As for Heinz Avigdor, he looked over the CTV early retirement package and rejected it. Before long, the network approached him again — but this time with a much better offer. "They sweetened the deal," he says. "I looked into it and found out the details and it turned out to be okay."
After accepting CTV's second early retirement offer, Avigdor continued working at another network — at a more leisurely pace and on a contract basis — until he reached 65 and stopped working altogether. His wife, Nancy, who is younger and still works full-time, often finds herself envying her husband's new lifestyle. "Heinz is very happy," she says. "In fact, I wouldn't mind being retired myself."