Fired Just Before Vesting In Your Employer’s Retirement Plan?


It is illegal for employers to fire (or lay off) employees just because the employees are about to “vest” – to become legally-entitled to the employer’s retirement benefits. An employee usually “vests” by staying employed for a specific period.  Some employers try to keep their retirement-plan costs down by separating workers just before their vesting date.  An employee who vests on their tenth anniversary, for example, may be fired a few months before that on bogus grounds: for being a few minutes late, for alleged insubordination, or for sudden poor performance.

A federal law known as ERISA forbids this shameful tactic.  It doesn’t prevent employers from firing or laying off employees for legitimate reasons even if the employee is close to vesting. In other words, ERISA is not a guarantee of employment until vesting occurs.  But it does allow employees to sue for lost benefits if the employer’s motive was to wrongfully prevent the employee from vesting.  The law makes it illegal “….to discharge, fine, suspend, expel, discipline, or discriminate against [an employee]…..or the purpose of interfering with the attainment of any right to which such participant may become entitled…”

Most ERISA violations involve firings within four to six months of the vesting date. Sometimes the interference is painfully obvious; I currently represent a client fired just one day before his seventh anniversary, which was his vesting date. I have seen the firings of many State of Florida employees who were four and half years into a five-year, optional retirement program known as DROP. That program provides a whopper of a payout if the employee remains employed the full five years (following their 30th year of service, for a total of 35 years).  Coincidental?  I doubt it.

I can think of nothing worse than depriving employees of their hard-earned retirement benefits.  But it happens, and often. If I ever work somewhere where I have to wear a name badge, I’m going to tape over the “years of service.”  I don’t want some manager walking by, calculating my vesting date from my badge, and turning me into the next ERISA violation.

I used to think the “years of service” information was a nice touch.  Now, I’m not so sure.


Categories: ERISA, Retirement Benefits

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