WASHINGTON -- Giving a major boost to corporate America's widespread effort to downsize, the Supreme Court ruled yesterday that companies have broad authority under federal law to try to induce workers to retire early.
In a 7-2 decision, the court declared that companies may offer higher pension benefits to older workers, in return for those workers' early retirement and the surrender of any claims of unfair treatment on the job.
Another part of the ruling, approved unanimously, said a 1986 law does not require pension plans to count older workers' pre-1986 service in calculating their pension benefits. That part of the ruling may have saved corporations up to $1.7 billion in additional pension payments to workers.
The court had been told by lawyers for business organizations that its ruling in the case, involving Lockheed Corp.'s force reduction, would have a far-reaching effect on similar efforts by corporations across the nation. (Lockheed Corp. is now Lockheed Martin Corp., based in Bethesda.)
Many companies -- including 80 percent of the nation's largest 100 companies -- have used early retirement incentives, rather than layoffs, to reduce payrolls, the National Association of Manufacturers said.
Yesterday's ruling appeared to remove the legal cloud the Lockheed case had raised over early departure incentives. A federal appeals court had ruled that using higher pension benefits as an incentive for early retirement might violate the 1974 Employee Retirement Income Security Act.
Had that ruling not been overturned, the manufacturers association told the court, it would have had "a widespread chilling effect."
The Supreme Court declared that the executives and boards of directors are not covered by a clause of the 1974 law, which was intended to assure workers that the pensions and other benefits they earn will remain available in financially sound plans.
The clause bars pension-plan managers from using the plan's assets to benefit the employer of those covered by the plan. That clause, the court ruled, applies only to those who actually operate the plan, and not to the corporation itself, its officers or directors.
A Lockheed worker had tried to use that clause against corporate officers and directors after they sought to induce him and other older workers to retire.
Lockheed executives, facing what they considered a need for streamlining, revised a pension plan to provide financial incentives, in the form of higher guaranteed pensions, to reduce their payroll through early departures.
The incentives would be financed out of Lockheed's pension-plan surplus. In devising the incentive package, executives used the authority the federal law gives them to modify the plan's terms.
As a condition for the fatter pensions, the workers not only had to accept early retirement; they also had to forfeit any claims of age bias or other unfair treatment by the company.
The worker involved in the case, Paul L. Spink, declined to accept the early retirement offer because he wanted to pursue claims that he was discriminated against because of his age and that the company had not set up its pension offer legally.
The Supreme Court ruled against Spink on that issue, because it said the clause ruling out use of plan assets for the benefit of the parent company does not apply to the company or its top executives.
But, even if someone within Lockheed was covered by that clause, there was nothing in the incentives package that violated the Employee Retirement Income Security Act, the court said in a separate part of its ruling.
That clause, the court said, "simply does not address what an employer can and cannot ask an employee to do in return for benefits."
The court also ruled against Spink on another point: his claim that Lockheed violated a 1986 law passed to protect older workers from age bias in pension plans.
Spink argued that when he was let into Lockheed's pension plan after that law passed, he was entitled to credit for his pre-1986 service in figuring his pension level. But the court held that the 1986 law is not retroactive.
Pub Date: 6/11/96