Testimony on Plaintiff’s Likely Retirement Age

/ / CFES Publications, Expert Testimony Cases

by Jerome M. Staller, Ph.D.

The U.S. District Court for the District of Delaware has held that an economist may testify on the probable date of retirement of the plaintiff in an Age Discrimination in Employment Act matter. Finch v. Hercules Inc., 941 F.Supp. 1395 (1996).

The plaintiff sued his former employer under the ADEA, claiming he was terminated because of his age. He was 58 at the time of his termination. He began work in 1962 as a systems analyst for the defendant, a defense contractor. When he was terminated in 1991, he had risen to the position of General Auditor in charge of the Hercules Audit Department. Finch prevailed on liability, but requested a new trial on damages issues. Among other issues, he complained that the trial court erred by allowing the defendant’s expert economist to render economic and statistical testimony on his probable date of retirement.

Finch testified that he would have worked until age 65 or 70. It was this author’s opinion, testifying as the expert economist in the case, that an earlier retirement age was much more likely. Several studies of retirement patterns show that retirement before age 65 is significantly more likely than retirement at age 65 or after.

In the study Bridges to Retirement, economist Christopher Ruhm found that, according to a longitudinal study of over 6,600 workers age 58 to 63, the median age at which career jobs ended was 60, and 77 percent of those surveyed had left their regular career jobs by age 64.

Herbert Parnes, another economist, using data from a national study, found that 70 to 73 percent of American men retire before age 65.

Finally, in a study that I thought was particularly relevant to Mr. Finch’s testimony, economist Gilbert Nestle found that 74 percent of American men retire before age 65. When queried, only 27 percent of the 59-year-olds surveyed said they expected to retire before age 65, yet 74 percent of that group did retire before age 65.

Also, Hercules personnel records showed that the average age of voluntary retirement from 1989 to 1992 was 60. In 1993, that age dropped to 58. In fact, 75 percent of Hercules workers retired by age 62.

I testified that it was highly likely, judging from these studies on retirement in general and data from the defendant Hercules, that Finch would have retired at or before age 62.

In addition to the retirement data, I also cited a compelling financial reason Finch had for retiring well before age 65: He, like many similarly placed executives, had slight financial incentive to stay employed past age 62.

He would have been almost as well off financially not working as he would have been had he remained employed through age 65. If he retired at age 62, he would have enjoyed a retirement annuity of $54,000. He also had a 401(K) retirement plan that would have provided $185,000. This fund, if invested conservatively, would earn $12,000 annually. Finch also would have received Social Security benefits of $12,000, plus $6,000 annually from the sale of a stock plan. Adding up all these income sources, Finch would have enjoyed an $84,0000 annual income by retiring at age 62. If he continued working, at age 63 he would probably have made $120,000.

However, assuming a 40 percent tax bracket, his take-home income would have been $104,000 — only $20,000 more than his possible passive income. Assuming a 40-hour work week, this amounts to a little over $10 an hour. Would Finch, at age 62, have felt that the extra money justified continued work?

Finch had been seeking $888,830 in back-pay damages (damages from the time of termination to the time of trial, a period of about four years). He sought front-pay damages (damages from the time of trial to his retirement) of $399,609 based on retirement at age 65 and $1.3 million based on retirement at age 70. My damages calculations, based on retirement at age 62 and accounting for Finch’s evident lack of mitigation, ranged from $41,000 to $606,000. The jury, after much deliberation, returned with a back-pay damages award of $200,000 and did not award front-pay damages.

Finch sought a new trial on the issue of jury instructions. He said the trial court erred in instructing the jury to consider the possibility of early retirement. Finch also said that the trial court was wrong in instructing the jury that Finch had the burden of proof on the retirement-age issue. Finch maintained that the jury should have been instructed that, if Hercules was liable, he was presumptively entitled to back pay from the time of termination to the time of trial, with no consideration of the possibility of early retirement. He also argued that Hercules had the burden of proving that he would have retired before age 65.

In rejecting these arguments, the court noted that Finch was entitled to be made whole, but back pay in an age discrimination case does not necessarily run through the time of trial — if the jury finds that the plaintiff would have retired prior to the date of trial, it can end the damages period at that date. This is the first time a court has addressed the issue of whether back-pay awards automatically extend from the time of termination to the time of trial. “That assumption,” the court wrote, “is overly simplistic; this is especially true where, as here, the Court is confronted with a plaintiff who, when the trial takes place, is within the range of what usually is considered normal retirement age.”

On the issue of burden of proof of retirement age, the court wrote, “It is unrealistic to expect the employer to carry the burden of proving what was peculiarly and exclusively within Finch’s mind.” Finch also argued that my testimony should have been excluded since it did not help the trier of fact to understand the evidence and confused the jury. He argued that there was no evidence that he had intended to retire before age 65 or 70.

The court disagreed with these arguments, noting that the plaintiff’s probable retirement age was well within the province of the jury and that the jury was entitled to my testimony. “Absent a crystal ball,” the court wrote, “statistical analysis served as the next best barometer of the reality of Finch’s stated intentions.”

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