Do stock option plans treat early retirement differently from ordinary retirement?
Early retirement may be treated less favorably. The NASPP's 2016 Domestic Stock Plan Design Survey found that more of the surveyed companies accelerate unvested options for normal retirement (19%) than for early retirement (8%).
The post-termination exercise periods also vary among companies, as the NASPP's 2016 survey shows. For early retirement, 48% of the surveyed companies give three months, while only 6% let you exercise the option for the remainder of its term. For normal retirement, 25% provide three months, and 21% of companies allow exercise during the remainder of the option term.
Court Cases Show Strict Interpretation
For example, do not assume that just because you can elect to receive your pension benefits early that you are also, at the same age, eligible for retirement provisions in your stock options. This was the mistake underlying the facts in the court case Bell v. Pfizer. In addition, understand what impact working as an employee or a consultant for a competitor during retirement would have on your outstanding stock options.
In Bearden v. E.I. Du Pont De Nemours and Co., the US 11th Circuit Court of Appeals ruled that an employee who met the retirement age but not the requirement for years of service could not exercise his stock options. The lawsuit centered on whether "retirement" under the stock plan, which references the pension plan for the definition, requires both. When the appeals court decided that it does require both, his options were deemed to have expired on the last day of employment.
Alert: Review your stock plan documents for their definitions of early retirement, retirement, and similar terms. Do not assume that the definitions of such terms will be identical across all of your company benefit plans (e.g. health, 401(k), pension, etc.).