|
 Phased
retirement programs are becoming easier to
implement
Newswise — More companies will be able to use
phased retirement to retain valuable skills and knowledge while
providing mature workers with an alternative to the all-or-nothing
approach to retirement, according to a report released today by The
Conference Board, the global research and business membership
organization.
As a result of the newly passed Pension
Protection Act of 2006, employers may now pay pension benefits to
employees age 62 and older who are covered under a defined-benefit
pension plan, even if they continue to work.
“Even though IRS regulations for implementing
the Pension Protection Act have yet to be defined, the new law helps
to make phased retirement a viable option for employers who want to
capitalize on mature talent,” say The Conference Board report
authors Anna M. Rappaport and Mary B. Young.
“As the U.S. workforce grows
older and life expectancy continues to rise, the
play book for retirement is being rewritten.”
There is no universal definition of phased
retirement, whether formal (part of an organization’s overall
talent-management strategy) or informal, but the following features
are common:
* Allows mature employees to work on a reduced or modified basis as
they approach retirement (phasing pre-retirement).
* Enables workers who are already eligible for retirement to collect
some portion of their pension benefits while they continue to work
for pay.
* Allows rehiring the organization’s own
retirees (phasing post-retirement).
* Gives retirees the option for phased retirement by going to work
for a different employer or setting up their own businesses.
Phased retirement can be any work arrangement
that falls somewhere in between full-time retirement and working
full-time. Formal phased retirement is still relatively rare, partly
because employers are skittish about running afoul of pension laws,
and partly because companies are reluctant to include all of their
mature staff in a phased retirement situation.
While the Pension Protection Act leaves
important legal questions unresolved, it opens up new options for
companies that sponsor defined-retirement benefit plans. Up until
now, employers were not allowed to pay retirement benefits from such
a plan—as either a pension or lump-sum payment—until an employee had
terminated employment or had reached the plan’s normal retirement
age. The new law lifts that restriction with the benefit year that
began on January 1, 2007.
NOT JUST COMPENSATION
“Many companies focus on compensation issues when they weigh their
options for offering phased retirement, but that isn’t the right
place to start,” say the authors. “Instead, employers should first
define the talent challenges that phased retirement might help
solve. Then they should evaluate which of the many options for
phased retirement would be most effective. Figuring out the
compensation and benefits should be the final step.”
The first step in developing a phased
retirement program is to examine the organization’s vulnerability or
risk exposure as a result of retirements. Initially, this may be a
high-level scan that looks at workforce numbers company-wide.
Further analysis needs to home in on selected, mission-critical jobs
to assess strategic impacts and risk on a case-by-case basis.
Questions companies must ask themselves
include:
* What portion of the workforce is already retirement-eligible or
will soon be and which business units, functions, job levels, or
jobs are most affected?
* What specific talent gaps will result and how long would they
last?
* What kinds of firm-specific knowledge are at risk, such as an
employee’s relationship with key customers, knowledge of particular
products, systems, etc.?
* Are there groups of people with specialized knowledge who will be
hard to replace such as research scientists in pharmaceuticals or
nurses in hospitals?
* What is the retirement risk for mission-critical or strategically
important jobs?
* What is the retirement risk for individuals (such as the chief
economist of a bank) who are publicly associated with a brand?
DEFINING THE PHASED RETIREMENT PROGRAM
Companies also need to decide if phased retirement will be offered
exclusively to retirees or also to active employees of a certain age
or tenure; if all retirees will be eligible or only selected ones;
and if the time-frame of the program is temporary or indefinite.
If an organization wants to promote phased
retirement, a formal program is generally the best approach.
Informal arrangements are a better choice when a company wants to
offer phased retirement only to selected individuals, customize the
arrangements, or experiment. In the long term, if informal
arrangements are offered to many employees, they become increasingly
difficult to manage.
At many colleges and universities, formal
programs for phasing pre-retirement provide tenured professors with
a fixed period of transition. As part of this buy-out agreement,
faculty receives partial pension and pay, along with additional
incentive compensation. In some cases, the faculty member continues
his or her affiliation with the university after the end of the
phased retirement program and may still teach an occasional course.
Once tenured faculty finally retire, some are appointed as emeritus
professors. Emeriti often retain an office and remain part of the
university community. They may participate in committees, do special
assignments, or teach a course. For some professional corporate
staff who have a strong identity with a professional services firm
or bank, something akin to university emeritus status might make
sense, say the authors.
“Clearly, the best phased retirement plan is
one that matches the organization’s talent requirements to the
employee’s or retiree’s needs and interests,” say the authors. “But
a challenge worth the effort is to develop a system that makes
consistently good matches for a variety of people with a variety of
skills and experience. In the end, the viability of phased
retirement ultimately depends on the nature of the work.”
Job variables that affect phased retirement
programs include the type of work; availability of talent supply;
amount of interdependence with customers and co-workers; the need
for special equipment; amount of synchronicity needed with other
tasks in the organization; and the type of required knowledge.
“The bottom line is that companies need to make
certain that their compensation and benefits support the phased
retirement options they have decided to implement,” conclude the
authors. “Some options may be suited to pro-rata payment of a
regular salary with health insurance and some pension credits, while
with others it may be best to consider a work project arrangement
with a fixed fee or hourly compensation for each project.”
Source: Phased Retirement After the Pension
Protection Act
Report #1402-07-RR, The Conference Board
The Conference Board
Mature Workforce Initiative
The Conference Board’s Mature Workforce
Initiative is committed to helping companies advance their dialogue,
research, and practices as they adjust to the maturing labor force,
and its consequential demographic transformation of the workplace.
By participating in the programs offered by the
Mature Workforce Initiative, companies will have their finger
directly on the pulse of workforce issues that are reshaping the
competitive playing field—issues such as how to successfully
recruit, engage, retain, and incorporate mature workers into their
labor force.
The Conference Board Mature Workforce
Initiative:
* Assembles and provides access to a dynamic
knowledgebase of mature workforce best practices;
* Educates senior business leaders about the strategic opportunities
and risks deriving from the changing labor demography;
* Anticipates and provides resources that enable companies to
overcome implementation obstacles.
The hallmark of The Conference Board Mature
Workforce Initiative is its use of a proven format for helping
executives gain insight and tools to improve their strategies and
decision-making capabilities. Through a variety of conferences,
councils, and research working groups, the Mature Workforce
Initiative enables executives to:
* Draw upon the depth of expertise and
resources of The Conference Board and our network of experts;
* Engage in frank, confidential dialogue among peers;
* Gain exposure to, learn, and compare best practices;
* Participate in research to address issues in-depth; and
* Find practical solutions to mature workforce-related challenges. |
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