Phased Retirement Programs Important to Employers

Testifying on Sept. 9 before a U.S. Department of Labor advisory panel, Mercer retirement consultant Pierce Noble said phased retirement programs are important to employers, employees and the U.S. economy, but that the broad implementation of these programs can only be achieved through a joint effort on the part of the Labor Department, the Internal Revenue Service, Congress and the nation's employers.

Noble spoke before the ERISA Advisory Council Working Group on Phased Retirement, which is examining the need for an improved system of phased retirement opportunities.

The compensation and benefit policies of most U.S. employers are designed to provide a direct transition from full-time work to full-time retirement. However, the aging of the U.S. population has led to shortages of skilled workers in many professions and industries. At the same time, increased life spans place a strain on retirement savings, leading many older workers to delay full-time retirement.

An informal Mercer survey of large and medium-sized employers found that the most common reason for employer interest in phased retirement is to encourage workers to continue working (95.8%), followed by a desire to provide an easier transition to retirement (45.8%).

More than half (66.7%) would be interested in a program only if it can be applied using employer discretion (i.e., where needed to retain employees with key skills, knowledge, customer relationships, etc.). Nine in ten (90%) want to be able to commence full or partial pension benefits for employees working reduced hours after a stated age -- typically 55 -- without being required to commence benefits for employees still working full time.

"Phased retirement means different things to different people, and varies according to an employer's business needs," Noble said. "Such programs can be formal or informal and vary widely in their design." For example, an employee may work a reduced-hours schedule -- such as on a part-time, seasonal or project basis, or as a temporary fill-in for absent employees. This may be as a regular employee, in a consulting arrangement, through a third-party organization, as part of a pool or as a temporary fill-in for employees who are absent or on leave.

Alternatively, said Noble, an employee may continue in the same job, shift to a different area or shed some responsibilities -- and may take on added training/knowledge-transfer duties. Or the employee may retire, only to work part time, sometimes rehired by their former employer.

In addition, phased retirement programs also can be of limited scope -- used to retain selected employees who are in short supply or have critical skills -- or broad-based -- available to older employees who meet certain criteria.

"Clearly, phased retirement programs can benefit businesses as well as older workers, but to take hold, many rules, regulations and uncertainties must be addressed," said Noble. "A number of changes in laws and regulations could result in more widespread implementation and utilization of these programs. Changes would be needed in the structure of Social Security and Medicare and to provisions of the Pension Protection Act, the Age Discrimination in Employment Act and certain provisions of ERISA.