Phased retirement arrangements are evolving gradually as employers continue to tackle the challenges of a tight labor market, according to new research.
Phased retirement is any arrangement in which employees at or near normal retirement age are able to reduce their work hours and job responsibilities for the purpose of gradually easing into full retirement.
To track the evolution of phased retirement arrangements, Watson Wyatt recently conducted in-depth interviews with 20 organizations that offer such arrangements, representing the educational, manufacturing, services, nonprofits and government sectors.
"The majority of employers that use phased retirement say their primary goal is to keep skilled and experienced employees in the workforce," says Valerie Paganelli, a senior retirement consultant at Watson Wyatt. "These programs are well received because many employees want to stay involved in work they find rewarding, but they no longer want to work full time. Our research also indicates that some employees are financially unprepared for full retirement, and phased retirement is a better fit. All in all, the phased retirement option is a win-win situation."
These findings are consistent with Watson Wyatt's 1999 survey on phased retirement, in which 70 percent of employers agreed that implementing a phased retirement program, along with other flexible options for workers, such as job-sharing and telecommuting, is a viable strategy for addressing labor shortages. According to that survey, employers" primary reasons for offering phased retirement were to retain skilled workers and give them the ability to retire gradually.
This latest research is consistent with those findings. The majority of organizations studied use phased retirement to retain workers longer. However, there are a few exceptions, particularly in the education sector, where organizations use phased retirement to give employees an incentive to ease into retirement.
The study also found that the use of phased retirement programs is linked to the underlying retirement plan design. All of the employers with a traditional pension plan use phased retirement as a retention strategy.
The small minority of employers that use phased retirement to encourage retirement all sponsor a hybrid pension plan (like a cash balance or a pension equity plan, or defined contribution-only plan). Still, most of the hybrid plan sponsors use phased retirement to retain experienced workers.
In general, phased retirement programs still tend to be more informal than formal, and many are individualized arrangements. In the university environment, for example, phased retirement might involve a professor teaching one semester and taking the next one off. In manufacturing, phased retirement often exists in the form of reduced work schedules, or returning to work after retirement as a part-time or temporary employee "often in the same position. The lack of more broad-based, formal arrangements is due mainly to the inadequacy of current laws to accommodate phased retirement in traditional corporate defined benefit plans.
Watson Wyatt is a global human capital consulting firm based in Washington, D.C. and Reigate, England. For more information, visit their Web site.
