“It takes two, Baby!”
Last week we wrote about the growth of ‘phased retirements’. For many Baby Boomers they are becoming the “fourth leg” of their “retirement stools”. However, if ‘phased retirements’ are to be embraced on a wide scale basis they must meet a significant need for employers as well.
As it turns out, employers are increasingly understanding that ‘phased retirements’ can be an effective tool to help them survive and/or grow. This is because these programs promote the retention and transfer of knowledge from experienced workers to younger workers. Depending on the demographics of their work forces, there are many companies which may soon be in dire straights without ‘phased retirement’ programs. This is because of the significant numbers of small and medium sized companies who will experience 50% or more of their workforce reaching retirement age in the next five to seven years.
In addition, industries and companies vary with regard to how many hard to replace employees they have. Some industries and companies are unique in that they have an acute need for employees with very industry-specific or even company-specific skills.
Employers are seeing many reasons for countering the ‘brain drain’ from Baby Boomers leaving the workforce in mass with ‘phased retirement’ programs.
- This is the most practical approach to retain experienced workers, especially those in critical and/or hard to replace positions.
- Such an approach will reduce the costs associated with hiring and training replacement employees.
- Increased organization flexibility occurs by tapping potential retirees as mentors or consultants.
- Allows organizations to experience smooth transitions rather than disruptive, costly ones.
- Enhances productivity by addressing the need for work/life balance for those approaching retirement age.
These programs may be formal or informal, although at this point they are much more likely to be informal. In many small to medium-sized companies the programs are often employee initiated and on a one to one basis. Informal arrangements today are often individually negotiated between the employee, their boss and the HR department.
As far as formal programs, currently only about 5% of mid- to large-size companies have such plans. But 60% say they expect to develop a formal plan, per WorldAtWork. 30% of medium to large companies do say they have some type of ‘phased retirement’ program in place, although mostly on an informal basis.
Companies designing formal ‘phased retirement’ plans are considering the following issues in the design of their programs:
- At what age will the selected employees become eligible to participate in the plan?
- How will critical knowledge be transferred to other employees?
- Legal and compensation issues must be comprehensively identified, dealt with, and clearly communicated to employees.
These arrangements, particularly if developed on a one to one basis, will vary in design. But typically they might be for a period of one to three years with the employee working 20 to 24 hours per week. Compensation is likely to be proportional to hours worked, but he/she typically keeps full healthcare and retirement benefits.
As an example, Rice University recently formalized their ‘phased retirement’ program, primarily for their teaching faculty. The professor signs a contract for one, two or three years duration. They are given 50% of a full time work load. Compensation is at the rate of 80% in year one, 70% in year two, and 50% in year three. Once in the plan participants may retire sooner than the contract term. They cannot, however, extend the phase out period or enter into a new contract.
Often ‘phased retirement’ programs require the participants to take on new responsibilities. These responsibilities are usually focused on transferring skills to the next generation of workers.
Some ‘phased retirement’ programs are including interesting features such as ‘job sharing’ and/or a work at home option. Both of these ideas may become increasingly more popular going forward.
But there is a flip side to these ‘phased retirement’ programs. Of necessity, these programs can only be extended to employees who are hard to replace and/or are highly experienced. Having too many older workers hanging around is a huge negative from a cost standpoint and because it causes a bottleneck in the advancement pipeline. Companies need a mix of both experienced workers and young blood to sustain their growth into the future. But increasingly workers are reaching retirement age and are attempting to stay on the job and not move aside.
Nonetheless, well managed employers are instituting innovative policies and practices as a significant strategy to retain skilled workers for their work forces. It is a win-win, for sure!