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Should you offer a phased-retirement program?

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in HR Management,Human Resources,Leaders & Managers,Management Training

Issue: New government rules will let older employees work part time while receiving some of their pension benefits.

Benefit/risk: That could help you retain older employees but may heap large new administrative burdens on HR.

Action: Review the details and questions below to see if it's a good fit. If so, pitch your plan to the top brass as a retention strategy.

You soon will have the option of using a new benefit to help retain your most experienced employees. By the end of 2005, expect the IRS and the Treasury Department to issue final phased-retirement rules, which will allow older employees to work part time and receive benefits from their pension plans.

Your decision: Does the administrative headache and expense of establishing a phased-retirement plan outweigh the benefits?

"In addition to the obvious administrative challenges," says Hewitt consultant Ari Jacobs, "companies would need to create eligibility-selection criteria and new compensation structures, and decide what type of benefits they'd like to offer."

The rules would allow employees who reach age 591/2 and cut their hours by at least 20 percent to draw a portion of their pensions while still working. (Read details at www.treas.gov/press/releases/js2094.htm.)

Employees' benefits can't exceed the percentage by which they reduce work hours. Example: Employees who cut their hours by 30 percent can receive up to 30 percent of pension benefits. Participation is voluntary for employers and employees.

You'd need to conduct yearly audits of such plans to track how many hours em-ployees work and the amount of pension payments they receive.

Still, many employers like the idea of phased retirement. In fact, many use such systems now, allowing older employees to gradually cut their hours. The pension-law change will likely spur more interest in phased-retirement plans.

To decide whether phased-retirement plans are worth the costs, ask these questions:

1. "Are we vulnerable to the coming labor shortage?" Mike Aitken, director of governmental affairs for the Society for Human Resource Management, advises that you conduct "a demographic study of your skill needs, who fills them now and what the projected availability is over the next 18 months to 10 years."

2. "Do we grant full pension benefits at age 55?" If so, you must decide whether phased retirement would tempt top employees to stay on the job after age 55. Because phased retirement starts at age 591/2, some employees would still rather resign at age 55, collect their pensions and perhaps work for another organization, maybe a competitor. Other employees might be tempted to remain the extra four-and-a-half years for phased retirement.

3. "Are we big enough to handle this?" Implementation will be easier for large employers with more resources who can view phased retirement strategically. Smaller employers have more flexibility to tailor phased-retirement plans to individual needs.

4. "Are our employees interested?" Before you sock a lot of money and effort into a program, quickly survey employees to see if they'd be interested in participating.

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