LINCOLNSHIRE, Ill. — U.S. employers are facing an unprecedented
talent shortage, with 25 percent of the workforce nearing retirement age. To
address this important issue and help transition employees to an easier and
more affordable retirement, an increasing number of companies are considering
implementing phased retirement programs, according to a new survey by Hewitt
Associates, a global human resources consulting and outsourcing company.
Hewitt's survey of more than 140 mid-size and large employers
revealed that more than half (55 percent) have already evaluated the impact
that potential retirements could have on their organization, and 61 percent
have developed or will develop special programs to retain targeted, near-retirement
employees. While just one-in-five (21 percent) believe that phased retirement
is critical to their company's human resources strategy today, that number nearly
triples (61 percent) when employers look ahead 5 years. According to Hewitt,
47 percent of companies said they have some type of phased retirement arrangement
available to their employees, but very few (5 percent) have actually formalized
those programs. Almost 40 percent expressed an interest in establishing a phased
retirement program in the future.
"With the rising tide of boomer retirees, employers will
be losing key talent at a time when attracting and retaining skilled workers
will be more important than ever," explained Allen Steinberg, a principal
at Hewitt Associates. "At the same time, rising medical costs, lengthening
life spans and the declining prevalence of traditional pension and retiree medical
benefits mean that employees will either have to work longer, save more or live
with significantly less than they are accustomed to. As these trends converge,
we believe phased retirement programs will continue to become more attractive
options for both employers and employees—they provide employers with new
ways to retain critical talent and, at the same time, help employees meet their
needs."
While employers are increasingly interested in adopting phased
retirement programs, they are taking a number of steps to better understand
how these programs can be structured as effective talent retention tools, including:
Increasing Information Gathering. According to Hewitt's survey,
employers are ramping up their information-gathering efforts for potential phased
retirement programs and, in particular, they are significantly increasing their
efforts to obtain information from employees nearing retirement eligibility.
Of those companies that have begun gathering information, almost
two-thirds (63 percent) use general industry research and discussions with key
business leaders and managers as a way to gather information on phased retirement
programs. Slightly less than one-quarter (22 percent) currently gather formal
input from near-retirement employees, but that number is expected to more than
double to 54 percent in the next few years. In addition, while less than 30
percent of companies currently look at diversity data, 41 percent said they
were likely to do so in the future.
"Working with senior management to determine how phased
retirement programs will benefit both employers and employees is an important
first step. However, in order to create a truly successful program, it's critical
that employers understand employees' perspectives," said Steinberg. "Gathering
formal input from employees through focus groups or other initiatives will enable
companies to design programs that can truly help with retention needs—but
do so in a cost efficient way. This is particularly important for employers
concerned about workers in specific roles or with specialized skills that represent
the greatest risk of loss to the organization."
Understanding Drivers and Barriers to Effective Retention Programs.
Beyond information gathering, employers are trying to develop a more robust
understanding of the types of initiatives that will effectively retain key groups,
as well as better comprehend the barriers to the adoption of phased retirement
programs.
According to Hewitt's survey, almost three-quarters of employers
(72 percent) said that retaining the experience, knowledge and skills of older
workers was the most important benefit to them in offering phased retirement
programs. Other key employer benefits include easing the difficulty of replacing
key skills (52 percent) and helping with transfer of key skills from experienced
to inexperienced workers (50 percent).
A significant majority of employers (86 percent) said one of
the largest benefits to near-retirement employees was the ability to gradually
transition from the active workforce to retirement. Employers also felt that
phased retirement programs benefited workers by providing additional income
to supplement their retirement income sources (67 percent) and/or providing
workers with access to employer-subsidized health care (60 percent)—both
of which have become increasingly important as health care costs continue to
rapidly increase and as pension and retiree medical benefits continue to erode.
In assessing the most successful ways to retain near-retirement
workers, employers have determined that alternative work arrangements represent
a critical component. Almost two-thirds (65 percent) said that offering part-time
employment (on a year-round basis) represented one of the most effective ways
of retaining near-retirement workers. In addition to part-time employment, 37
percent of employers noted that giving near-retirement employees access to retirement
benefits would be effective in retaining talent.
"Developing phased retirement programs specifically aligned
to the needs and desires of the workforce are really effective at helping companies
decrease the loss of key skills within their organization," advised Steinberg.
"Perhaps one of the easiest—and most cost-effective—ways to
determine what will be most beneficial to near-retirement employees is to simply
ask them what type of arrangement would be most effective. Is it the ability
to work part-time on a year round basis or is it some other type of flexible
arrangement, such as seasonal or project-based assignments? Do they want to
step away from demanding management roles? What many companies will find is
that their existing flexible work arrangements may be easily adaptable to their
retirement-eligible employees."
While phased retirement programs bring considerable benefits
to both employers and employees, Hewitt's survey found employers also face potential
challenges as they contemplate adopting or expanding these arrangements. More
than half (52 percent) believe there are significant legal and regulatory barriers.
However, a variety of internal issues also represent many of the challenges
they face, including company culture (42 percent), lack of support from senior
leadership (25 percent) and manager resistance (20 percent). In addition, concerns
about costs (34 percent) and that phased retirement programs might accelerate
the loss of talent (30 percent) were also cited.
"For many years, employers have focused on the perceived
legal barriers to phased retirement, but changes made by Congress in 2006 reduced
some of the legal constraints," said Steinberg. "More importantly,
as employers really dig into the design of phased retirement programs, they
realize that the legal barriers may not be nearly as significant as internal—or
primarily cultural—obstacles. These can be overcome—but only if
the organization believes the effort involved is worth the reward."
Reconsidering Rehire Policies. In addition to retaining current
employees, employers are reconsidering their policies toward rehiring retirees.
While almost half of employers (45 percent) indicated they currently have policies
in place that limit the ability to rehire retirees, a significant portion (46
percent) said they were likely to review their rehiring policies in the future.
Defining and Measuring Success. Nearly all companies (92 percent)
reported that retention of skills, knowledge and/or experience—cited by
employers as the most important reasons for offering phased retirement programs—were
also among the most important factors in determining the success of those programs.
Three-fourths (75 percent) also cited employees' desire to gradually transition
into retirement as important, and nearly half (49 percent) said that employees'
ability to qualify for health care benefits was critical to the success of their
phased retirement arrangements.
Of the companies that already have phased retirement arrangements
in place, about one third (32 percent) said they were satisfied with their programs.
Ironically, just 14 percent of companies said they actually measure the success
of their programs. In fact, nearly three-quarters (70 percent) said they have
no measures in place and no plans to implement a measurement strategy in the
future.
"Measuring the success or shortcomings of a phased retirement
program is the key to ensuring that both companies and employees are getting
the maximum benefit from the arrangement," said Steinberg.
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