August 26 2008 - A survey by global HR consulting and outsourcing company Hewitt Associates has shown that an increasing number of U.S. employers are considering implementing phased retirement programs to address an impending talent shortage as a quarter of the workforce nears retirement age.
Hewitt surveyed over 140 medium-size and large employers and found that:
- 55% had already evaluated the impact of potential retirements on their organization
- 61% had or would develop special programs aimed at retaining targeted, near-retirement employees
The survey found that only 21% considered that phased retirement was critical to their company's HR strategy today but this tripled to 61% when they looked ahead 5 years.
Allen Steinberg, a principal at Hewitt Associates, commented:
"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. 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."
Employers in the survey are taking a number of steps to improve their understanding of how phased retirement programs can be structured as effective talent retention tools. These steps include:
Increasing Information Gathering
Particularly their efforts to obtain information from employees nearing retirement eligibility. While 63% of employers that have begun gathering information use general industry research and discussions with key business leaders/ managers to collect information on phased retirement programs only 22% currently have formal input from employees near retirement. However, this is expected to more than double (to 54%) over the next few years. 30% of responding organizations currently look at diversity data but 41% said they were likely to do so in the future.
Allen Steinberg said:
"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.
"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
Surveyed companies said that the key employer benefits from offering phased retirement programs were:
- retaining the experience, knowledge and skills of older workers (72%)
- easing the difficulty of replacing key skills (52%), and
- helping with transfer of key skills from experienced to inexperienced workers (50%)
What were the benefits to near-retirement employees? Employers in the survey cited:
- the ability to gradually transition from the active workforce to retirement (86%)
- providing additional income to supplement their retirement income sources (67%), and/or
- providing workers with access to employer-subsidized health care (60%)
Alternative work arrangements were considered to be critical in retaining near-retirement workers. Nearly two-thirds (65%) of respondents felt that offering part-time employment (on a year-round basis) was a particularly effective method of retaining near-retirement employees. In addition to this, 37% of employers thought that giving near-retirement workers access to retirement benefits would be effective in retaining talent.
Steinberg said that:
"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.
"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."
What challenges do employers face in the implementation of phased retirement programs? The following were cited by respondents to the Hewitt survey:
- significant legal and regulatory barriers (52%)
- company culture (42%)
- lack of support from senior leadership (25%)
- manager resistance (20%)
- concerns about costs (34%)
- that phased retirement programs might accelerate the loss of talent (30%)
Allen Steinberg said:
"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. 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
Employers are revisiting policies on rehiring retirees. 45% of respondents said they had policies in place that limited their ability to rehire retirees, but a significant number (46%) said they were likely to review rehiring policies in the future.
Defining and Measuring Success
92% of respondents said retention of skills, knowledge and/or experience were among the most important factors in determining the success of phased retirement programs. Three-quarters (75%) also identified their employees' desire to gradually transition into retirement and 49% highlighted employees' ability to qualify for health care benefits as being critical to the success of their phased retirement arrangements.
Almost a third (32%) of the employers that already had phased retirement arrangements in place said they were satisfied with their programs. But only 14% said they actually measured the success of these programs. And 70% indicated that they had no measures in place and no plans to introduce measures in the future.
Allen Steinberg added:
"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."