Study shows employers need to plan for retirement

Plenty has been written about American workers’ failure to plan adequately for retirement. Their employers seem to be doing an even worse job.

Only 1 in 10 large employers offers a formal phased-retirement program that lets workers cut back their hours or responsibilities before they quit work entirely, according to the 2018 Longer Working Careers Survey by professional services consultant Willis Towers Watson. Fewer than 1 in 3 of the companies surveyed offers their employees the option to work part time or switch to a less demanding job, according to the survey, which polled 143 large U.S. companies that employ 2.9 million people.

Formal phased retirement programs can take many forms. Examples cited in a 2017 report by the Government Accountability Office include:

• One program that allows workers who are at least 55 years old with 10 years of service to cut their hours by 20% with a 20% cut in pay but keep health insurance and pension accrual benefits.

• Another that allows employees 60 and older with five years of service to reduce their hours by 20% to 50%, or even more if they’re willing to lose their health insurance benefit.

• An employer that allows workers 55 and older with seven years of service to negotiate their own “glide path” to retirement, ramping down from full time to full retirement while retaining benefits.

• Yet another company that allows any employee to switch to less stressful or complex duties or phase to part-time work, retaining health insurance if they work at least 25 hours a week.

Employers that offer phased retirement typically say the plans are good for business, the GAO report found.

Phased retirement allows both the company and the worker to adjust over time, rather than scrambling to deal with an abrupt departure. Businesses can plan more efficiently since they know well in advance when an employee plans to leave, plus they can arrange for experienced workers to train or mentor younger ones, transferring years (and sometimes decades) of employer-specific knowledge.

For employers, retirement can drain talent and knowledge

Most employers realize retirement is a looming issue, with 83% of the large employers Willis Towers Watson polled saying significant numbers of their workers are approaching retirement age. In fact, 54% of employers believe the loss of talent from retiring workers will be more significant than other labor market risks in the next five years, the survey found.

Employers may not fully grasp, however, how many people may need to keep working because they haven’t saved enough, says retirement trends expert Catherine Collinson, CEO and president of the nonprofit Transamerica Institute and Transamerica Center for Retirement Studies.

For example, 7 out of 10 employers polled in last year’s Transamerica Survey of Employers were confident that their workers would retire with adequate retirement savings. But only 6 out of 10 employees had similar confidence. (Studies by the Employee Benefit Research Institute have found that 57% of U.S. households headed by people ages 35 to 64 are on track with retirement savings.)

Another disconnect: Employers often think their employees aren’t interested in more flexible schedules or phased retirements, because workers haven’t asked. But employees may be afraid to inquire, lest they seem less than gung-ho about their jobs or get shoved out the door before they’re ready, Collinson says.

Flexible schedules and phased retirements aren’t panaceas, of course. For many, continuing to work simply won’t be an option. The Employee Benefit Research Institute found that nearly half of workers retired earlier than they expected for reasons that included layoffs, health issues or the need to care for someone else.