Phased Retirement: Empowering All Employees

The retirement game is changing and employees are no longer stepping down in their mid-sixties to let their predecessors take their place. Research shows that this is not due to a lack of desire but more often because American workers do not feel equipped for retirement. And, neither do their employers. Letting go of your most experienced employees can leave holes in your organization, and with this loss of expertise, challenges can arise. One of the best ways to handle this is to implement a phased retirement program.

Phased retirement offers a bridge to employee retirement, essentially providing employees with the ability to reduce hours in the workplace while maintaining insurance and retirement benefits. For most organizations, limits are set to which employees are eligible. For instance, at a given organization, employees over the age of 55 who have more than ten years of service may be eligible to reduce their hours by up to 50%, decreasing their salary but retaining full health and retirement benefits. Many large organizations, such as Microsoft and Amazon, have found success in implementing phased retirement programs. They find that phased retirement allows their employees to maintain financial security while reducing hours worked, and gives the employer an opportunity to provide mentorship and guidance for the less experienced employees that will be taking their place.

As with any new benefits options, the first step to building an effective phased retirement plan is to set adequate policy. Your policy should begin from a place of empathy and protection. Ensure that employees feel supported and not punished by phased retirement by making the program voluntary; in this way, no employee will feel they are being pushed out by supervisors or co-workers. In addition, set criteria. In order to take advantage of phased retirement benefits, employees must meet certain pre-set standards.  For example, criteria may be:  over the age of 55, with 5 or more years of service, etc. Some organizations go so far as to set the “rule of 75” – an employee’s age and years of service must equal 75 (for example, 65 years of age with 10 years of service). Phased retirement looks different for every organization; while the rule of 75 may work for some, ensure that your criteria and policy fit the needs of your organization and your employees.

After you have set the criteria for eligibility, it’s time to flesh out what the phased retirement plan will look like. First, the duration of the plan: set a timeline. Allow your employee space to adjust to retirement but ensure that the length of time they are a part of the program is beneficial to the employees they are mentoring and to your organization. Secondly, decide what the reduced schedule will look like: how many hours the employee will work per week, and what their salary will look like. Many organizations decide hours and salary on an individual basis but tie it to a percentage. For instance, if an employee reduces their hours by 20%, their salary is reduced by an equivalent amount.

Lastly, decide on benefits. This piece of the program is important in a few ways. First, it will act as incentive for your employees to take advantage of the plan and should also not be detrimental to your organization or other employees. The policy should clearly outline how benefits are affected by reduced hours. If an employees accrual of PTO or sick time is tied to the number of hours they work, it should be clearly stated that these will reduced and how. If benefits are tied to an employees salary, it should be stated that they will now be based on the new, lower, salary. In addition, if there are any benefits that the employee is no longer eligible for after a specific reduction in hours worked, it should be outlined clearly and explained to them. For all changes to benefits, ensure that you are in compliance with local, state, and federal laws and that the employee adequately understands what will be affected. For instance, FMLA (the Family Medical Leave Act) requires that employees work 1,250 hours in a twelve-month period in order to be eligible for benefits. If the plan allows for an employee to fall below 1,250 hours, your plan should clearly outline the loss of FMLA benefits.

Conversations about retirement and reduction of benefits can be challenging. As with any challenging subject, the best place to begin the conversation is from a place of mutual respect. Establishing clear, respectful policy and procedure can help your organization provide support and assistance for employees looking at retirement, and will also help to protect you from any legal backlash. No matter your industry, implementation of phased retirement programs is an effective way to empower your retiring employees, provide mentorship for new employees, and ensure the success of your organization.

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