Should Employers Help Employees Decide When to Retire?

December 2019

By Ellyn Bess and Beth Garner

Each day, approximately 10,000 baby boomers reach retirement age, but many don’t have a formal plan for leaving the workforce. Many would-be retirees either decide to keep working because they need or want to, while others leave their jobs earlier than expected for unforeseen reasons.
 
Employers looking to strategically manage their workforces by proactively anticipating and planning for a healthy outflow of retirement-age employees have a role to play in this big decision for workers.
 
Forty-four percent of current retirees say they would have liked more information and advice from their employer about retirement, according to a recent study by the Transamerica Center for Retirement Studies, a nonprofit private foundation that is a division of Transamerica Institute. What’s more, two-thirds of respondents in the study said their employer did nothing to help them transition into retirement.
 
Talking about an employee’s retirement plans can be an excellent workforce planning tool—and a critical one. When employees retire earlier than expected, employers don’t get a chance to transition their experience and knowledge to others. Moreover, when employees stay on the job longer than expected, employers may experience increased compensation and healthcare costs, as well as problems with promoting or rewarding other workers.
 
In most cases, it is against the law to force employees to retire or set a mandatory retirement age. But there are ways to get a better understanding of employees’ intentions as well as ways to help them plan and prepare for a successful retirement.
 
Here, we will discuss how and when employers might approach the topic, along with ideas for formal programs that can help transition employees toward their retirement.
 

Use Milestones as Conversation Starters

Like many things that require long-term planning, retirement isn’t top of mind for many workers. Thanks to the rising popularity of auto enrollment in 401(k) accounts and other company-sponsored savings plans, many employees today have a “set it and forget it” mindset about retirement.
 
One way for employers to refocus workers’ attention on when they would like to retire is to treat employee milestones as opportunities to reengage employees about retirement planning.
Annual performance reviews, promotions and career development meetings are all examples of events that can be opportune times for employees approaching retirement age to think about a specific transition plan and date. In these instances, employers can educate employees on catch-up contribution eligibility for their retirement-savings accounts, features of their retirement and health plans, as well as other tools that will help them understand if they are on track to meet their retirement goals.
 
However, it is important to not single out individuals or small groups of employees with communications about retirement planning. Instead, these conversations should include all employees—although specific conversations may happen individually or in groups.
 

Moving Toward Phased Retirement

Providing a formal, phased retirement option is another strategy. Phased retirement allows employees to transition into working fewer hours over time to help them slowly move into retirement. These programs, which can be designed in many ways, may be a mutually beneficial tool for employers and employees to help ensure a smooth transition.
 
Phased-retirement programs are relatively uncommon, but organizations that use them have reported benefits, according to a 2017 study by the General Accounting Office (GAO).
 
However, having a phased-retirement program comes with tax and regulatory hurdles; 71 percent of employers in the GAO study said they stopped operating a phased-retirement program due to the risk of violating federal tax and age discrimination rules. Still, several companies that have implemented phased-retirement programs reported being able to work around these legal challenges, according to the study.
 
For example, to help companies comply with Internal Revenue Code (IRC) nondiscrimination rules, several companies featured in the study required age and length-of-service requirements for employees to qualify for phased-retirement status. Other employers required enrollment forms where the employee demonstrated a business need to participate in the program, the study said.
 

BDO Insight: Give Employees Options

Roughly 70 percent of baby boomers told Transamerica in its April study that they plan to keep working past age 65, are already doing so or don’t plan to retire at all. The unpredictability of when workers will retire and the increasing longevity of their careers affects companies in many ways, but employers can also play a role in supporting their workers’ choices.
 
Companies can be seen as “aging-friendly” by fostering healthy—and compliant—conversations with all age groups about retirement. This involves helping employees think about retirement planning not just as an abstract concept or math problem, but as a central part of their overall financial well-being. Additionally, phased-retirement programs can provide employers and employees time to adjust and transition.
 
To explore more ways to manage workforce succession and how it relates to your broader benefits strategy, your BDO representative is here to help.
 

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