HEW Hewitt Associates

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. About Hewitt Associates For more than 65 years, Hewitt Associates (NYSE: HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programs to millions of participants and retirees, on behalf of more than 300 organizations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit www.hewitt.com.