CEOs face monumental challenges when
navigating issues surrounding their
aging work force. In order to avoid the predicted brain drain caused by retiring baby
boomers, many CEOs are orchestrating
knowledge transfers between retiring
employees and less-experienced workers,
while other executives face retention issues
with younger employees, as middle-aged
managers stay longer and limit opportunities
for up-and-comers. The best solution for
CEOs is to control when workers retire.
As it stands today, the baby boomers are in
control of their retirement dates and many
aged 55 to 65 are choosing to stay on the job
longer because they just can’t afford to leave
or are anticipating limited access to affordable medical insurance. The more employers
step in to help solve some of the problems
facing prospective early retirees, the more
they’ll be able to control their exodus.
“There are many issues facing employees
who might like to retire early,” says Jon Joss,
senior retirement consultant with Watson
Wyatt Worldwide, San Francisco. “Without
401(k) oversight, retirees are forced to manage their own asset portfolios and the volatility of the financial markets doesn’t portend
enough income stability for prospective
retirees. If CEOs want to get a handle on the
issues and control the timing of employee
retirements, they really need to provide more
assistance to potential early retirees.”
Smart Business spoke with Joss about
what CEOs can do to support early retirees
and exercise better control over the egress of
middle-aged workers.
How can employers provide more stable
retirement income to early retirees?
In order to help employees retire early,
employers should consider offering annuity
options under their 401(k) or other defined
contribution plans. Over the past few years,
financial services firms have introduced
insurance products to help fill the hole left by
the winding down of traditional plans, where
vested participants are promised a lifetime
monthly benefit at retirement. The growth of
401(k) and other defined contribution plans
place the investment management and draw
down burden on employees as retirees receive a lump-sum benefit when they leave.
Consider offering employees the choice of
several annuity plans and the option to invest
all or part of their defined contribution retirement assets into the program. Because
employees will feel more secure receiving a
guaranteed income and relieved from the
burden of managing their investment portfolio, they may retire earlier.
Offering annuities as an option can also
keep scarce knowledge workers on the job
longer or assist with retaining younger workers who frequently say they want guaranteed
retirement benefits. By leveraging their purchasing power, employers may be able to
offer retirees better annuity programs than
those they could purchase on their own. The
Pension Protection Act has provided some
good guidance around the selection and protection to employers for offering annuities,
making employers feel more comfortable.
Should employers offer planning assistance
to prospective retirees?
Employers can provide modeling tools that
will help prospective retirees determine how
much money they’ll need to retire and their
projected income levels resulting from a variety of portfolio investment scenarios.
Employers can also continue to make those
tools and investment advisory services available to employees once they retire. This type
of assistance provides reassurance to prospective retirees, because navigating the
volatile investment markets can be treacherous enough.
How can employers help employees obtain
medical coverage before they reach the age
for Medicare eligibility?
There are several options that employers
can consider to help prospective early
retirees obtain affordable health coverage.
Under one strategy, the employer can create
a defined contribution type plan used to pay
health care premiums for the employee
based upon a length of service formula. For
example, let’s say that an employee has 20
years of service, the employer can allocate
$1,000 per service year, or $20,000, and place
that money in a separate account, or leave it
unfunded and use it to pay for medical premiums. Or the employer can place the funds
in a Health Savings Account that the employee can use to meet deductibles and uninsured expenses. Another option is to make
the company’s group health coverage available to early retirees.
By leveraging their group buying power,
employers can offer retirees more affordable,
guaranteed coverage with no eligibility
requirements. Employers can decide if they
want to contribute all or part of the premiums, and some of the cost could even be covered by the defined contribution plan allocation. There’s a great deal of flexibility available to employers in meeting this need.
What other health care assistance might
early retirees need?
CEOs should consider maintaining the
claims administration for early retirees and, if
they decide to extend group health coverage,
offer HMO or PPO options, which will help
retirees manage their costs and achieve
greater financial security. The more financially secure employees feel, the sooner they’ll
retire.
JON JOSS is a senior retirement consultant with Watson Wyatt
Worldwide, San Francisco. Reach him at (415) 733-4466 or
[email protected].