Magazine article Workforce Management

Proposed Cure Brings New Ills to Companies

Magazine article Workforce Management

Proposed Cure Brings New Ills to Companies

Article excerpt

Phased retirement

EMPLOYERS MAY HAVE THOUGHT that the proposed regulation on phased retirement would put to rest their concerns about retaining older workers, but they could be in for a new round of headaches.

The rule, which was proposed by the Internal Revenue Service and U.S. Department of the Treasury, would allow older employees to work part time and receive benefits accrued in their pension plans, a seeming benefit for both employers and employees. There is a catch, however, in that employers would have to conduct annual audits of how many hours employees are working to determine how much in pension benefits they receive.

Under the proposal, employees' benefits during phased retirement would be limited to the percentage by which they expect their hours to be reduced. For example, employees who expect to reduce their hours by 25 percent would receive up to 25 percent of their benefits during the phased retirement period. If employees end up working more than they expected, however, the employer would have to reduce the pension benefits being paid out to them.

This means that employers who pay employees annual salaries would not only have to count their employees' hours during the phased retirement period, they also would have to know how many hours they worked when they were full-time employees. Such calculations will require hours of administrative work particularly for companies with salaried employees, versus those that pay by the hour. Many observers expect employers to rely on technology to help them with this burden. Creating an automated system to do the calculations would cost about $100,000 for a one-time implementation, according to Valerie Paganelli, senior consulting actuary in the Seattle office of Watson Wyatt Worldwide, who testified on the subject at a March 14 hearing before Treasury and IRS officials.

Counting employees' hours and figuring out what percentage of a pension benefit they should receive becomes even more complicated given that employees' hours often change from week to week. For example, an employee could work 20 hours one week and 30 the next. "This is just not practical," says Bruce Schobel, chairman of the retirement security principles task force at the American Academy of Actuaries, who helped write the group's comment letter to the Treasury Department and the IRS. …

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