As the first of the baby boomers approach retirement next year, much has been written about a potential worker shortage (see related story). That has triggered interest in ways to keep workers around longer, including a move toward "phased retirement," in which potential retirees assume part-time positions — and part-time pay rates — while collecting a portion of their pensions or other retirement benefits to supplement their decrease in pay.
With one-third of its 1,000 employees over the age of 50, Stanley Consultants has found phased retirement to be an attractive option for employees and the company alike. "It lets people ease into retirement while retaining a sense of professional challenge," says senior vice president and CFO Rick Smith. "And it helps us retain the expertise of this very knowledgeable group."
But companies interested in offering workers a phased-retirement option have encountered difficulty in creating comprehensive rules for implementing the scheme, not to mention uncertainty over some tax issues. Now the IRS is taking up the matter. Earlier this year, it issued Notice 2007-8, essentially a request for public comment as it addresses how to treat pension and similar distributions by older workers who remain in the workforce part-time. The Pension Protection Act of 2006 allows in-service pension distributions for workers aged 62 and above, but many believe that similar favorable treatment should be extended to workers below that age.
"The IRS notice is an important step for employers that want to allow their current employees to become phased retirees," says Mark Johnson, founder of ERISA Benefits Consulting. But he says companies can come at it from another angle as well: use the promise of part-time schedules to lure older workers from elsewhere. That way, he says, you gain valuable skills without having to deal with tax, pension, and defined-benefits issues.