Most everyone reaches a point in his or her career when it’s time to call it a day. The luckiest of us arrive at this juncture when we are emotionally and financially prepared for retirement and our employer is ready and able to accept our departure.
This shared perspective paves the way for mutually beneficial exit agreements. Sometimes employers don’t want to let a valued employee go and offer incentives for the employee to stay. But these days, especially after so many have seen their retirement savings plummet, even employees who are emotionally ready to retire may not be financially able to do so.
An employer may want to help these and other employees retire for a number of reasons. Most commonly, companies offer voluntary early retirement when they’re forced to consider a reduction in force but want to avoid wholesale layoffs, but sometimes a firm realizes that an employee is no longer happy or effective on the job and just wants to move things along.
How does a firm develop an early retirement package and approach an employee with voluntary retirement? First, you should contact your employment attorney and let him or her know what you are thinking. The attorney will help you comply with state and federal laws as you develop a plan for an individual or group of eligible employees. After that conversation, the following options should be considered.
Voluntary retirement packages, the most common incentive for prospective retirees, make it financially attractive to retire. There is no standard package, but typically employers will offer lump-sum cash payments, a continuation of paid medical and other health benefits for a specified period of time, additional severance (assuming your firm has a severance policy) and accelerated vesting in retirement plans. For employees younger than 62, employers may choose to pay an amount equivalent to the employee’s projected Social Security benefit until the employee reaches age 62 and starts to receive the benefit directly from the government. For the youngest retirees and those who might see voluntary retirement as a way to step out of their current rat race and into a less stressful or more rewarding position elsewhere, outplacement support, job search services and short-term access to office workspace are sought-after options.
Phased retirement is a good idea for employees who still want to work but who desire a reduced schedule. Employers benefit by reducing salary costs and, if they have a large population of near-retirees, staggering the loss of expert employees and maximizing the institutional transfer of knowledge. An exit plan for phased retirement would include employees training their replacements, mentoring assigned staff members and developing standard operating procedures to guide others when they are gone. Typically, an employee’s salary is prorated based on the number of hours worked. The employer may grant the partial retiree full or limited benefits depending on the benefit plan design and the needs of the employee. These arrangements usually have a defined end date and might include several steps down in terms of hours worked per week and level of benefits.
It’s important to make sure employees know that phased retirement does not guarantee continued employment. To ensure that the retiree doesn’t check out before the separation date, a firm should develop short- and long-term goals and objectives—for knowledge transfer, to get necessary projects completed and to measure the employee’s results and productivity. If the employee is not performing at the level desired, then whatever performance management processes that apply to other employees would apply to the retiree. Don’t feel you have to keep a non-productive retiree employed. Phased retirement is a two-way street.
Similarly, don’t turn the phased retiree into a lame duck by transferring authority and high-level responsibility too soon. A reduction in an employee’s perceived power will put him or her into a no-win position with peers and staff. Many individuals continue a highly productive and influential career well into their phased retirement, but the culture of your firm and the way the retiree is managed has as much to do with his or her success as do the actions of the retiree.
If your employee says no thanks when you offer an early or phased retirement, then you can develop a counter-offer, which may or may not be accepted, or you can continue on, business as usual. It’s important to understand that, while many employees are happy to retire early, many are not but are concerned that, if they stay, they will be laid off, demoted or otherwise treated as second-class citizens. They may be right. Employers that must downsize to stay in business may still lay off employees who declined to voluntarily resign, as long as it’s done legally (again, contacting your employment attorney is strongly advised). In addition, employers that misguidedly offer voluntary retirement packages instead of terminating an employee due to substandard performance may still start down the path of termination if an offer to exit voluntarily is rejected.
Retirement is a significant change for everyone involved. Employers should support retirement-age staff and develop sound retirement plans and transition processes. Doing this in advance will prepare you for the inevitable. Like it or not, every person on your staff will at some point call it a day.