President's Message

"They say don't change the old for the new

But I've found out that this will never do.

When you grow old, you don't last long -

You're here today and then tomorrow you're gone…

For there's a change in the weather

There's a change in the sea,

From now on there'll be a change in me.

There'll be some changes made today,

There'll be some changes made."

"There'll Be Some Changes Made"              
W. Benton Overstreet/Billy Higgins, 1921 

            As I write this, California's Governor has just been recalled and Sacramento is about to feel the winds of change roaring through the hallways of the Capitol building and beyond (and I'm hoping, at the very least, that my electric bill will soon significantly decrease).  In Washington, D.C., legislation aimed at curbing telemarketing abuses is on, then off, then on again, and proposed pension legislation seems to be introduced on a daily basis, promoting great interest and discussion only to be eclipsed by even more recent proposals, all of which surface then sink into some nameless sea of committee consideration, never to be seen again.  Change in everything, however well-intentioned, is relentless, and, as I get older (or more senile), it seems as if even positive, well intended changes no longer completely fix any problem;  instead, things get better incrementally, bit by bit.  One tries one's best, one part of an issue gets resolved, and then off to the next part to repeat the process.  Sometimes it's hard to determine whether even the best of intentions polish away the rust or putty over the cracks - but any improvement is a positive step, in one way or another; it's all in the trying.

            In the spirit of trying and promoting incremental changes for the better, the Los Angeles Chapter Steering Committee is involved in several projects that should, when completed, make membership more useful and more rewarding.  First on our list of projects is the completion of a written membership roster for the Los Angeles Chapter.  Kurt Hallock, Assistant General Counsel of Computer Sciences Corporation ("CSC") and President-Elect of the L.A. Chapter, has gotten approval from CSC to use their print shop to prepare our 2003-2004 membership roster.  Now is the chance for all members who would like to see their names and their company's names listed as co-sponsors, contributors, patrons and friends of the LA Chapter to call either Bart Ballinger, Spring Seminar Sponsorship Co-Chair (213.614.5160) or me (213.439.9448) if you would like to contribute something towards the Chapter expenses in producing the membership roster.  Once the roster is printed, we will have copies available at the monthly meetings (thereby saving significant postage expenses.  Of course, if someone would like to underwrite the cost of postage, we could mail them quickly….).  Mike Anderson, our Publicity Chair, through his company S.L. Reed has offered to underwrite printing business cards for our Membership Committee so that we can encourage potential new members to call the Chapter administrators, EMA, to arrange for rapid delivery of membership materials.

            Our website is, once again, evolving into something that Darwin might approve of, but it's slow-going.  Our membership roster is being reconfigured and is being reposted on the website within the next few weeks.  Our monthly meetings will be completed and posted soon as well.  The next improvement suggested by Marisela Smith, Program Committee Co-Chair and Vice President, Corporate Benefits at CB Richard Ellis, is to add a bulletin board to our website so that members can post questions and responses (a sort of benefits chat room).  We are looking into the practical requirements of establishing this feature and maintaining it.  Our webmeister, R. Scott Harrison, Jr., has a list several feet long of website improvements, so any volunteers would be gratefully welcomed.

            Another change - and a very positive one - is the return to the Steering Committee of Larry Stein, Esq., of Sempra Energy, and Past President 1997-1998.  Larry returns to L.A. from San Diego, and has agreed to take the position of Director at Large currently held by Lori Meaders.  Lori will move into the Past President position (Deborah Rochelle, our immediate Past President, has moved out of state).

            Finally, I remind all readers that this year the LA Chapter has two overriding mandates:  (1)  Improve membership, and (2) Improve programs/seminars/features.  We in the Steering Committee are using our best efforts to devise our best practices, but the driving force must come, at least in part, from all our members.  Please drop us a line, give us a call, send us an e-mail when you have any suggestions on how we can surpass our goals and make this the best Chapter in the Western Pension organization.  We'd love to hear from you.

Bruce Baldwin
President, WP&BC L.A. Chapter

The Western Pension & Benefits Conference is seeking corporate sponsors for its evening programs as well as the upcoming Spring Seminar.  This is a great opportunity to get your company's name out to the benefits public.  If you are interested, please contact Gary Gausman at 818. 623.4763.

As a reminder, we offer new members to the WP&BC a special welcome by providing the first dinner program at no charge.  Sign up now and enjoy the next program "The 21st Century HR Department:  How to Get More Bank from Your Outsourced Buck" for free!!!

As a special incentive for recruiting new members to the WP&BC, the member who refers the most new members by 5/1/04, will receive 2 tickets to enjoy an evening under the stars at the Hollywood Bowl.

We have an exiting list of topics for this year's programs.  Mark your calendars now for the following:

October 14, 2003 - The 21st Century HR Department:  How To Get More Bang From Your Outsourced Buck 
Click here for more information and to register 

Click Address above for map and driving directions

November 11, 2003 - A Are You Taking Your Governor(ance) Seriously?

January 13, 2004 - Ethics in Benefits

February 20, 2004 - Identity Theft Issues

March 9, 2004 - IRS Update

April 27, 2004 - All day Spring Seminar

May 18, 2004 - Rethinking Retirement in the 21st Century

August 1-4, 2004 - WP&BC Annual Meeting - Portland - Bridges to Benefits
 

If you have a particular benefits area you want more information on, contact Mitchell Haber at 800.365.2548 about a possible Seminar on Demand.  The WP&BC is anxious to address current issues on everyone's mind.  Seminars on Demand are short teleconferences that provide a convenient forum for hearing the latest on the pension and benefits front.

Until recently, "out with the old and in with the new" was employers' prevailing sentiment as retiring employees made way for up-and-coming younger individuals.  Most companies were happy to see older workers retire, often rewarding them with extra benefits for early retirement or providing special severance benefits during business transitions.  New retirees, on the other hand, viewed retirement as an immediate transition from full-time employment to full-time leisure, with no happy medium in between.  One day they're employed, the next day they're not.  The problem is that many weren't ready to surrender their jobs instantly to join the retirement ranks.

Today, however, as millions of baby boomers slowly begin a mass exodus from the labor market, employers will need to cope with a gaping hole in their own work force.  For this reason companies now are taking employees' requests for phased retirement seriously.  A phased retirement program may increase the likelihood of hanging on to talented, hard to replace veteran employees as the labor market shrinks.

"With phased retirement, employers can tap into a pool of knowledgeable and talented folks for an extended period," said Syl Schieber, vice president of Watson Wyatt Worldwide, Washington D.C. "At first, employers may feel inconvenienced with the flexible hours and alternative work arrangements involved, but they'll pay a higher price by losing people altogether without phased retirement."

What Is Phased Retirement?

Phased retirement helps employees retire in stages, such as reducing the number of hours worked prior to retiring, taking another job after retirement, or being hired in a different capacity after retirement, according to Anna M. Rappaport, senior retirement consultant at Mercer Human Resources Consulting in Chicago.  Phased retirement is expected to play an important role in talent management, allowing employers to shift workers into retirement over the course of several years while making full use of their talents.  By allowing employees to gradually segue from employment to retirement, employers can retain key people who want something in between the two extremes of full-time employment and full retirement.  Many find their jobs fulfilling, but want to cut back on the intensity of their work and make room for family or leisure.  Figure 1 on page 36 lists examples of alternative work arrangements used to support phased retirement.

Facilitating phased retirement is more important than ever, as employees face increased life expectancy and the desire to remain active, according to Donald J. Segal, FSA, MAAA, chairman of the pension committee for the American Academy of Actuaries.  Figure 2 lists reasons why retirees choose to work after retirement.

Figure 1:  Flexible Work Arrangement in Phased Retirement

• Consulting                               
• Consulting                                      
• Mentoring/teaching
• Special projects
• Sabbaticals
• Telecommuting
• On-call work 
• Job Sharing
• Flex-time, part time or seasonal work
• Reduced work days/work weeks                                 

Figure 2:  Reasons Workers Cite to Continue Working After Retirement

Enjoy work/want to stay involved........................... 65%
Keep health insurance/other benefits......................45%
Make ends meet...................................................33%
Have extra spending money...................................33%
Support dependents..............................................15%
Try a different career...............................................3%

Battling the Brain Drain             

Companies already are bracing themselves for a predicted skills shortage in the coming years.  "Many employers view phased retirement as a way to deal with the brain drain caused when employees retire,"  Rappaport said.  "Experienced workers have institutional knowledge that is critical for ongoing projects and relationships.

"A gradual transition into retirement makes a lot more sense for senior professional and technical workers, because experienced workers have institutional knowledge that is critical for ongoing projects and customer relationships," Rappaport said.

"Companies can really benefit by keeping talent longer and, at the same time, enabling a smooth transition to the next generation," Rappaport said.  Extra time to impart that knowledge t younger employees can dovetail neatly with the retiree's desire to stay engaged in a profession he or she has enjoyed.

Rehiring Retirees

Two-thirds of employees expect to work for pay after retiring, according to a recent Employee Benefit Research Institute survey.  More workers plan to keep earning a paycheck, rather than count on market gains to carry them into golden hammocks when they retire.  "Although there are very few formal phased retirement programs in the private sector, a lot of companies are rehiring retirees,"  Rappaport said.  According to a 1999 study by AARP of 65 of 100 companies cited by Working Mother magazine as best for working mothers, 40 hire back retirees and 20 other part-time or flexible schedules.  Only one company has formal phased retirement plan.  In Mercer's 2001 study of the 59 percent of surveyed companies who have a formal rehire policy, 63 percent rehire retirees part-time or for temporary assignments; 61 percent use retirees as contractors or consultants; 24 rehire retirees full time after a wait; and 15 percent use a retiree pool.  Only 4 percent prohibit rehiring retirees.

Phased Retirement at RIT

As previously stated, that there are very few formal phased retirements, except for universities and government.  Rochester Institute of Technology (RIT) in Rochester, N.Y., is a prime example of an institution of higher learning that has enjoyed much success with its phased retirement program.  The program, which has been in place since June 1, 1984 applies to all regular full-time employees (both faculty and staff) who meet the retirement eligibility criteria.  "At any given time, there are usually 15 to 20 employees in the phased retirement program in an employee population of 2,700," said Judy DeCourcey, RIT's benefits manager.  "The program has worked very well for the folks who have taken advantage of it.  But its success often depends on the department size - it may not be feasible for small departments where there are only two or three people.  In larger departments, however, it's easier to spread the work around."  In higher education phased retirement can work well for both staff and faculty because faculty adjunct instructors can come in and teach courses when needed, DeCourcey said.

How it Works

RIT's Retirement Transition Program is a phased-in approach to full retirement status designed to recognize and reward long and successful service to the institute, while continuing to utilize the skill of employees approaching retirement.  To be considered for the program, and employee must be full time and eligible to retire.

The employee and his manager determine a schedule that is mutually beneficial.  For example, a faculty member could work full-time for two academic quarters.  A staff member may work a reduced work week year-round, or work full-time during the school year with the summer off.  The employee's pay is reduced on a prorata basis.  Because the plan is intended to provide a transition to retirement, it is available only for a maximum of three years.  During the transition period, RIT provides employees with nonsalary-based benefits (e.g., medical and dental coverage, vacation and sick time) as if they were working full time throughout the fiscal year.  The employee's salary-based benefits (e.g., life and AD&D insurance, retirement plan contributions and long-term disability) are reduced in proportion to the time actually worked.

A reduced income often can be a program barrier, but RIT employees over age 59-1/2 are eligible to take in-serve withdrawals from the Voluntary Retirement Plan (a 403[b] defined contribution plan) with employee contributions only.  This feature makes the program more feasible for many.  For program consideration, full-time employees who are eligible to retire must initiate a request that requires approval by RIT's vice president.  Once approved, the request is forwarded to HR for verification that eligibility requirements have been met.  "Our phased retirement program is a win-win situation for both the employee and RIT," Decourcey said.  "The employee can have the best of both worlds, and RIT benefits because there is time for Succession planning and knowledge transfer."

Legal Barriers to Phased Retirement

Current pension law poses a considerable financial obstacle to phased retirement and, as previously mentioned, formal programs are few and far between in the private sector.  Employees can't collect a pension from a defined benefit plan while working full- or part-time for their current employer.  A 55 year old employee, for example, cannot phase down to 20 hours a week and collect a monthly benefit from his or her employer's pension plan.  Benefits can be paid only when employment ceases.  There is no comparable pension ban for employees who retire and then go to work for another employer.  Those individuals can continue to collect their pensions from their former employers while earning a paycheck from their new employer.

"The IRS recently collected comments on these regulations," Rappaport said.  "We hope that means revisions that will open the door for greater income flexibility for the over-65 crowd."  Changes in the law would allow a worker to earn simultaneously both a paycheck and a retirement check from the same employer.  Without the implementation of these legal changes, employers will watch key older workers leave to collect their pensions and join rival firms.  (For more information about legal hurdles to phased retirement plans, read "Cancel the Retirement Party! 

Excerpted from Workspan magazine July 2003

Phased Retirement:  A solution to Keep Baby Boomers on the Job

How many retirement parties have have you been to this year?  Well, get ready because in the next few years you can bet on going to many more "good-bye parties" as baby boomers exit the work force and leave behind a lot of empty desks to fill.

U.S. companies will face a severe shortage of badly needed skills in the coming decade unless they act now to entice top-performing older employees to delay their retirements.  One trend to keep the "This is Your Life" parties to a minimum is phased retirement - part time work by older employees.  But legal and institutional barriers must be addressed for it to succeed.

The Urban Institute's Senior Fellow Rudolph Penner presented an overview of phased retirement and the current problems companies face in instituting partial retirement at the Conference Board's 2003 Employee Benefits Conference.  More than 50 benefits professionals and consultants gathered to gain insight into how their organizations can buck the coming labor shortage trend by providing the right incentives to keep older employees on the job.

Labor Shortage

"The labor force of the United States will stop growing from 2010 to 2030," Penner said.  "This demographic change will be big."   Fertility rates dropped in the late 1950s and, as a result, the labor force will almost be constant between 2010 and 2030.  Penner said small growth will occur through immigration and high birth rates among recent immigrants.  "Immigration will be the only reason the labor force will grow,"  Penner said.  It's hard to imagine this as a solution to the problem."  This impending problem hit the nursing and teaching professions the hardest, along with upper and middle managers, Penner said.  However blue-collar workers will be much less affected.  "I believe that there are so few of them [blue-collar workers] at older ages, because many work their way into a white collar job before they get very old.  As they age they are probably particularly anxious to get a job that is less demanding physically," Penner said.

Penner believes that if public policy and private sector organizations can encourage some baby boomers to delay retirement, some of the projected labor force problems will be eased and the increased number of employment options would directly increase the welfare of those older Americans interested in more flexible employment opportunities.

What Older Workers Want

An Urban Institute white paper (Legal and Institutional Impediments to Particular Retirement and Part-time Work by Older Workers), authored by Penner, Pamela Perun and Eugene Steuerle, concludes that the best way to induce older workers to stay on the job is to offer phased retirement, which includes: 

• Flexible hours

• Part-time work

• More vacations

Unfortunately there are barriers to these incentives stemming from an era when there wasn't a labor shortage and it was acceptable to move people out of the labor pool in order to make room for baby boomers.  "The private sector almost pushed you out the door if You didn't retire," Penner said of that time.

The incentives older workers want may seem simple at first glance, but upon deeper examination, institutional and legal barriers exist for older workers that need to be changed for phased retirement to achieve its full impact in lessening the effects of the coming labor shortage.

Phased Retirement Hurdles

According to Penner, the most significant barrier to phased retirement is a defined benefit plan (DB).  Though many DB plans specify a normal retirement age of 65, long-time employees often find in their late 50s that the pension increase gained by working an extra year does not compensate them for the fact that they will receive the pension one year less.  Penner said defined contribution plans (DC) won't have this negative effect like DB plans and he supports consumerism in employee benefits.

Social Security and Medicare also impede phased retirement by encouraging early retirement., Penner said.  The age requirement to receive these benefits has not changed over the years, thus rewarding retirement at age 62 and 65 for Medicare.

Health care costs create another hurdle to hiring and retaining older workers.  Many employees want to work beyond retirement age in order to keep their health care insurance.  But employers, faced with escalating cost increases, are cutting back on coverage or asking employees to pay a larger share.

"The cost for a standard health insurance policy for 55 to 59 years old can be more that double that for 20 59 44 year olds,"  Penner wrote in his white paper.  "The cost of hiring those 65 and over could be significantly reduced by removing the federal requirement that Medicare benefits are reduced or cancelled-effectively taxed away - if an employer plan is provided."

Barriers to Phased Retirement

• Defined benefit pension plans

• Social Security

• Medicare

• Health care costs

• The Tax Code

• Employment Retirement Income Security Act of 1974 (ERISA)

• Discrimination in Employment Act (ADEA)

Other obstacles in getting older workers to stay on the job are the complex rules and regulations of the Tax Code, the Age Discrimination in Employment Act of 1967 (ADEA) and the Employment Retirement Income Security Act of 1974 (ERISA).  "These rules are complex and have unintended consequences," Penner said.

"If phased retirement programs are facilitated, in part, by revisiting the treatment of part-time work under ERISA, the reform could serve as a vanguard for more flexible benefits policies for both older and younger workers,"  Penner wrote.

To avoid the risk of litigation, an employer may avoid making special arrangements for its older workers because when combined, the three laws result in ambiguities and potential lawsuits.  Some companies "retire/rehire" employees, but the Internal Revenue Service (IRS) has never clearly defined the length of a legal separation, so companies may shy away from this recourse in keeping its older top talent.  The IRS could issue guidance, describing a number of "safe harbor" scenarios or discuss more fully the factors employers should consider, Penner said.  This would provide some reassurance and reinforcement for the careful employer while reining in the use of the "retire/rehire" arrangements or inappropriate consulting agreements that are common today.

The Time for Change is Now

"There has to be a mood or crisis before reforms can be accomplished," Penner said.  "Any major initiatives must come from big business, but the fundamental interest in the business community just isn't there yet and it's a low priority for legislators."

The time for change is now, or companies will face the loss of top talent, reduced productivity and a deterioration of its knowledge base within the next decade.  From simple institutional policy changes to statutory changes, reforms should be pursued that will encourage baby boomers to remain in work force, if they so desire.

It's alarming how little interest employers seem to have in this topic," Penner concluded.  Until the barriers to phased retirement are removed, HR professionals will need to keep budgeting for gold watches and grandfather clocks and keep saying good-bye to highly skilled and experienced employees.