No Time to Put Your Feet up as Retirement Comes in Stages
The New York Times, April 15, 2001
Griffiths retired as a telephone repairman at the end of his shift at the
New York Stock Exchange one Friday last fall, "just as if I was going
home to put my feet up on the porch," he said. Come Monday morning,
though, he was back on the trading floor, fixing the same telephone lines,
this time as a part-time worker, with his pension making up for the lost
"I was a little leery" of accepting the offer to "sort
of" retire, admitted Mr. Griffiths, a 52-year-old Staten Island
resident. But his employer, Avaya — a recent spinoff of Lucent
Technologies — offered cash bonuses to encourage older workers to exchange
their job security and full- time compensation for a novel blend of work and
"I had a lot of bills," Mr. Griffiths said. "That was the
driving force for me to take it." His incentives included $10,000, two
years' salary and the chance to win future bonuses.
Time was, when Americans retired, they retired in earnest, to the golf
course, to Florida, to consultancies, to volunteer work — to just about
anything except their old jobs. Besides, tax laws generally prohibit
companies from distributing pensions to working employees.
But a number of large companies, including Avaya, Monsanto, PepsiCo and
Lockheed Martin, are now finding ways to work around the legal obstacles and
offer phased retirement.
Phased retirement can take many forms. At universities, it is used to clear
out elderly tenured professors. But in the private sector, it is being
promoted as a way to keep valued older workers in a tight labor market.
Workers in their 50's who would otherwise take advantage of early retirement
provisions in their pensions are offered the chance to work reduced hours
— something surveys show many want to do — and supplement their reduced
incomes by tapping those pensions.
Employers and some retirees praise the arrangements, and business groups
have been lobbying Congress to clarify their use by amending the respective
laws. A phased- retirement bill died in the last Congress, but it is
expected to be reintroduced soon.
Others view the push for phased retirement with concern, however, worrying
that if the pension laws are relaxed, employees might be induced to tap
retirement benefits in middle age and end up with less to live on late in
"I'm very suspicious that some companies are reducing the overall
pension benefit that they would have to pay out," said Allen C.
Engerman, co-founder of the National Center for Retirement Benefits, a
Chicago law firm that offers assistance to retirees who suspect they are
These concerns arise because phased retirement is being aimed at employees
in their 50's, the age when workers in traditional pension plans begin to
accrue their greatest benefits. Advocates for older workers fear that some
companies will devise phased retirement plans that tempt 50-ish workers to
cash out pensions as lump sums, at the moment they would gain the most by
retaining their plans' conventional provisions.
G.T.E. offered such a deal last year as it prepared to merge with Bell
Atlantic to form Verizon Communications. Its reduced pension liabilities
flowed through to the bottom line as a $487 million pretax gain in the first
Other analysts wonder whether phased retirement is not just a new way of
turning America's veteran employees into contingent workers, allowing
corporations to subsidize their compensation costs by drawing down surplus
"These are highly skilled, functional people, and they're being
converted into part-time workers," said David C. Howard, a St. Louis
lawyer who has represented former Monsanto workers in age-discrimination
suits. "There's a whole across-the- board range of benefits that
they're being excluded from. They're not getting merit-pay increases,
At Avaya, Michael A. Dennis, a vice president who negotiated his company's
program, argued that phased retirement is a tool for preserving good jobs
As a corporate descendant of the old Bell monopoly, Avaya was heavy with
tenured union employees accustomed to lifetime job security, Mr. Dennis
By persuading about 1,500 older technicians to try phased retirement, he
said, Avaya has pegged its labor costs to market cycles, while protecting
the jobs of about 3,500 technicians who keep full-time hours, job security
and union benefits.
For the phased retirees, Avaya pays only wages and mileage, he said. The
cost of their retirement benefits was charged to Lucent during the spinoff.
The company's unions accepted the plan, Mr. Dennis said, on the thinking
that a strong Avaya would be more likely to prosper and, eventually, add
more union jobs. A number of Avaya's corporate clients have been in touch to
find out how they, too, could create such programs, he said.
Employees in their mid-50's tend to present big liabilities — pension
accruals, wages buoyed by seniority, rising health care costs. For those
reasons, it was popular in the 1980's and 1990's to urge costly 55-year-olds
to the door. Even after paying them cash incentives to retire, companies
could replace them at lower cost with younger workers.
Now, though, after a decade of economic expansion, many companies find it
hard to find skilled employees. Compensation consultants say retaining older
employees is becoming more attractive, particularly as America's 76 million
baby boomers age. The oldest boomers are turning 55 this year, an age at
which most big companies with traditional pensions offer early retirement.
Worse, it has become apparent that when early retirees leave, they often
take new jobs at other companies. And then they no longer look so expensive;
many will work for wages only, because they already have health insurance
Avaya's Mr. Dennis said this was on his mind as he drafted the company's
phased-retirement plan. "We didn't want these folks retiring and going
around and working for other companies that would be competing against
us," he said. The breakthrough, he said, was finding a legal way of
giving the older workers their pensions and keeping them in-house.
Other companies are offering similar arrangements on a smaller scale, said
Anna Rappaport, who surveyed 232 private and public-sector employers for the
William M. Mercer consulting firm. She found that 36 percent were hiring
back retirees as consultants and independent contractors without benefits,
and 37 percent were hiring them back for part- time and temporary
But the legal obstacles to such programs are formidable, said Judith Mazo,
research director at the Segal Company and a member of the Labor
Department's working group on phased retirement. She cited the rules against
distributing pensions to workers under the normal retirement age and rules
that require companies to distribute pensions equitably. Some companies fear
that if they offer packages only to their most desirable early retirees,
they will violate the law, she said, possibly jeopardizing their pension
"What you're seeing now are ad hoc arrangements," said Eric
Lofgren, global director of the benefits consulting group at Watson Wyatt.
"What is really needed is a legislative fix."
Lynn Puckett, former manager of the Red River Valley Rural Electric
Association, knows all this firsthand. Seasoned managers and linemen are not
exactly thick on the ground in the sparsely populated Oklahoma ranchland
where his company provides electricity. Mr. Puckett qualified for full
retirement when he turned 52, but Red River instead let him take his pension
and spend the next eight years as a phased retiree, recruiting and training
During that time, Red River allowed Mr. Puckett to accrue a second pension,
a rare and costly feature that Mr. Puckett called "a great benefit to
me and my family." He said he doubted many big companies would be
willing to offer such a plan.
Indeed, Monsanto, which began its phased retirement program after work force
reductions in the early 1990's, makes sure that its 600 phased retirees work
no more than 999 hours a year, a limit that keeps them from becoming
eligible for new pension benefits.
Kenneth A. Raskin, an executive compensation and benefits lawyer at the firm
of White & Case in New York, expressed surprise that any company was
openly limiting workers' hours to keep them from becoming eligible for
pensions. He said discharging employees just before they become eligible for
benefits might violate federal law, depending on the circumstances.
Wilma K. Schopp, who oversees Monsanto's compensation and benefits, said
that the program was created to retain the best older workers, not to reduce
"It provides a flexible work force for Monsanto, and it provides work
for the retirees if they want it, according to their own schedules,"
she said. "I wouldn't think this would be the route a company would
take if it were just trying to get people to work without benefits."