No Time to Put Your Feet up as Retirement Comes in Stages

By: Mary Williams Walsh
The New York Times, April 15, 2001 

Tom 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 income.

"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 retirement.

"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 life. 

"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 being shortchanged.

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 quarter.

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 pension assets.

"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, advancements, promotions."

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 with benefits. 

As a corporate descendant of the old Bell monopoly, Avaya was heavy with tenured union employees accustomed to lifetime job security, Mr. Dennis said.

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 and pensions.

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 assignments.

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 plans.

"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 a successor.

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 benefit obligations.

"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."