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Helping Those Workers Who Want to Cut Back
Would you keep working into retirement if you could trim your hours, but tap your pension to make up for the pay cut? Repeated surveys show that more than 60% of workers expect to keep working after they officially retire, according to the Employee Benefit Research Institute in Washington, D.C. But workers aren't interested in continuing the same grind. Instead, they're looking for reduced hours or workloads so they can start spending more time on outside interests while keeping a foot in the office door, benefits consultants say. Companies beginning to dabble in such arrangements, usually called "phased retirement," are finding that it can provide advantages all the way around. Workers get more time to help care for families, travel or develop new pastimes. Employers continue to benefit from their knowledge and experience; in fact, a 2000 study by Mercer Human Resource Consulting, New York, found that such workers' special assignments often included mentoring younger workers. Some state and local governments are using "deferred retirement option plans" for police officers, creating an additional nest egg to encourage them to stay on the job after they qualify for retirement. Private companies are using retiree pools to plug the gaps when active employees take time off. And universities are offering health benefits to tenured professors who go part time. But many employers are afraid that phased-retirement programs could run afoul of the federal tax code, which determines whether they get tax breaks for offering retirement plans. The code requires workers who have not yet reached a retirement plan's full retirement age, which is usually 65 years old, to retire completely from their job before they can start receiving pension benefits. Benefits consultants worry that the Internal Revenue Service might challenge a case where a worker retires with a deal in hand to come back to work part time at a later date, or where the worker returns as a contractor or consultant -- but is effectively doing the same job he or she did before retiring.
Still, it's clear that the demand among employers and employees for phased retirement will continue to grow as baby boomers edge closer to their 65th birthdays. To that end, the Internal Revenue Service and Treasury Department, which oversee pension benefits, are asking for ideas for "encouraging ... employers to provide opportunities for employees to continue active employment," according to an IRS notice issued June 14. The IRS is seeking comments from now through Jan. 1, which you can send to notice.comments@irs.counsel.treas.org. Among other questions, the IRS is trying to figure out how to reconcile the distribution of benefits before a worker reaches normal retirement age with the current requirement that pension plans be "maintained primarily for purposes of providing benefits after retirement." "I would like to see it become possible to pay [retirement] benefits to people who are on some kind of reduced schedule, and I'd like to see people be able to rehire retirees," says Anna Rappaport, a Mercer retirement consultant. "I'd like to see you not be in a situation where you have to go across the street to get a job" if you get bored in retirement and decide to go back to work. More companies should formalize their phased-retirement benefits, she adds. "Some companies are concerned that they have pension plans that encourage people to leave when they really want them to stay, but they mostly work around it with individual deals," she says. "The person who's savvy about making deals or has a supervisor who's pretty enterprising gets one, and the other person doesn't. You're losing out on good people that way." * * * State-sponsored college savings plans are changing so rapidly, it's tough to keep up. So-called 529 plans, programs to help you save for your children's and grandchildren's education, are offered by 45 states. No matter where you invest, there are no federal taxes on future withdrawals. State tax breaks are not only all over the map, but they are changing rapidly, too. Take California, for example. In a chart accompanying this column two weeks ago, we reported that the state did not offer its own tax breaks to residents investing in its 529 plan. But it turns out the source on the chart was out of date: California lawmakers recently eliminated state taxes on 529 withdrawals used for educational purposes. That mistake underscores the advice of financial planners to double-check your state's tax breaks when shopping for a plan -- even if you checked a few weeks ago. A good place to start is www.savingforcollege.com, a provider of 529 information based in Pittsford, N.Y. * * * Garden trains, which use larger scale cars and tracks than the ones you would run in the basement, are gathering steam. The trend got started in Europe decades ago, but migrated to the U.S. in the early 1980s when model-train makers started importing the equipment or producing their own. Hobbyists have formed local garden-train groups around the country since then, and the Garden Trains Association (www.gardentrains.org) started up last fall. You can get a train up and running for $200. But the average "engineer," who is a 53-year-old man, spends $1,100 a year on train accessories -- and only $400 on garden supplies, according to "Garden Railways" magazine. "Generally, the wife becomes the land baron. They own all the earth rights, and we men wheedle, cajole, and sneakily add track," says Lee Brandes, 64, who recently moved to Windsor, Conn., from Pittsburgh, where he founded a local garden-railway society. Now, his 14-year-old granddaughter is helping him dig a drainage ditch 100 feet long, 10 inches wide and 10 inches deep for his new rail bed. The latest models will be on display today at the National Garden Railway Convention in Fort Mitchell, Ky. (www.gcgrs.org). Other whistle stops: now through Oct. 27 at Chicago Botanic Garden and Sept. 7-29 at Longwood Gardens in Kennett Square, Pa. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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![[Graph of ways employers are helping phase workers into retirement]](worker1.gif)
Another
issue: Most traditional pensions are based on the last three to five years
of a worker's salary -- so an employee could lose out on a lot of
retirement pay by working part time in those crucial years.