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What If They Don't Retire

December 1, 1997
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Related Topics: Retirement/Pensions, Workforce Planning, Featured Article
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By profession, Dawn Moran is a compensation manager in southern New Jersey. By birth status, Moran is a late baby boomer (born in 1962). "At the current age of 35, I can't imagine ever retiring. I haven't saved enough money, even though my husband and I make in excess of $125,000 per year," says Moran, despite the fact that her job requires her to be a financial whiz. "We've been so busy putting kids through school and paying bills, housing expenses and so on, that we've saved very little. We understand the realities of Social Security and that it probably won't be around for either one of us." Moran's husband, 46, is also a boomer. Moran says that although she thinks she'll be working the rest of her life, or most of it, anyway, she'd still enjoy a shift in "traditional" work as she gets older.

Moran's vision of semi-retirement, somewhere between a full-time worker and a nonworking retiree, is an expectation shared by many baby boomers. Because a significant slice of the boomer population—72 percent, according to the Washington, D.C.-based Employee Benefit Research Institute's (ERBI) "1997 Retirement Confidence Survey"—think their future economic reality will require them to keep working beyond age 65, Workforce urges human resources managers to do some serious thinking now about both the problems and the opportunities that a nonretiring or semi-retiring workforce may create for their businesses. Because what HR professionals do now will be the reality that their companies, and their workers, will have to live with when the traditional retirement age begins to beckon.

Obviously, no one knows for sure what the future holds for employers, boomers or jobs. However, there's enough information available today to make educated predictions about the employment areas that are most likely to change if boomers don't retire in the traditional sense starting in the year 2011 (the year in which the oldest boomers will turn 65), and beyond. These issues include: the employment contract, health care and other benefits, staffing, and skills and training.

The employment "contract" may need to change.
Topping the list of issues that organizations should consider now is the employer-employee contract or compact. This refers to the implicit or implied rewards that employers promise workers for the work they do. It's a subject that has undergone much discussion in the HR arena over the past year, and it's a key boomer agenda item. Traditionally, employers have not cut the proverbial cord when they retired their workers. They often provided rich pension and health benefits that, in conjunction with Social Security, Medicare and Medicaid, left employees so well taken of in their retirement years retirees usually had little to worry about. The future workplace contracts and social contracts probably can't afford to be so generous.

As time marches on, health and pension benefits in particular will continue to cost employers even more, leaving them with little choice but to ask employees to bear the greatest burden for these benefits themselves. It's a continuation of the trend toward employers offering less and employees contributing more.

In fact, employers may need to consider going even further by whittling benefits down to a small core of offerings, rather than continuing down the current path of offering just about everything under the sun—from onsite massages to concierge services.

The primary platform HR managers will need to formulate is: How paternalistic should their organizations be? Do companies want employees to continue to rely on them for their personal needs, creating expectations of entitlements? In fact, HR professionals should consider whether offering health and other benefits actually might encourage employees not to retire. If workers fear that employer-provided benefits are better than what they could get on their own, there won't be much incentive for them to leave full-time positions for traditional retirement or for part-time careers—even if they preferred to do so.

By providing benefits, employers may be unnecessarily keeping boomers tied to them—while boomers may grow increasingly resentful that they have to work at all. Will employers really be getting the best out of them in this scenario? Probably not. The best idea might be for employers to begin thinking of themselves as mentors that help workers toward their goals, rather than as paternalistic entities that simply dole out the American dream in unlimited quantities.

Clearly, HR professionals need to design their employment contracts and compensation strategies carefully, starting with health care.

Boomer health-care coverage will be a challenge.
It's no surprise that experts predict health-care costs will keep rising and employers will continue to struggle with cost containment. So far, employers' strategies have included capping coverage, moving employees and retirees from indemnity plans to HMOs and sharing costs with employees.

On many levels, these strategies have worked. However, topping the list of the health-care problems of the future is that, just like Social Security, active employees have helped pay the costs of employers' retiree health-care coverage. It's a pay-as-you-go system. So, current workers will bear a growing financial burden for the health-care needs of an increasingly large retiree population, or semi-retiree population, if employers keep their health plans the way they are. This is especially problematic with a Medicare system that's also financed primarily through taxes on current workers' wages.

According to Sylvester Schieber, vice president of Bethesda, Maryland-based Watson Wyatt Worldwide, and co-author of Watson Wyatt's 1996 report, "From Baby Boom to Elder Boom: Providing Health Care for an Aging Population," employers will be pulled in different directions in the future if the federal government curtails Medicare and Medicaid. "Employees are going to push employers to expand their benefits because they're losing government benefits," says Schieber, a health-care expert and an early boomer, at age 51. "My guess is if push comes to shove, employers will eliminate their retiree health benefit programs or they'll move to defined-contribution (DC) type plans, in which employers contribute X dollars toward retiree health care, and if there are costs over and above that, it will be the employee's problem [to make up the difference]."

Watson Wyatt's boomer report also suggests that the government in the future might allow employees to save post-tax earnings in Health Security Accounts, so they'll have money for future health-care premiums and out-of-pocket expenses in retirement. (For more information on Watson Wyatt's study, see the end of this article.)

What other strategies might employers consider? David M. Walker, a partner and global managing director of Arthur Andersen's human capital services practice based in Atlanta, has one: "Provide an opportunity for individuals to purchase health care at group rates." That means: Offer employees access, but don't pay for it. Walker proposes this strategy in an article titled "The Looming Retirement Crisis" published in Employee Benefits Journal, June 1997. Simply, his idea is that employers figure out which health-care coverage is a good value for workers and allow employees themselves to buy coverage at group rates through their employers.

Workforce has another radical suggestion that moves HR strategy beyond the traditional paternalistic mode: Just pay boomers—and everyone in the workforce, for that matter—more, rather than giving them benefits, and let them purchase their own health care. If human resources managers implemented Walker's idea, employees would have access to purchasing health care. This way, workers would have continuous coverage, whether or not they work part time and don't get paid coverage from their employer of the moment.

If boomers of the future will be changing jobs periodically or working in nontraditional work arrangements, they'll be vulnerable to health-care gaps between jobs. "For people moving from job to job, or looking at their employment as a short-term event, simply receiving more money in place of other benefits can be pretty appealing," says Laime Vaitkus, editor of IOMA's Report on Salary Surveys, published by the Institute of Management & Administration Inc. (IOMA) based in New York City. "Many people prefer to stay with the same doctors on the same plan, and having them provide their own coverage would allow them to do so more easily—regardless of what company they're working for at the moment."

Not everyone is crazy about this idea, however. "Personally, I wonder about the amount of money you'd have to pay people to make it worth their while to forage for their own coverage; it could be prohibitive," says Ann Podolske, a boomer with compensation expertise living in Southampton, Massachusetts, who also recently tried to get health coverage on her own. "I became self-employed last year and found it a bit of a challenge to find decent, affordable coverage at the grand old age of 37 because of a couple of pre-existing conditions. Unless the future is a much kinder and gentler place for aging human beings, odds are older workers will have their share of health baggage, too. So they could face an even more challenging marketplace." She worries that employees might be tempted to "go bare" without insurance and pocket the extra income, leaving them and their families at risk for catastrophic illness or disability.

This is a sentiment shared by Charlotte Anderson, manager of work/life initiatives at Silicon Graphics, based in Mountain View, California. "I'd say if we were to give employees X amount of dollars and say, 'Go buy what you need.' Would they do it? Probably not," says Anderson whose firm employs 11,000 people worldwide with an average age of 35. It could be risky business. But then again, Anderson admits: "It's an interesting idea."

The new provisions around the portability of health care, however, may make the idea of employees buying and maintaining control over their health-care coverage a workable possibility for many organizations and boomers. But health care isn't the only benefit HR pros should think twice about.

Other benefits may also need to change course.
Pension-plan management will be a big HR focus in the next 15 years as boomers age. Defined-benefit (DB) plans are being scaled back, and DC plans, especially 401(k) plans, have become much more popular. At many organizations, DC plans are the only retirement plans.

"One interesting phenomenon we're observing in terms of plan design is the emergence of hybrid retirement vehicles like the cash-balance plan, a DB plan that looks an awful lot like a DC plan," says Paul Yakoboski, a research associate at ERBI, specializing in retirement income security issues. "On the flip side, age-weighted profit-sharing plans are also growing in popularity for DC plans." These plans favor older employees just joining a workforce. (See the end of this article for information on obtaining an article on hybrid pension plans.)

The trend is to get employees more involved in their retirement planning, and in sharing the cost. Realizing this, investment firms are making it easier for workers. Last year, for example, Boston-based Fidelity Investments started offering a new kind of lifestyle pension fund called the Freedom Funds that have maturation dates attached to them like 2020 or 2030. An investor simply chooses the fund that most closely relates to the year in which he or she wants to retire, and the fund automatically follows an allocation strategy that becomes increasingly conservative as the fund nears its target maturation date. It's perfect for boomers who are in a state of denial about getting older. They don't have to acknowledge when it's time to move their assets into a fund meant for workers closest to retirement.

A self-perpetuating retirement fund is something Dennis Gallagher, a 50-year-old baby boomer and a detective for the City of San Diego's Eastern division, could have used. He's considering retiring from the police force next year—with 25 years of service. At 51, that would be considered early retirement. Gallagher is retiring to pursue other job interests. However, he admits that even if he wasn't looking for new challenges he'll have to keep working five to 10 years, or more, because he won't yet have the income level he wants to satisfy the lifestyle he, and his wife Carole, would like in their retirement years.

Why? Even though Gallagher's employer has offered a deferred-compensation plan since he joined the police department in 1973 (which actually was fairly progressive for a public employer) and has offered a 401(k) plan for approximately 10 years, he says he wasn't given enough information or encouragement about how to use those benefits until two years ago when he attended a city-sponsored retirement seminar, and therefore, hadn't taken full advantage of them. "It was too little information, too late," says Gallagher. "You shouldn't get this information only a couple of years before you retire. You need to be shown what these benefits can do for you much, much sooner."

Besides better pension education and pension redesign, HR managers also are thinking about adding long-term care and more elder-care services to their benefits menus, such as subsidies for elder-care and bill-paying services employees can purchase for their elderly relatives.

Health and wellness programs are also gaining popularity among benefits managers who realize that promoting healthy lifestyles usually helps reduce health-care costs. This is exactly what HR managers at Redondo Beach, California-based TRW Space & Electronics Group did. With a workforce of 10,000 employees, they put in a fitness center to help offset rising health-care costs and to promote health and wellness. "We find that if you have counseling and fitness programs, people tend to come," says Mary Lackides, benefits and health services manager for TRW.

What's driving these benefits changes? "Instead of trying to be the employer of choice, progressive employers are trying to attract the 'employee' of choice," says Peter Burki, managing partner for Dependent Care Connection, a dependent-care services provider in Westport, Connecticut. And when those employees are boomers, employers are going to have to figure out how to give them what they want and need, while keeping costs from skyrocketing. Still, attracting and retaining boomers is a more complex staffing issue HR managers will need to think about, complicated by a diverse population whose benefits needs aren't always cut and dried.

Boomer staffing issues will be complex.
Some experts say America's baby boomers already are clogging the workplace pipeline and blocking the advancement of younger workers—Generation Xers (born between 1965 and 1977) and Millennial babies (1978-2003). The Hudson Institute, a conservative think tank in Indianapolis, estimates in its 1997 study on future workplace issues, "Workforce 2020—Work and Workers in the 21st Century," that workforce rates for men and women aged 55 to 64 could be as much as 14 percent higher than current forecasts, adding 11.5 million workers by 2020.

A March 24, 1997, Business Week article predicts a bottleneck of older workers who will take jobs away from younger workers, or who will hold onto jobs so long that younger workers will be less experienced and less skilled when boomers finally do retire. The article says employers may have to counter a "graybeard ceiling" of senior employees by creating part-time slots for them so these experienced employees can make way for promising younger workers. The article further suggests that because the generations that follow the boomers are far smaller in number, the nation may face a shrinking, less-skilled workforce after 2020—a phenomenon that could dampen economic growth.

And the glut of baby boomers in the workforce suggests performance measurement standards may need to change. For example, James Bailey, who lives in Senath, Missouri, and who's soon to be in HR, recounts his experience while working for one company for 31 years: "When Emerson Electric Co. started 36 years ago in Kennett, Missouri, it established standards that were achievable by most employees. Over the years, the workforce has aged, but unfortunately the standards have been raised. This makes it increasingly difficult for older employees [to achieve an adequate performance level]." He suggests companies begin to look at changing work standards and performance expectations for an aging workforce.

Perhaps organizations will increasingly need to take age into consideration when they assign people to jobs that are time-sensitive. However, such standards will have to be written and administered carefully since age-discrimination problems could arise from plans that aren't carefully thought out.

On the positive side, however, boomers who want or need to keep working offer employers an opportunity: To keep employees working beyond the traditional retirement age, or to bring back retired workers as part-timers, contingent workers or second-career professionals after they retire. Travelers Insurance Co. based in Hartford, Connecticut, for example, already is using this strategy. Its TravTemps program has been in place since the mid-'80s. TravTemps is the company's internal temporary agency that fills positions throughout the organization with workers who've been employed by the company before, such as retirees, or with employees who simply want to work part time.

In 1987, Travelers estimated that it saved more than $1 million by hiring back retired workers instead of paying fees to temporary agencies. The firm no longer tracks the savings because managers know the program continues to save money. "The way the program got started was we had a number of retirees who had unique skills or extensive experience in the company and who wanted to return to work on a part-time basis," says Keith Anderson, a spokesperson at Travelers. The benefits of bringing employees back from retirement who already have experience at an organization are numerous. They can jump in quickly on a project because they already know the company's inner workings and objectives. They already have contacts in the organization to get a project done efficiently and proactively. And they already fit into the culture—a big consideration, especially for quick-moving, global organizations.

Other companies also are using this strategy, and are taking it a step further. For example, Louisville, Kentucky-based Kentucky Fried Chicken, now known as KFC Corp., brings retired employees back as part-time workers and managers on an ongoing or occasional basis working 20 to 30 hours a week with prorated benefits. And Toro Co., a lawn and snow products company in Bloomington, Minnesota, prorates benefits, bonuses and incentives for part-time workers.

These types of staffing strategies help companies get the people they need and help older workers continue working, if they want to, or need to. But training older boomers, especially those who work part-time in the future, will be another challenge to think about.

Plan for skills and training issues of roving retirees. Many experts think older workers not only will be able to keep up, but many of them actually will drive organizational changes. For example, futurist Alvin Toffler thinks boomers probably will be the change agents for many of the high-tech developments he sees looming on the American horizon, according to a 1995 interview published in the AARP Bulletin, the monthly membership newsletter for the American Association of Retired Persons, based in Washington, D.C. This reasoning runs contrary to the popular belief that middle-aged and older workers resist technological advances. Toffler reminds us that boomers were actually the first generation to grow up with TVs and later to buy and to use the first personal computers and electronic devices.

American Society for Training & Development President Curtis Plott agrees that boomers can learn new technologies, especially computer systems, just as well as their younger counterparts. And they recognize the need to be technoliterate in today's—and tomorrow's—workplace. Boomers also bring various other skills to the workplace that many employers will be happy to retain, either on a full-time or a contingent-worker basis.

"Older workers know a lot," says Plott. "And they have a vast amount of experience." But he suggests that some of what they know is becoming antiquated quickly as the half-life of skills gets shorter every year. "Boomers are struggling like all the rest of us to keep up with the changing knowledge and skills we'll all need in the future," says Plott.

Many boomers also bring a highly valued mindset to the workplace—the ideal of challenging assumptions. In the same way that many boomers protested everything from war to "the establishment" in the '60s, Plott predicts boomers will continue to be catalysts in organizations, even if they aren't full-time staff members. "The power [in organizations] will move to the periphery [of the employee hierarchy], rather than being centralized [in one spot]," says Plott. In short, knowledge workers will continue to be highly valuable, regardless of whether they're full time, part time or telecommuters. "This will mean [firms will] need more people with higher skills, greater abilities and more independence in decision making, and stronger interpersonal skills overall." These are all things that many boomers are good at, or at least are eager to learn.

The ways in which employers will train boomers in the future will parallel current training trends, says Plott. For example, training will move toward more technology-based training, such as distance learning, electronic support systems and use of the Internet. These training mechanisms will support the goals of future boomer worker-learners who may increasingly want jobs with more flexibility (such as telecommuting, distant staffing or job sharing), so that their work lives are just one part of their lives, but don't dominate their entire lives.

And while it's debatable whether baby boomers will retire at age 65, 70 or never (or some variation thereof), a few things are certain: The boomer wave is going to wash over American business with a mighty splash. If HR managers aren't prepared for the challenges and opportunities, it could hit as an unexpected tidal wave.

Those HR professionals who have prepared by setting in motion the right employment practices, however, will both drive boomers' future retirement choices and impact the very nature of their organizations' workforce capabilities and financial stability. There are 76 million reasons to start strategizing right now.

Workforce, December 1997, Vol. 76, No. 12, pp. 54-60.

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