– Policy Guidance Welcome as New, Recalibrated Retirement Model Begins to Emerge –

Despite evidence that older workers are delaying retirement and staying in the workforce longer, employers remain deeply concerned and anxious about the impact of the knowledge drain – the loss of skilled intellectual or technical labor – on their organizations.  When employers were asked which of two retirement-related issues – delayed retirement or the knowledge drain – are of greatest concern today, three in four employers (74%) said they are primarily concerned about experiencing a knowledge drain as older workers retire; only one-quarter (26%) said they are primarily concerned about the impact on their overall workforce as older employees delay retirement.  Employers’ concerns are virtually the same when asked to look ahead 3-5 years: 70% anticipate being primarily concerned about the knowledge drain vs. 30% anticipate being primarily concerned about the impact of delayed retirement.  These are among the major findings from the MetLife Emerging Retirement Model Study, released today.  A full copy of the study report can be found at www.metlife.com/emergingretirement.

“With the Emerging Retirement Model study, we were surprised to find the extent to which the knowledge drain is both a “today” and “tomorrow” issue for employers, even while conventional wisdom might suggest that the effect of workers now delaying retirement – primarily out of financial necessity – could lessen immediate concerns about the knowledge drain,” said Cynthia Mallett, vice president, Product & Market Strategies, Corporate Benefit Funding, MetLife.

MetLife commissioned the survey of 240 employers to examine their attitudes and behaviors towards the aging workforce in the midst of a deep economic crisis, and on the heels of recent regulation addressing the retirement security provided by pension and retirement plans.  With this research, MetLife wanted to assess if and how plan sponsors are recalibrating strategies surrounding their older workers, and identify emerging practices that may be used to manage and optimize very experienced workers going forward. 

“MetLife has performed an important service in commissioning this study.  The findings can help employers in their strategic planning to manage the knowledge drain or address concerns about employees delaying retirement,” said James Klein, president of the American Benefits Council.

Disconnect Between Worry and Action
Despite concerns over the impact of an aging workforce, few employers have taken steps to curtail or even formally assess its impact on their organizations.  According to the findings, 97% of those employers concerned about the knowledge drain have not yet calculated the cost to transfer knowledge from older to younger employees.

“It’s interesting that so few employers are quantifying the cost of, and strategically preparing for, the knowledge drain they’re concerned about – perhaps because they’re uncertain about where to start or they don’t know how to calculate the cost,” added Ms. Mallett.

Employers may believe they have an important asset on their side: time.  In addition to retirement delays spurred by recent economic events, the employers surveyed by MetLife believe that in the next three-to-five years employees will delay retirement by three years on average – from ages 64 to 67.  This should give employers extra time to assess the needs of their organization, calculate the cost to transfer knowledge and put plans in place to transition knowledge from their aging workforce to younger generations.

Benefits Not Viewed as a Strategic Lever to Manage Aging Workforce

Eighty-seven percent of employers who are primarily concerned about the impact of delayed retirement say employees are working longer in order to rebuild their retirement nest eggs in light of the recent economic downturn.  Other reasons for delayed retirement include: wanting to work long enough to qualify for Social Security benefits (67%), needing income to meet their day-to-day expenses or pay bills (63%), and wanting to maintain medical coverage until they qualify for Medicare (41%).  Only 41% of employers believe their employees stay in the workforce for social reasons — i.e., 24% of employers believe their employees enjoy the mental stimulation of work, 12% believe they want to maintain social contact and only 5% say their workers appreciate feeling needed for an assignment.

Yet, despite the importance ascribed to retirement savings benefits (e.g., defined benefit pension plans, 401(k) plans and post-retirement benefits), 42% of employers concerned about the knowledge drain – and 38% of employers who offer post-retirement benefits – see no connection between post-retirement benefits and an employee’s decision when to retire.

“With benefits, on average, representing one-third or more of the money spent to compensate each employee, there’s a real opportunity for employers to better grasp the strategic role that benefits can play in workforce management,” added Ms. Mallett.   “Employers may be missing an opportunity in how they deploy benefits to their workers to help manage the knowledge drain and/or address concerns about employees delaying retirement.”

Phased Retirement Programs Key to Recalibrated Retirement
According to the MetLife Emerging Retirement Model Study, as employers search for strategies to manage the knowledge drain, some are looking more closely at phased retirement programs or portions of phased retirement programs.  Phased retirement programs, as the term is used for purposes of this study, can consist of a workplace program (or set of programs) offered by employers in order to keep needed older employees who want to continue working, including flexible work arrangements, a gradual shift from full-time employment to full-time retirement, a shift in work responsibilities, hiring back retired employees, etc.

More than one-third (35%) of employers are considering implementing, or have already implemented, phased retirement programs at their organizations.   Also, half of employers surveyed offer or plan to offer access to pension benefits to partially retired/partially in-service employees, and many employers are implementing flexible work arrangements to accommodate the aging workforce and manage the knowledge drain.

More Legislation / Regulatory Guidance Welcome
“While recent government legislation – including changes in the Pension Protection Act of 2006 that allow in-service pension distributions at age 62 or older – has helped to make it easier for employers who offer a defined benefit plan to consider phased retirement programs, the design and implementation of phased retirement programs continue to be mostly uncharted territory,” said Kent Mason of Davis & Harman.

Perhaps that’s why most employers (65%) say they would welcome additional legislation/regulation that would encourage the implementation of phased retirement programs.  Seven in ten employers (71%), for example, strongly or somewhat agree that regulatory complexities and ambiguities involving federal tax and age discrimination laws impact their organization’s ability to offer a phased retirement program.  About half (51%) of employers also strongly or somewhat agree that the retirement plan nondiscrimination rules can be an obstacle to an effective phased retirement program for their organization. 

“Phased retirement programs can cause problems under the nondiscrimination rules,” Mr. Mason observed, “simply because the programs target older workers who tend to be higher paid by reason of their seniority and experience.  This is an issue that merits reconsideration.”

Employers also show concern that a lack of flexibility could impact their ability to implement phased retirement programs.  Half of employers – and 61% of employers who have already implemented, or are planning to implement, a phased retirement program – say that one of the obstacles affecting their organization’s ability to offer an effective phased retirement program is the rule that generally prohibits plan distribution options and other features from being eliminated or modified once they are included in the plan. 
“Some employers are already experimenting with ad hoc “phased retirement” programs without necessarily articulating them as such.  But phased retirement programs, while valuable, are generally much more tactical than strategic at their present stage of development.  It’s clear that a new retirement model is needed – and is beginning to emerge,” continued Ms. Mallett.

“Overall, the lack of a legal environment where employers can have a clear understanding of what they can and cannot do with regard to offering a phased retirement program has been a real hindrance to the development of a comprehensive approach to this issue,” added Mr. Klein.  “The real losers have been not just the employers, of course, but the workers themselves.”

“Contrary to a sentiment we often hear expressed on Capitol Hill, large companies are not looking for how far they can push the limits.  Rather, they spend an enormous amount of money and time making sure that they are in compliance with the law.   They want a legislative and regulatory framework that provides clarity in terms of what they can do.   And, of course, given that these companies are extremely complex entities with workers of all ages, in various types of jobs, often in many different kinds of industries – flexibility and certainty are key components for a human resources and benefits strategy that advances a company’s goals and its need to be competitive,” continued Mr. Klein.

Emerging Retirement Model
Unlike earlier traditional models of retirement generally built around a fixed career end-date, 100% employer-paid defined benefits and clear boundaries between “work” and “leisure,” the emerging recalibrated retirement model contemplates a more gradual transition of older workers from full-time work to full-time retirement. 

Mr. Mason notes that “the retirement plan rules, which were designed based on the traditional models, need to be reconsidered in light of this new retirement model.”

Future retirement models seem less likely to correlate with typical “firmographic” characteristics (industry, company size, etc.) but, instead, will more likely aim to address a continuum of company-specific needs, strategies and solutions.   In contrast to previous models, the new, recalibrated model will likely be company-specific, fluid and rooted in employer need and employee behavior.  It will also be shaped by some or all of the following environmental factors:

  • The need to, first and foremost, account for a more gradual transition of older workers from full-time work to retirement.
  • The need to acknowledge that many workers may be relying, by and large, on their own retirement savings (however modest it may be), coupled with a monthly check from Social Security, which, for the average retiree today, totals only $1,153 per month.
    The need to contemplate that many future retirees won’t have access to post-retirement benefits such as health insurance, life insurance, dental insurance, and prescription drug coverage, if current trends remain unchanged.  Major public policy changes such as health care reform could, of course, affect the overall way in which medical (health) insurance and health-related benefits are accessed and delivered in the workplace. 
  • The need to anticipate that (particularly if the extension in retirement and retirement transitional behavior takes hold and becomes common, when the economy recovers) employers may find that employees may choose to continue working for another reason altogether – the social and mental stimulation it offers. These are all reasons why they may need or want to work longer and / or slowly transition into retirement. 

From August through September 2009, MetLife commissioned Asset International to conduct online surveys with 240 employers from companies with at least 1,000 employees. The respondents consisted of executives who were either the final decision-maker, had a lot of influence or had a moderate amount of influence in the selection of employee benefits and/or retirement benefits that are offered to their organization’s employees. Their titles ranged from Owner; CEO, President or Chairman; CFO/Treasurer; Senior Vice President; Vice President; Assistant Vice President; and, Director. Each respondent works for an organization that offers either a defined benefit pension plan (DB) or a defined contribution plan (DC), or both. Finally, respondents came from companies that offer at least two of the following employee benefits where the organization pays some or the entire premium: medical insurance, dental insurance, disability insurance or life insurance.

About MetLife
MetLife is a subsidiary of MetLife, Inc. (NYSE: MET), a leading provider of insurance, employee benefits and financial services with operations throughout the United States and the Latin America, Europe and Asia Pacific regions. Through its subsidiaries and affiliates, MetLife, Inc. reaches more than 70 million customers around the world and MetLife is the largest life insurer in the United States (based on life insurance in-force). The MetLife companies offer life insurance, annuities, auto and home insurance, retail banking and other financial services to individuals, as well as group insurance and retirement & savings products and services to corporations and other institutions. The company counts among its more than 60,000 customers over 90 of the top 100 Fortune 500® companies.  For more information, visit www.metlife.com


Toni L. Griffin
Joseph Madden