Part-Time Retirement Programs Are on the Rise

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Part-Time Retirement Programs Are on the Rise

Workers have longed for a way to ease into retirement while keeping some pay and benefits. More companies are giving it a try.

By Anne Tergesen and Lauren Weber

March 15, 2022 5:30 am ET

Plenty of older workers have wished for something between full-bore work and retirement. Now, more companies seem to be giving them what they want.

Phased retirement programs—which allow workers nearing retirement age to cut back on their hours while keeping some pay and benefits—are growing in popularity. Human-resource executives say the pandemic has opened bosses to flexible work arrangements, while the fierce hiring market and higher-than-expected rate of retirements have motivated managers to find ways to retain older workers with key skills.

In a forthcoming survey of 1,736 HR executives world-wide from consultant Mercer LLC, about 38% say they offer phased retirement, more than double the 17.2% that did so before the pandemic.

In the U.S. 23% of employers had these arrangements in 2021, up from 16% in 2016, according to the Society for Human Resources Management. A growing subset—8%, up from 6% in 2019—have introduced formal programs, which generally target older workers who meet certain criteria. Another 15% offer the option on an informal or ad hoc basis, frequently to employees in hard-to-fill roles.

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Phased retirement is “a way to slow the brain drain and manage talent shortages” at a time when the U.S. workforce is aging, said Andrés Tapia, a senior partner at consulting firm Korn Ferry. He encourages clients to add the programs to “find ways to leverage rather than lose that voice of experience.”

Some workers have longed for such arrangements, which financial advisers say can provide financial and psychological benefits compared with going from full-time work to retirement. Among companies adopting phased retirement programs, figuring out how to provide benefits and set criteria for participation can be a sticking point in some HR suites, said Yvonne Sonsino, a partner at Mercer.

Potential legal and financial complications loom, consultants say, not to mention the fact that some companies would like their longest-tenured people to move on.

Companies adding or considering formal phased retirement programs include SAP North America, Owens Corning and Haynes International Inc., a Kokomo, Ind.-based maker of high-temperature alloys.

The pandemic accelerated the pace of baby boomer retirements and created challenges for employers. From February 2020 through November 2021, up to 2.6 million more people retired than were expected to, given pre-pandemic trends, according to Federal Reserve Bank of St. Louis senior economist Miguel Faria-e-Castro.

Universities have long offered phased retirement programs to tenured professors, in part to make room for younger faculty. Others with the benefit include the federal government, some law and accounting firms, and companies including Abbott Laboratories.

Many of the new programs involve employees helping train workers who will eventually take their place.

Kathy Bird, who leads employee communications for SAP North America, started considering retirement last summer when she and her husband moved from Pennsylvania to coastal North Carolina. She imagined devoting more time to volunteering and golf but said she felt unready to leave the job she loves.

Ms. Bird, now 66 years old, approached her manager. They discussed her cutting back to a part-time schedule and training a colleague to take on more of her duties. Ms. Bird will begin working 20 hours a week starting in July and will keep all of her benefits during the transition. She and her manager haven’t yet determined how her pay will be adjusted to reflect her reduced schedule.

“For me, it’s kind of the best of both worlds,” said Ms. Bird.

Her manager, Jackie Montesinos-Suarez, agrees. “Her giving me 20 hours a week, from a business continuity standpoint as a manager, that’s a no-brainer.”

SAP is working on formalizing a phased retirement program. Dan Healy, an HR executive there, noted that plans are in the works, and that the company has seen increased interest from workers close to retirement.

Owens Corning, a Toledo, Ohio-based maker of building and construction materials, launched a phased retirement program in 2020. Salaried employees age 55 or older with at least five years at the company can ask to be considered for the program, which allows part-time work and pay with full-time benefits, including health insurance, often for three to 12 months.

With a projected wave of retirements, “we were concerned we were going to lose a lot of institutional knowledge and intellectual capital,” said Paula Russell, chief human resource officer.

The program gives the company time to recruit and train a successor before the employee in the job retires, she said.

Managers typically approve phased retirement for workers with hard-to-replace skills; participants have included engineers, legal specialists and research and development staff, Ms. Russell said. Employees often retain some responsibilities in addition to helping train a successor, she said.

Thirty employees have participated so far. Eight are in the program now, with more in discussions.

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Spurred by state mandates and the so-called "Great Resignation," some small and midsize businesses are changing their benefits offerings, including adding and enhancing retirement plans.

Consumer goods maker Unilever PLC started U-Work, a program combining elements of contract work with some stable pay and benefits, in 2020 in the U.K. Unilever has expanded the program to eight other countries and is considering bringing it to the U.S.

The initial goal was to retain older workers who want to phase into retirement, said Morag Lynagh, the company’s global future of work director. Rising demand for flexible work prompted Unilever to make the program available to employees of all ages, she said.

Employees in U-Work can take breaks between assignments, some of which entail part-time commitments. In return for committing to working a certain number of weeks a year, employees receive a monthly retainer fee and some benefits, including a 401(k)-style retirement plan.

During an assignment, they earn additional income at the rate set for the job. The goal is to provide “flexibility with security,” Ms. Lynagh said.

In the U.K., 75 employees are in the program, about half of whom are 50 or older. The program accepts applicants whose skills are suited to the projects the company anticipates, Ms. Lynagh said.

Obstacles to adopting phased retirement programs can include the risk of lawsuits for allowing some—but not all—workers to participate, said Chantel Sheaks, vice president of retirement policy at the U.S. Chamber of Commerce.

The rules of some pension and 401(k) plans can also create complexities. People phasing into retirement may want to tap their retirement benefits to supplement a lower paycheck. Many employers allow employees ages 59 ½ or older to tap their 401(k) accounts without penalty, but some don’t.

Although companies can amend their pension plans to allow workers to take partial withdrawals starting as early as age 59 ½, that can backfire if it encourages more people to retire early, Ms. Sheaks said.