© Copyright 2006 Rogers Publishing Ltd. The following article first appeared in the November 2005 edition of BENEFITS CANADA magazine.
The comfort zone
Baby boomers are already contemplating retirement. What are employers willing to do to entice them to stay?
By Andrea Davis

When employment and labour ministers from the Group of Eight met in London in March 2005, they discussed the challenges of an aging population. In a background paper prepared by the Organisation for Economic Co-operation and Development (OECD), the politicians were warned that, in the coming years, dependency ratios—that is, the number of elderly people in the population compared to the number of people in the paid workforce—will rise dramatically.

In 2012, the first of the baby boomers—the generation born between 1947 and 1966—will reach age 65. But in Canada, the average age of retirement is 61, according to Statistics Canada. In fact, two-thirds of Canadians retire before age 65. “Boomers are going to start retiring in fairly big numbers in about five years,” says Clarence Lochhead, senior researcher with the Canadian Labour and Business Centre in Ottawa. “We see coming a rather large and fairly rapid exit of people from the labour force.”

Keeping older workers happy means they may want to stay around longer and help mentor younger workers. “One-third of baby boomers would quit altogether if they could live comfortably without salaries,” says Jean- Philippe Naud, an organizational psychologist in the talent strategy practice with Aon Consulting in Montreal. “Work is slowly slipping down their list of priorities.”

B y the time w o r k e r s reach their mid- 50s, they’re starting to think about retirement. Satisfied with the pension and benefits package they’ve enjoyed for years, these employees are looking forward to more leisure time and less work. But there is one problem.

“Benefits don’t enter their decision-making one way or the other. Whatever benefits are in place, they’ve gotten used to and they just want something reasonable that will continue,” says Jim Murta, a principal with Towers Perrin in Calgary. Other areas that concern employees at this stage of their working life are contribution and legacy. Fair compensation and fun, challenging work are also concerns.

Realizing there are other things in life than work is a natural progression as people age. “They want to slow down but a lot say they don’t want to stop working, they just want to work differently,” says Naud.

“Encouraging older employees to stay on the job longer, and creating opportunities for them to do so, could help ease projected labour shortages. Phased retirement is one strategy worth contemplating. “We often have this notion that the way retirement happens is you’re working full-time, then at the end of your last day you have your party and receive your gold watch and then you’re out the door and on to your new life,” says Lochhead. “But what we know is that people often don’t make that abrupt change.”

Retirees who retire early may spend a couple of years out of the workforce and then decide to go back to work. “Retirement strategies that allow for people to not make an abrupt change from working to not working could be replaced by a transition that’s more gradual,” says Lochhead.

Phased retirement is particularly appealing in industries that are currently experiencing critical skills shortages. Calgary-based Petro-Canada, for instance, offers phased retirement on a case-by-case basis. “There are certain skills and talents we’re apprehensive about losing overnight so we’re looking in specific cases at ways to manage people’s departure from the workplace,” says Elaine Noel-Bentley, senior director, total compensation for Petro-Canada.

Still, offering phased retirement isn’t without challenges, not the least of which is workers who simply aren’t interested in staying on the job. “I sure don’t see any signs of baby boomers wanting to stay on the job longer,” says Noel-Bentley. “People want to retire when they’re 65, if not before.”

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Another significant obstacle to phased retirement is pension legislation, which prohibits employees from collecting a pension and salary at the same time. “I’m not the first person to say this, but I think our legislation needs to be fixed so that pensions can be better managed in a phased environment,” says Noel-Bentley.

Other employers, such as a manufacturing company with a production line that requires regularly scheduled shifts, for example, may find moving employees to a reduced work week more difficult.

“We need more pilot programs on phased retirement before people start seeing it as a panacea,” says Malcolm Hamilton, a consulting actuary with Mercer Human Resource Consulting in Toronto. “There isn’t a long list of really successful ones yet. Maybe there will be some day but I’ve just not seen a lot of evidence of it.”

For other plan sponsors, keeping older workers around longer means they can retain valuable institutional knowledge. That’s the case for the Catholic Children’s Aid Society of Toronto(CCAS), which was recently named one of the best employers for Canadians over 50 by Canada’s Association for the Fifty-Plus. One-quarter(25%)of the CCAS’s 600 employees are 50 or older. “There’s no one thing we do in isolation for older workers but it’s all part of a philosophical approach,” says Terry Daly, director, human resource services with CCAS.

The majority of CCAS’s employees are child protection workers who investigate and assess children in need of protection. It’s not an easy job. Child welfare is an industry well-known for high levels of stress, which can often result in high turnover. The potential for burnout is great. About 36% of the CCAS’s child protection workers have less than three years of experience. Keeping older workers around longer enables the CCAS to offer valuable mentoring programs to these younger employees. “It’s very challenging for staff to even want to stay in this kind of work,” says Daly. “Mentorship for the younger staff is so important.”

In terms of healthcare benefits, the agency offers a wide range, including medical travel insurance, cataclysmic drug coverage, hearing aids, vision care, basic dental, as well as coverage for paramedical services such as physiotherapy, massage therapy, nutritional planning, speech therapy, chiropractic, osteopathy, podiatrist, naturopathy, acupuncture, and homecare.

Daly says coverage for paramedical services—up to $750 per practitioner annually—has become a popular benefit with mature workers. “We’re really trying to invest in the wellness and preventative approach,” she says.

Pensions will be key component of any strategy designed to encourage workers to stay on the job longer. Historically, defined benefit(DB)pension plans have provided for early retirement benefits, some plans even offering unreduced pension benefits at age 55.

“If you compare what you could have as a retiree and what you have as a base salary, the difference sometimes is just pennies an hour,” notes Denis Guertin, an actuary and vice-president with Aon Consulting in Montreal. “So, very often, it’s an incentive for the person to retire.”

Therefore, employers may need to restructure their pension plans. Legally, plan sponsors can amend a DB plan so that the pensions people earn in the future will start later or so that the subsidies for early retirement will disappear for the pensions people earn after the date of the amendment. But that’s an extremely slow process.

Another alternative is to simply raise the age at which early retirement is made available. “Theoretically, companies have that ability but those kinds of amendments are never popular,” notes Hamilton.

Organizations will still need to downsize and early retirement is often a nicer way to accomplish those downsizing goals. “…I’m pretty sure there will be an equal number of companies past their pinnacle and in varying rates of decline where early retirement will still seem like a humane way to deal with a shrinking workforce,” says Hamilton.

Whether retiring baby boomers trigger an economic crisis with their mass exit from the workforce remains to be seen. There are a lot of them and they will retire some day. Forward-thinking plan sponsors would do well to start thinking about how this generation will affect their organizations in the coming years.

Healthcare Boom

Healthcare, along with pensions, is becoming an important piece of the benefits pie. Will encouraging older employees to stay on the job longer make it more expensive for employers’ health benefits plans?

“There’s a natural increase in cost of benefits as age goes up but I don’t think it’s the kind of thing that would make it unreasonable or unbearable for the employer,” says Bob Weinerman, principal with Mercer Human Resource Consulting in Toronto.

More than half(54%)of employers in a 2004 survey by Hewitt Associates offer post-retirement healthcare benefits. When those companies that don’t offer post-retirement benefits were asked why, more than threequarters of them said one of the most important reasons is the rising cost of healthcare.

“I think they key is availability of benefits,” says Weinerman. “I think it’s going to become more and more important for employees to make sure that the benefit is there and that they can get it, even if they have to pay a reasonable cost to get it.”

Andrea Davis is a freelance writer in Guelph, Ont. Andrea.davis@rogers.com