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Phased retirement: work a bit, collect a bit

When Doreen Bellino, benefits supervisor at Mitre Corporation in Bedford, Mass., went on phased retirement, it let her see whether it suited her, and it allowed Mitre to hold on to a key employee.

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"Being in the benefits office for 20 years I was familiar with all the plans and could answer all the questions regarding medical plans, dental, life insurance and the like," says Bellino, who is now fully retired. "I was in phased retirement for eight months because I wanted to see how it would work being home an extra day. I worked four days a week, 32 hours. It allowed me to keep medical and dental at the regular employee rate."

Mitre officials estimate that only six to 12 employees take advantage of the phased retirement program each year. The company employees 5700 scientists and support personnel, says Bill Albright, director of quality work life and benefits, who expects the program to become much more popular as the bulging baby boomer generation marches toward retirement.

"Last year we ran some pre-retirement workshops and we started talking much more about phased retirement. We're finding it puts us ahead of the curve. It adds a flexible work option and a mechanism for holding on to intellectual capital, which is all we have. We don't manufacture anything."

Watson Wyatt surveyed 1,000 employees and found that one out of three would continue working longer than otherwise planned if phased retirement was an option. But some employers aren't quite as enthusiastic about all of the proposed elements, says Paganelli.

"It's really been targeted for certain groups -- people with critical skills. It's not necessarily for the broad population. IRS rules require nondiscriminatory standards, but phased retirement demands a level of flexibility as to who might be deemed eligible.

"Also, the IRS proposal sets 59 1/2 as the age for phased retirement. It ties in with [the 401(k)] so it's a legitimate age from the IRS standpoint, but many employers find it restrictive. They're losing key employees who are retiring at 55, so the regulation won't help as much as it could."

On the other end of the spectrum, AARP, the advocacy group for people 50 and over, wants to see phased retirement kick in at age 62.

"If you make it too young, some will leave the workforce at an earlier age," says AARP attorney Signorille. "The benefit of it is keeping people engaged in the workforce. People live longer. Staying employed is positive. They contribute to Social Security and to Medicare. Some say 62 is not young enough. We don't know, no one knows. IRS can scale back at a later time. If they use 59 1/2 and there's too much uptake, they can't put the horse back in the barn."

As Signorille mentioned, everyone considering phased retirement needs to crunch the numbers and make sure their financial needs will be met. The IRS points out that while phased retirement can give employees additional time to save for retirement, it can also reduce retirement payments because the employee is receiving money before normal retirement age.

Phased retirement for defined benefit plans won't take place until final rules are published. There's no word yet as to when that might happen.

-- Posted: April 22, 2005




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