As the old make way for the young, the slow siphoning of institutional knowledge from a corporation’s workforce has employers worried, more so than if those wizened older workers were never to leave.
Despite evidence that older workers are delaying retirement, employers remain deeply concerned about the threatening effect of the knowledge drain—the loss of skilled intellectual or technical labor—on their organizations. Three in four employers (74%) reported in a MetLife survey that they are primarily concerned about experiencing a knowledge drain as older workers retire, than delayed retirement, a problem only one-quarter (26%) said they are primarily concerned about.
Employers’ anxieties are virtually the same when focused three to five years from now: 70% of the 240 employers surveyed expect to be primarily concerned about the knowledge drain, while 30% anticipate being primarily concerned about the impact of delayed retirement, found the MetLife Emerging Retirement Model Study.
“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,” says Cynthia Mallett, vice president, Product & Market Strategies, Corporate Benefit Funding, MetLife.
Despite fears that knowledge stored in the older population of a workforce is fast waning, few employers are taking action to protect their information capital, or even assessing what it’s poised to lose. According to the MetLife findings, 97% of those employers concerned about the knowledge drain have not yet calculated the cost to transfer knowledge from older to younger employees.
Perhaps employers believe that time is on their side as many of their retirement ready employees are delaying their exit due to the inclement economic environment. In addition, employers surveyed believe that in the next three-to-five years employees will delay retirement by three years on average—from ages 64 to 67.
This, employers suppose, will give them enough time to assess their company’s needs, calculate the cost to transition knowledge and put plans in motion to initiate the transfer.
Benefits not considered strategic lever to manage aging workforce
The 87% 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 after a debilitating 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 return to the office day after day for social reasons—i.e., 24% of employers think that their employees enjoy the mental stimulation of work, 12% believe they want to maintain social contact and 5% say their workers appreciate feeling needed for an assignment.
Yet, despite the importance attached to retirement savings benefits (for example, 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,” says 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."
Looking into phased retirement programs
As employers search for strategies to manage the knowledge drain, some are looking more closely at phased retirement programs or portions of these types of programs. The term, as used for purposes of the MetLife study, refers to 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 and hiring back retired employees.
More than one-third (35%) of employers are considering implementing, or have already implemented, phased retirement programs at their organizations. What’s more, half of the survey participants offer or plan to offer access to pension benefits to partially retired/partially in-service employees, and many employers are setting up flexible work arrangements to accommodate the aging workforce and manage the knowledge drain.
Employers welcome legislative and regulatory guidance
“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,” says 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. For example, 71% of employers 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 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.
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,” explains Mallett.
In contrast to 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,” experts say that the emerging recalibrated retirement model speaks to a more gradual transition of older workers from full-time work to full-time retirement.
According to MetLife, 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 molded 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 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 understand 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 fixed. 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 rebounds) 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, cites MetLife, why older employees may need or want to work longer and/or slowly transition into retirement.
