PLANSPONSOR - December 2009

prohibiting discrimination in favor of highly compensated employees is needed so that employers can target phased retirement programs at critical employees, who are generally older employees and, simply by reason of their tenure, higher paid.

PS: What about the finding that the impact of the knowledge drain seems to weigh heavier upon those plan sponsors who only provide a defined contribution plan to employees, versus those who offer both defined benefit and defined contribution plans?

MALLETT: Companies that offer a DB plan have been in business for a longer period of time than “DC plans only” and, because of their experience with their DB plans, which by their nature are generally designed to provide retirement income based on the employee’s final or career average pay, they tend to have more insight into their workers’ retirement patterns. Since these plans, by design, are structured around specific events, such as normal retirement age, to facilitate and support retirement, they provide helpful insight into when older workers will likely retire. Conversely, since DC plans are savings plans and have no structural connection to retirement events, they are unable to assist employers who offer “DC plans only” to predict retirement patterns of their workers adequately.

PS: How will the emerging retirement model differ from traditional notions of retirement?

KLEIN: Five years ago, the American Benefits Council issued a long-term public policy strategic plan called “Safe and Sound.” That plan acknowledged that, into the foreseeable future, the three main players ensuring “personal financial security”—employers, individuals, and the government—will remain the same. Yet, the nature of

the roles of those three entities will change dramatically. We’re certainly witnessing that right now as part of the national health-care reform debate. So, how the respective roles of employers, individuals, and government evolve has enormous implications for shaping the retirement model.

MASON: Individuals are living longer, creating a need and, to some extent, a desire to work longer. Those increased life expectancies lead to greater needs for health care in later years, raising questions about how the cost of this care will be paid for. Also, there has been a shift in the economy away from employment that is physically demanding and toward jobs that require more training, and technological advances make working from home or other remote sites more feasible. Finally, the decline of the defined benefit system has eroded a safety net that was critical to yesterday’s retirees. All of these factors are contributing to a more-fluid retirement model where both employers and older employees can see value in preserving the employment relationship beyond traditional retirement ages, and both can see a need to redefine work schedules, work sites, and responsibilities.

MALLETT: 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 recalibrated retirement model that seems to be emerging contemplates a more gradual transition of older workers from full-time work to retirement. What’s more is that future retirement models likely won’t correlate with typical “firmographic” characteristics—industry, company size, etc. —but, instead, will aim to address a continuum of company-specific needs, strategies, and solutions.

PS: Finally, what are some of the

steps that plan sponsors can take today to begin to manage the knowledge drain and the business implications of retirement?

MASON: In my view, the critical step for employers is to identify their employment objectives in light of their business objectives. What skills and knowledge will tomorrow’s workforce need? To what extent does today’s workforce have those skills and knowledge? How can the business preserve and enhance those skills and knowledge? The answers will lead to identification of the employees who are critical to tomorrow’s success, which will lead in turn to more study of how to retain those employees within the business structure, culture, and benefit programs of the employer.

KLEIN: It often has been said that people don’t grow tired of working; they grow tired of their jobs. So, finding ways to constantly make work new and relevant, and enjoyable and flexible for employees, may be the key wherever possible. Such things as flexible working arrangements, job sharing, telecom-muting, and so forth are not new ideas. They just will need to be expanded in their application, in order to keep older workers satisfied and engaged.

MALLETT: Whether or not employers address their concerns about the knowledge drain with the same clarity with which they’ve managed other workforce challenges remains to be seen. However, one thing is clear: Significant concerns about (and challenges related to) knowledge transfer will not self-resolve. Employers need to take proactive steps to manage the impending knowledge drain. This includes taking into account a new recalibrated set of “retirement norms” that likely will be company-specific, fluid, and rooted in employer need and employee behavior—and, they should aim to start right away.