ST. PAUL, Minn. - Early retirement policies and frequent cutbacks that target older workers help companies reduce costs but could ultimately backfire when a big wave of baby boomer retirements creates a labor shortage.
For decades, the policies of governments and private employers have encouraged early retirements. The thinking has long been that these policies are good for older employees, who should enjoy the fruits of a long working life, and they’re good for the younger workers, who are making their way up the corporate ladder.
What hasn’t yet sunk into the corporate mindset is that there won’t be enough younger people to replace the boomers.
Consider: 76 million baby boomers will be retiring this decade and next, but only 45 million Generation Xers are in the pipeline to take their places, according to the Conference Board, a New York-based economic research group.
Ironically, one of the forces that could help rescue employers facing a dearth of talent is the federal government, which is trying to keep people contributing longer to Social Security so that it remains solvent.
For close to half of U.S. residents, Social Security provides the majority of their retirement income. Dennis Nightingale, for one, says he will work until age 68 to boost his Social Security benefits. If this 63-year-old customer service representative for West in Eagan, Minn., retires at 65, his Social Security check each month will be $1,500. If he delays his retirement until age 68, he will collect $1,800.
‘‘That is definitely a big motivator,’’ Nightingale said. ‘‘At least it was for me.’’
Therein lies the odd disconnection between government and corporate America.
Although the age for collecting full Social Security benefits will gradually rise from 65 to 67, many corporate pension plans today make it fiscally attractive for employees to retire before the mandatory retirement age. And, companies trying to reduce costs often offer early retirement packages to reduce the number of layoffs.
‘‘While the federal government is trying to get people to stay in the work force longer, companies are trying to get them to retire earlier,’’ said Dennis Ahlburg, a labor economist and senior associate dean with the Carlson School of Management at the University of Minnesota.
At 3M, for instance, retirees can draw from their pension at age 55, with all or most of their benefits. At West, it’s the same.
Experts are predicting a major wave of retirements in this decade and next by the roughly 76 million people born between 1946 and 1964. But just 45 million so-called Generation Xers followed. As the number of retiring boomers gains momentum, companies are likely to find themselves in the same position they did during the labor shortage of the 1990s, according to a report from the Conference Board.
‘‘It is thus highly likely that industry will have to develop stronger incentives to persuade many more stillmotivated, capable veterans to fill the gap by delaying their retirements,’’ said the report.
The problem is, several legal and institutional barriers prevent more flexible arrangements for older workers.
Phased retirement plans, which allow workers to gradually reduce their work schedule as they age, are fraught with risks for employers under tax laws, benefits regulations and age discrimination rules, experts say.
Given the current tight job market and economic pressures, the issue isn’t on the radar screens of many employers.
‘‘Everyone is trying to downsize, downsize,’’ Ahlburg said. ‘‘When the economy picks up and companies realize there’s not a hell of a lot of younger workers around, they may look at the incentive structures in their pensions.’’
The Society for Human Resource Management recently looked at how companies are preparing for the impending labor shortage. In a word, they’re not.
‘‘The most significant findings were that 79 percent of the employers that were polled in the survey indicated that they were doing nothing essentially to prepare for this huge growth of experienced worker retirements,’’ said Larry Anderson, president and CEO of the National Older Worker Career Center, a cosponsor of the study that surveyed human resource professionals.
When asked whether they’ve designed provisions or benefits with older workers in mind, the majority said no. More than one-third indicated that their organizations are just becoming aware that the number of workers between age 25 and 54 will increase by only 5 percent between 2001 and 2010.
Meanwhile, workers age 55 and older will increase 46.6 percent.
Many of the older, experienced workers have already been shaken out with early retirement packages, said Howard Muson, author of the Conference Board report, ‘‘Valuing Experience: How to Retain and Motivate Mature Workers.’’
Until now, it seemed like smart corporate strategy to push people out, to make room for the onslaught of baby boomers. Plus, older workers are considered more expensive.
A standard health insurance policy for a 55- to 59-year-old can be more than double that for 20- to 44-yearolds, said the Urban Institute’s Penner, the former head of the Congressional Budget Office.
‘‘It is seen as a benefit to have all these things to get rid of the older folks,’’ Penner said. ‘‘Most of our institutions have grown up in this period, while the baby boomers are working their way through the system. That’s why it takes an important reversal of thinking to get people concerned about this.’’