When it comes to voluntary retirement incentives, there is a lot for HR to consider. After all, each organization is different and each individual is different, too, making it hard to find a large, sweeping plan that covers the needs of everyone involved. So what are the steps of voluntary retirement? What can you do to start creating an incentive today?
To help with this issue, we’ve decided to give a high-level view of the most talked about steps in the process to give you a better understanding of the challenges you may face and how to overcome them.
Let’s dig right in.
Step One: Cost Analysis
A voluntary retirement program needs to be worth it on paper. Since this is an activity that is typically offered to save the company money, reduce their workforce or rightsize their organization without the need of a layoff or RIF, you need to work with your team to understand how much you will save and if the incentive is worth it.
You need to make sure that there is a clear advantage for your company to hold an event like this. We suggest looking at the salaries of those who are eligible, how much it will cost to buy them out, and what benefits that you will extend to them post-retirement (more on benefits in a bit).
By working with your accounting team, CFO, and other upper management members you can easily make a sheet that explains the cost benefits of holding a voluntary retirement incentive. It’s just important to not skip this step to make sure that there are not other solutions to the problem.
Every step involved with holding a voluntary retirement incentive is there to make sure the program, which can be quite complicated, goes off without a hitch. This first step is to ensure that you need to hold an event like this in the first place.
Step Two: Eligibility
The second step of the process is to figure out which employees will be eligible to be onboarded to the incentive. For most companies, this involves setting requirements that typically look at age and tenure.
For example, a common way companies set eligibility is to require an employee to work at the organization for a certain number of years and be over a certain age. You could, for instance, say that you are opening up a voluntary retirement plan for those who have worked over 25 years at the company and are over the age of 55.
While these requirements tend to shift a bit, they all sort of orbit the same age range and years served.
You have to be careful with a voluntary retirement plan, though, because it could open up the package to individuals who you don’t want to leave. Senior leaders who are hard to replace - especially if you haven’t been succession planning - can take the offer and leave you in a rut.
To fix that, you could also add a requirement that says the incentive is only available for those with a certain job title, leadership level or something along those lines. You just have to make sure that you are offering the incentive to the right group to make sure that your workforce continues marching forward instead of backward.
Step Three: Communication
The third step is all about communicating the incentive to your staff members. You should be as transparent as possible here to make sure that you are not targeting specific older workers, which is against the law.
We recommend sending an email to your entire team saying that anyone who meets the requirements can reach out to HR or fill out an attached form. This ensures that everyone who wants to take up the offer will receive word about it and anyone who has any questions can come forward.
We also recommend leaving the requirements and offer on your company’s intranet or somewhere online for employees to easily track down from any device they are on.
A good addition to any retirement plan is retirement lifestyle training. Learn more for free here:
After the announcement, give eligible staff members time to read over the offer, talk with their lawyer, your legal counsel, HR or whomever they wish before they sign. When holding an event like this, you need to make sure you follow all of the local, state, and federal laws that are put in place to protect older workers from discrimination.
During the enrollment period, you could also hold a meeting for those considering the incentive where you can answer questions and give more details, which can help free up HR from answering small questions all day long.
In summary, this step is all about alerting your staff members of the incentive in a way that is easily understandable while giving them enough time to process the information and make an informed choice. Also, remember to be transparent.
Step Four: Consider Compensation Benefit Changes
It’s important to remember that voluntary retirement plans can impact worker’s benefits after they leave the organization.
For example, healthcare. If an employee retires before the age of 65, their healthcare benefits can change dramatically - and not in a good way. Benefits can be slashed if people retire early, which means that you should look at ways to make it easier on these employees.
“If you are considering an incentive to continue coverage under your group health plan after retirement and you do not currently provide retiree health insurance coverage, consult with the providing carrier(s),” reports the Society of Human Resource Management (SHRM).
“You will want to ensure they will allow for any exceptions to your plan eligibility requirements should you desire to offer continuation under any of the group plans.”
In other words, why not get around these issues by helping your staff members out instead of letting them go on without having proper healthcare. While this is just the right thing to do, it can also keep staffers from picking up the plan in the first place.
This is also a reason why you have to give the full details of all the benefit changes that happen when someone signs up for the incentive. Depending on the age of the workers, what benefits they have currently, and how they will change, will depend on how you will have to handle them. There are a ton of different issues that can spring up during this early transition. We recommend you read more about them here.
Things to Consider
If you follow these four steps, you will be well on your way to holding a well-rounded voluntary retirement incentive. However, this - like we said at the top - is an extremely high-level view of what it takes to hold an event like this. There are a few things you have to take into account before launching.
The biggest of these issues is laws. There are many, many laws out there that protect older workers, which means you have to work closely with your legal team to determine if your program is compliant. Even if you are trying to do everything by the book, you have to make sure that you are following all local, state, and federal laws. We are not lawyers and cannot give you legal advice. So please, work with a professional.
You also need to consider when to launch the program, how long to keep it open, when the effective retirement date will be, what benefits need adjusted, and much more. The problem with programs like these is that there are a lot of things that are dependent on your organization.
Want to learn more about the pros and cons of voluntary retirement incentives? Check out our guide here: