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Oct 2016
07
October 07, 2016

Plan Carefully When an Employee Asks for a Phased Retirement


Jill is a great employee. She has been with you for years. As Director of Marketing, she has had some great ideas. 

Jill’s husband is five years older than Jill. He just retired. And Jill has come to you with a proposal. 

Jill wants to spend more time with her hubby. Jill wants to start to “wind-down” towards retirement. 

“Of course!” you think. Jill has been dedicated and loyal and has helped the company succeed. So you quickly agree with Jill’s request. She will start to work Tuesday through Thursday. She will receive 60% of her pay. And she “figures” she will want to fully retire in a year. 

“This is perfect,” you think. I can take the year to groom Jill’s replacement, John, a 35-year-old fellow in the Marketing Department.
 
But problems develop. Jill is only at work three days per week, but she is still trying to call all the shots in the Marketing Department. John is all excited about his new role, but Jill shows up on Tuesday only to override the decisions John made on Monday. You urge John to be patient. “This job will be yours in a year when Jill retires.” 

But when the end of the year comes, Jill tells you she is thrilled with her new arrangement. “I am having so much fun! I plan to do this for at least another three years!” If you tell John to wait another three years, he is going to quit. He has been patient, but he isn’t that patient. And if you fire Jill now, she may sue you for age discrimination. After all, she is in a protected class and you did agree to this new arrangement. 

This scenario is playing out in many organizations today. In some cases, employers are reluctant to lose institutional knowledge when a valued employee retires. And employers can feel a sense of loyalty to a long-serving, dedicated employee. But at the same time, younger employees are (im)patiently waiting their turn to lead. What’s an employer to do? 

Formal versus Informal Wind-down Agreements

Some organizations are adopting formal wind-down policies (also called phased retirement policies). 

These policies will often contain provisions such as:
  • Who is eligible to participate; 
  • How long the wind-down lasts;
  • How many hours per week the employee will work; and
  • The impact on pay and benefits.
It is more common to see informal wind-down arrangements, especially with employees in leadership positions. There are some steps employers can take to avoid future problems: 
  • Have a written agreement. 
  • Have the employee tender a retirement notice with a specific date. The employer then accepts the employee’s tender. 
  • Clearly state that the employer is relying on the employee’s pending retirement and will take steps to find and groom a replacement. 
  • Specify the expectations of duties to be performed. 
  • Be clear about pay and benefits going forward. Don’t forget the little things that will become important, like how much vacation time and pay the employee will receive. 
  • If the employee is going to begin to lose authority and decision-making, be clear about this. 
  • An agreement for a specific time period can imply that the employee will not be terminated during that time period except for cause. Clearly preserve at-will employment. 
A wind-down arrangement can be a win-win for an employer and employee. But failure to have a clear under-standing can lead to hurt feelings and, worse, litigation. 

In a previous article, we discussed the risks of approaching an employee and asking about retirement plans. You can find this article at wnj.com/Publications/Take-Care-when-Talking-Retirement.

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