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Thinking of a phased retirement? Rules may hang you up
Scripps Howard News Service


February 04, 2006

Sam Johnson always gets a rise out of town hall meetings when the Texas congressman tells constituents it's against the law for them to ease into retirement by tapping part of their pensions and working part-time for their current employer.

"With people living longer, healthier lives, the natural offshoot is that they're staying in the workforce longer," says the eight-term Republican lawmaker. "It's time for the common-sense idea of allowing people to collect a pension and a paycheck from the same employer ... through phased retirement."




Johnson added a phased-retirement provision to the House-passed pension bill so that workers 62 and older can continue to work part-time for their employer and collect a partial pension instead of quitting cold-turkey to work as a consultant or for a competitor. The Senate-passed version has no similar provision providing for a gradual goodbye, and House-Senate negotiators will work out the differences by spring.

Johnson's proposal also contrasts with a Bush administration initiative to allow phased retirement starting at 59 1/2 years old, the same age workers can start taking distributions from tax-deferred 401(k) retirement savings plans and Individual Retirement Accounts.

The administration proposal, first put forward in 2004, has stalled over objections that it would be an administrative nightmare that would discourage employers from voluntary participation.

Dallas Salisbury of the Employee Benefits Research Institute, for one, predicts that the administration plan is sufficiently complicated that companies are likely to offer the choice to fewer than 1 million of the 25 million active workers covered by traditional pensions through a single employer.

"Clearly, no matter how well-drafted or well-intentioned the regulations are, they will not serve older workers if employers are simply unwilling to implement phased retirement programs," Senate Aging Committee Chairman Gordon Smith, R-Ore., and ranking Democrat Herb Kohl of Wisconsin wrote Treasury Secretary John Snow last month in urging the administration to revise its plan.

A second concern is that any change in the federal rules governing phased retirement not be turned into a way to push older workers out the door or to cut their pension and health care benefits, says David Certner, director of federal affairs for AARP, the 50-and-over lobby.

He cautions that any change in federal law should not be an excuse to cut older workers' hours and pay in ways that cost them pension, health insurance and other benefits. Certner also cautions older workers seeking to negotiate phased retirement with a current employer to take care in protecting these fringe benefits, too.

A final concern is the lack of saving by older workers, with 51 percent of those 55 and older telling the institute's 2005 Retirement Confidence Survey they have less than $50,000 in retirement savings and overall investments.

As economist Alicia Munnell, head of Boston College's Center for Retirement Research, calls the administration plan a "good-news, bad-news" proposal:

"It's good to let productive people keep working, but it's bad to tell them 59 1/2 is a sensible time to reassess your workload and draw down your pension," Munnell contends. "People will need that money when they're financially vulnerable in their 70s and 80s."

That's why Johnson is pushing to encourage phased retirees to hold off on tapping their pension dollars at least until they turn 62, the age at which they become eligible for reduced early Social Security benefits.

When today's 62-year-old can expect to live to more than 80 on average, Johnson says his proposal is a "common-sense" way to let phased retirees continue contributing to the workforce and let their paycheck, pension, Social Security and retirement savings last the rest of their lives.


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Ketchikan, Alaska