Some members of Congress are looking for ways to encourage older workers to stay on the job as they approach and pass the normal retirement age.[@@]

Witnesses talked about “phased retirement” programs and other strategies for keeping older workers in the workforce here today at a hearing of the Senate Special Committee on Aging.

The baby boomers are aging, life expectancies are rising, and encouraging Americans to continue working later in life could ease the labor shortage that might be created when the boomers leave the workforce, according to Barbara Bovbjerg, a workforce expert at the U.S. Government Accountability Office.

“Federal policymakers may want to consider creating incentives for older Americans who are able to work to remain in the workforce and ensuring that federal policies do not discourage the choice to work longer,” Bovbjerg testified at the hearing. “Doing so could enhance future supplies of skilled workers, bolster economic growth and help many people secure adequate retirement income.”

But Valerie Paganelli, a senior consulting actuary at Watson Wyatt Worldwide, Washington, said federal rules actively discourage employers and older workers from using phased retirement programs, or programs that give workers a chance to shift to part-time work before leaving their employers.

The government gives employers tax advantages for offering qualified retirement plans for employees, but it creates disincentives for all but nominal efforts to fund retiree health plans while workers are still working, Paganelli said.

“As a result, pay-as-you-go funding is the predominant funding method for retiree health benefits,” Paganelli said.

One result at employers with skimpy retiree health benefits is that employees who shift to part-time work before they qualify for Medicare also face the threat of losing access to employer-sponsored health benefits.

For members of qualified retirement plans, the problem is that the plans are barred from dispensing benefits until an employee has ceased to work for the employer or reached the normal retirement age, Paganelli said.

“One of the most significant barriers to formal broad-based phased retirement arrangements is the prohibition against pension distributions to actively working employees who have not attained normal retirement age,” she said. “The foundation of the restriction is the regulatory definition of a pension plan as providing for the payment of benefits ‘after retirement.’ This requirement has resulted in a restriction against pension plans distributing benefits to participants prior to severance of employment or attainment of normal retirement age.”

The Internal Revenue Service has proposed new rules to allow for some flexibility for phased retirement programs, but these proposals “would impose significant administrative burdens and limited flexibility such that very few employers have expressed interest in providing such a benefit to older workers,” Paganelli said.

The Special Committee on Aging has posted written versions of Paganelli’s testimony, Bovbjerg’s testimony and other statements made at the hearing on the Web at http://aging.senate.gov/public/index.cfm?Fuseaction=Hearings.Detail&HearingID=63