More employers are interested in phased retirement programs as more American workers decide to put off a full-fledged retirement and opt to work part time instead. However, legal and regulatory impediments must be worked out before such programs can proliferate.

“Clearly, phased retirement programs can benefit businesses as well as older workers, but to take hold, many rules, regulations, and uncertainties must be addressed,” Pierce Noble, a Mercer retirement consultant, told the Department of Labor’s ERISA Advisory Council September 9. “A number of changes in laws and regulations could result in more widespread implementation and utilization of these programs. Changes would be needed in the structure of Social Security and Medicare and to provisions of the Pension Protection Act, the Age Discrimination in Employment Act, and certain provisions of ERISA.”

Examples of phased retirement would be an employee working a reduced-hours schedule–on a part-time, seasonal, or project basis, or as a temporary fill-in for absent employees, Noble said. This may be as a regular employee, in a consulting arrangement, through a third-party organization, as part of a pool, or as a temporary fill-in for employees who are absent or on leave.

Noble spoke before the ERISA Advisory Council Working Group on Phased Retirement, which is examining the need for an improved system of phased retirement opportunities. The group will draft recommendations for the ERISA Advisory Council to make to the Secretary of Labor.

The aging of the U.S. population has led to shortages of skilled workers in many professions and industries, Noble said. At the same time, people are living longer, which puts a strain on retirement savings, leading many older workers to delay full-time retirement.

An informal Mercer survey of large and medium-sized employers found that the most common reason for employer interest in phased retirement is to encourage workers to continue working (95.8%), followed by a desire to provide an easier transition to retirement (45.8%).

More than half (66.7%) would be interested in a program only if it can be applied using employer discretion (i.e., where needed to retain employees with key skills, knowledge, customer relationships, etc.), the Mercer study found. Nine in ten (90%) want to be able to commence full or partial pension benefits for employees working reduced hours after a stated age–typically 55–without being required to commence benefits for employees still working full time.