When Robert G. Potter, a senior vice president at Monsanto Inc.'s chemical division, had his secretary take off for a much-needed vacation, he figured to replace her with a temp. But a frustrated Potter soon found that he was spending all his time training the temp. Then he had a brainstorm: He contacted his former secretary who had retired several years before and asked if she would be interested in filling in. The retired secretary found the offer attractive and came in to work again, where she found herself able to handle all the needs of the office from day one. Realizing he had stumbled onto a good thing, Potter brought the idea to the company's attention, and Monsanto's Resource Re-entry Center was born.

Now, after over a decade of operation, the RRC boasts a list of 300 Monsanto retirees–everyone from secretaries to engineers to finance department accountants. At any given time, according to Monsanto spokesman Ben Kampelman, some 200 of these retirees can be found working on projects ranging in duration from a week to a year. "It's good for them–they are able to stay in touch with friends while earning extra income," says Kampelman. "It's also good for us. We're able to maintain relationships with people who bring valuable skills and knowledge to the company."

Then and today, the RRC may seem a clever, little project for some human resources executive to shepherd. But in the not-so-distant future, as the largest generation to ever enter the U.S. workforce prepares to retire, this enterprising idea–along with countless others that no doubt will be hatched–could become more a matter of corporate survival than corporate convenience. "We're heading into the eye of this hurricane," says Dave Johnson, national practice leader in executive compensation at Ernst & Young, "and until the wind starts blowing, most companies won't know it's coming."

Recommended For You

The Baby Boom generation–people born between 1946 and 1964–is finally approaching official senior citizenship. At almost twice the size of the so-called Generation X contingent that follows it, and five times the size of the sixtysomething workforce that precedes it, the Boomer generation represents a disproportionately well-paid, experienced and skilled faction of the workforce at most companies. This year its oldest members are turning 60, and both they and their employers are going to have to start grappling with the problem of when they should retire–which, for this generation, is not going to be quite as obvious as it was for its predecessor.

NOT READY TO QUIT

In general, Baby Boomers smoke less, exercise more and eat healthier than their fathers and mothers did. This, along with medical advances, will almost certainly translate into significantly longer retirements for many. Living longer means a person needs a much bigger nest egg, a necessity that is compounded by the relentless inflation in healthcare costs and attrition in retiree health benefits from employers and the government. And even Social Security has been pushing back the official full-benefit retirement age for this group–currently to 67, a number that could easily increase as the generation's bulge hits around 2020.

Boomers, who tend to be more work-oriented, also had children later. So many will still be paying for college when they should be retiring, and those who aren't may not want to spend their 60s and 70s playing golf or bingo.

All these factors–plus the probable increase in class action age-discrimination litigation–would suggest that Baby Boomers may be a bit reluctant to go quietly when 65 rolls around. Companies, on the other hand, don't necessarily want an entire workforce over the age of 60. (See sidebar, page 43) At the end of the day, employers are faced with not one, but two questions: How are you going to live with Boomers and how are you going to live without them?

The whole aging workforce is a "stealth issue," says Ernst & Young's Johnson. "The larger and more dynamic an organization is, the more stealth these issues can be. [It's] more the kind of thing that will creep up on a company and have a cumulative effect that eventually becomes material."

In one sense, just getting older workers to leave or retire early can be the easy part–if you are willing to pay. Companies like AT&T Inc. and, most recently, General Motors Corp. have demonstrated the effectiveness of buyout offers. The main challenge is simply to establish the right buyout offer–or package of offers–in order to achieve the desired number of early retirements or terminations. GM, for example, has offered three different buyout packages geared to three sets of employees, based upon their years with the company and proximity to retirement. One major caveat: Getting workers to accept a buyout is always much easier when a company provides defined benefit and defined contribution plans and retiree health benefits, as both AT&T and GM do. Those that don't will probably have to consider offering extended periods of employer-paid COBRA health coverage as part of the package at a minimum.

That said, when a company is facing a generational bulge, there is a bigger, if as yet less recognized challenge–getting the "right" workers to leave. "The thing I keep hearing from companies is the complaint that, 'The ones we want to keep go, and the ones we want to go stay,'" says Bill Arnone, practice leader for employee financial services at Ernst & Young.

After a buyout, companies often find themselves facing a brain drain. "Senior management has been slow to recognize the knowledge that walks out the door when people retire," says Dave DeLong, author of the book Lost Knowledge: Confronting the Threat of an Aging Workforce. "There is this notion of labor as a commodity that you can just plug in or remove. But when you think of a senior researcher at a pharmaceutical company, or a project manager at a construction firm–this kind of knowledge doesn't show up on balance sheets, but it can be critical to the running of the company." In a classic example of the problem, DeLong cites the dilemma that faced the National Aeronautics and Space Administration (NASA) after winding down the Apollo program and laying off scientists associated with that effort. "NASA forgot how to get to the moon," DeLong says. "It will cost $100 billion to recreate that knowledge," noting that even the blueprints for the Saturn V moon rocket were misfiled and lost.

Ernst & Young's Arnone agrees that stereotypes can be a problem in trying to understand the aging workforce dilemma. "The immediate reaction I get at many companies is that every older worker is a high-cost worker who can be replaced by a low-cost worker," he says. "Now, in nine out of 10 cases, that may be true, but in one out of 10 cases, it's the reverse." A second stereotype, he says, is that the key employees to hang onto will be in middle management. "In fact," says Arnone, "16% of the companies we surveyed said that wisdom loss was going to be a problem at the hourly worker level."

Making things even more complicated is the fact that under the equal opportunity requirements of federal labor law, it is illegal to offer some workers in a group different retirement packages than others. (Federal law also makes it illegal to have someone retire on a defined benefit pension and then come back to work for the same employer.) "The early retirement offer has to be across-the-board," says Barry Barnett, principal at PricewaterhouseCoopers' Global Human Resource Solutions practice, "but incentives to stay on have to be offered to people on a one-off basis." He explains, "Say you have a window for people to accept a buyout offer. You can't say to one employee or group of employees that they can ignore the window and stay on longer. If an employee agrees to stay, they have to give up the buyout, but you can offer them other deals–a salary bonus perhaps, or perhaps some arrangement to have post-retirement healthcare coverage."

But Barnett warns that such deals should be verbal, not written. "This is an art, not a science–you can't promise too much, and you can't promise too little," he says, adding, "Remember, you need to preserve your right to lay these people off if things turn bad later, and if you're not careful, you'll end up with a lawsuit. This is an area where you really need to have corporate counsel involved all the way along."

Matt Sicking, executive director and head of Ernst & Young's actuarial retirement group, says keeping some employees on can add to healthcare costs even if post-retirement health care packages are not promised as part of the inducement, simply because these will be older workers. But he hastens to add that companies, in considering the issue of a Boomer brain drain, need to think past the obvious retention costs. "You have to also look at how much it will end up costing to replace a critical person," he explains.

Experts in the field suggest that corporate managers should begin the process of confronting the aging issue by conducting a strategic study of their workforce. "Until you've analyzed your workforce and found out what people are thinking, and where the company is vulnerable, you can have a retirement plan in place that is working against you, say by encouraging early retirement when you want to keep people on," warns Johnson.

The Tennessee Valley Authority, a giant quasi-governmental hydropower complex with 13,000 employees, began a major survey of its workforce in 2003, when the agency realized that 40% of its employees would be eligible to retire by 2008. Phil Reynolds, senior vice president for human resources, says that the program began at TVA's three nuclear power plants, and was later expanded to the entire company. "The situation in the nuclear plants was critical, because we had been downsizing and hadn't hired anyone between 1988 and 1998," he recalls. "We suddenly realized that a lot of key people were leaving, with no one to replace them."

In order to develop the right mix of incentive packages to move the bulk of workers into retirement while retaining others, Reynolds had the TVA conduct a company-wide survey. After initial reluctance from people who worried that management was trying to push them out, the survey got an 80% response, with employees explaining in detail what their retirement plans were. A key to the high response: a guarantee that the information would be kept separate from employee records. The TVA then asked supervisors to rank employees, on a scale of one to five, from least to most indispensable. These rankings were cross-referenced with age and retirement status, so that mission-critical employees could be identified. The TVA is now developing plans to keep these workers at least until their knowledge can be passed on. "Many of the ones who were about to leave simply decided to stay on when we asked, until replacements could be trained," Reynolds says. "They take pride in their work, and they were worried."

NOT FOR REPRINT

© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.