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Retiring in Steps

Thanks to changes in pension laws, phased retirement is suddenly an option-and both employers and employees are interested

By Staff Writer | Updated on May 01, 2007

With the U.S. workforce growing older and life expectancy rates continuing to climb, the playbook for retirement is in the process of being rewritten–and not just by employees, but by employers, too. Thanks to the watershed 2006 Pension Protection Act (PPA), employers may now pay pension benefits to workers 62 years and older, even if they continue to work. As these phased retirement programs become easier to implement, more companies are expected to turn to the practice to retain older workers with valuable skills and knowledge. The one obstacle: The Internal Revenue Service (IRS) has yet to define the regulations.

The big IRS issue, explains Kyle Brown, retirement counsel at human resources consulting firm Watson Wyatt Worldwide Inc., is subsidies. “If a plan has a subsidized early retirement benefit, can the plan pay the subsidy upon the in-service distribution under phased retirement?” The IRS has sought public comment on the issue, taking the pulse of the employers and employees.

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