What is phased retirement?

Although there is no universal definition of phased retirement, it is generally considered to be any work arrangement that falls between full-time retirement and working full-time. As a result of the Pension Protection Act (PPA), employers may now pay pension benefits to employees age 62 and older who are covered under a defined-benefit pension plan, even if they continue to work.

Formal phased retirement, part of an organization's overall talent-management strategy, is still relatively rare because companies are reluctant to include all of their mature staff in phased retirement situations. Regardless of whether an organization's phased retirement program is formal or informal, the Conference Board says the following features are common:

• Allows mature employees to work on a reduced or modified basis as they approach retirement;

• Enables workers who are already eligible for retirement to collect some portion of their pension benefits while they continue to work for pay;

• Allows rehiring the organization's own retirees; and

• Gives retirees the option for phased retirement by going to work for a different employer or setting up their own businesses.

Although the PPA leaves important legal questions unresolved, the Conference Board says it opens up new options for companies that sponsor defined-retirement benefit plans. Up until now, employers were not allowed to pay retirement benefits from such a plan-as either a pension or lump-sum payment until an employee had terminated employment or had reached the plan's normal retirement age. The PPA lifted that restriction as of the benefit year that began January 1, 2007.