How to handle early retirement during the coronavirus pandemic
It only took one week for more than 2,000 Delta Air Lines pilots to take advantage of an early retirement opportunity Delta offered its workforce.
In July, Delta Air Lines announced a plan to invest more than $3 billion to cover the costs of early retirement among employees. Southwest Airlines also recently announced that approximately 28% of its workforce had accepted similar agreements.
Early retirement offers are one way for struggling companies to mitigate financial losses, says Bill Schaefer, knowledge advisor at Society for Human Resource Management.
“Offering early retirement makes sense, and has been used before even in other situations that were not a global issue, such as an industry slowdown,” Schaefer says. “It’s a way to reduce the workforce in a healthy way where everybody essentially wins.”
Early retirement offers and job losses due to the pandemic are causing many older workers to consider leaving the workforce before retirement age. The labor force participation rate for workers aged 55 and older fell to 38.5% from 40.3% between February and May 2020, according to research from AARP.
BMW and Harvard University are among the other organizations offering their employees early retirement. Packages typically include severance payments and may also allow employees to maintain employer-sponsored health insurance for a period of time.
Employers should have a plan for how to support employees who accept an early retirement offer, says Lauren Hoeck, director of retirement at Willis Towers Watson. Offering retirement planning programs is one essential way to help this population.
“The best practice in terms of financial well-being support is providing unbiased advice, where you're not trying to sell something to employees,” she says. “People want things that meet them where they are and offer them actionable advice through a financial coaching vendor or technology.”
Nearly half of employers also allow retired employees who are still collecting benefits to stay on as consultants or contingent workers, easing their own transition out of the workforce while helping to train the next generation of workers.
“Look to keep key employees on by offering flexibility, such as a part-time or part-year employment schedule, so that they can stay on while mentoring their replacements, but are in a job where they’re finding more satisfaction or maybe more safety in the current environment,” Hoeck says.
This arrangement also means employees can still access health and wellness benefits before their future retirement income kicks in.
“From a financial standpoint, even if an employer is trying to run lean, they may offer a longer runway on the benefits,” Schaefer says. “They may allow health benefits to run longer for employees who are leaving, or if they convert the health benefits to COBRA, maybe the employer pays for the COBRA package for a number of months.”
These benefits could also extend to providing mental health support for employees making this transition.
“For employees having a difficult time with this, EAPs could continue for an employee over a certain period of time so they have a place to go to talk to someone if this has really hurt them emotionally,” Schaefer says.
While the choice to retire early is a challenging decision for both employers and employees, providing a plan and continued support can make the transition easier for all, Schaefer says.
“During COVID, employers are trying to figure out how to work with a lean workforce, and some people who were thinking about retiring anyway are now concerned about their health, and choose not to come back,” he says. “It's a nice combination of the employer and the employee agreeing that early retirement may be good for both.”