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HomeMy WebLinkAboutA001 - Memo from Employee Relations Director dated May 17, 1991 - Lowering Normal Retirement Age t I I 1 11Limit Imm m�,p lU! � UJJ 0 TO: Steven L. Schainker, City Manager FROM: Paul F. Gierasch, Employee Relations Director DATE: May 17, 1991 SUBJECT: Lowering Normal Retirement Age We have researched the issue of reducing the normal retirement age and offer the following information that you and the City Council may want to consider before making a final decision on the proposal by the Utility Retirement Board. Deb conducted a literature search and found relatively little on this topic. Dave Mabey, Manager of Technical Services with the American Compensation Association, suggested that this dearth may reflect the fact that lowering the normal retirement age is not a common concern among employers today. -In fact, the trend is the opposite. Employers are encouraging employees to remain on the job, and are raising the normal retirement age of their plans as the age for Social Security retirement is increasing. Notwithstanding the trend toward raising the normal retirement age, employ- ees are already retiring prior to age 65, the mean being 61 and decreasing. In general, employees are choosing to retire at an earlier age, despite the penalties, for reasons other than poor health. Moreover, there are indica- tions that a reduction in the normal retirement age leads to a commensurate lowering of the average actual age of retirement. Employers typically adopt a policy of encouraging early retirement for one or a combination of three reasons: 1) to facilitate downsizing, 2) to maintain or increase promotional opportunities, and/or 3) the organization believes that workers reach a point where their contribution to productivity is less than the compensation they receive. Downsizing is not a current or anticipated concern of the City. There is a continuing demand for services, and the City is in sound financial condition. The goal of increasing promotional opportunities might be adopted by the City; however, we believe that after an initial cycle of early retirements and subsequent promotions, the traditional pattern of career employment and limited attrition would be re-established. Finally, the purpose of "weeding out the deadwood" is highly questionable and is typically based on assumptions that reflect stereotypes of older workers. There is no evidence that older workers, as a class, are less productive than younger workers. Performance problems are an individual matter and should be addressed as such. Modern management practices include accommodating a diverse work force and facilitating full productivity until the employee chooses to retire. Moreover, there is a high risk of age discrimination in such a policy. A • Steven L. Schainker May 17, 1991 Page 2 Cost appears to be the most significant reason why employers are not lower- ing the normal retirement age. Notwithstanding the possibility of a reduced final salary base, costs increase significantly because of longer payout periods. We are informed that actuarial increases can be up to two percent of covered payroll. In the case of private employers there are tax costs associated with lowering the normal retirement age, and employees may also find themselves in a disadvantageous tax position. Encouraging early retirement is contrary to current social policy encouraging productive employment of a work force that includes an increasing proportion of healthy older workers with longer life expectancies. At the same time current demographic trends include fewer younger persons entering the work force. Retaining older, experienced workers provides employers with a hedge against the shortage of entry-level workers. It should be noted that the City of Ames has not experienced difficulty recruiting for most job classes. There is an ample number of applicants in the local market who view City employ- ment as an attractive career. It has been suggested that a desirable retirement program can be a factor in attracting and retaining qualified employees. The consensus of employer experience indicates that retirement systems operate more as a hygiene factor than a motivator; that is, a generous retirement program will not necessarily attract qualified employees, particularly at the entry level, but an inadequate program may hinder hiring and retention efforts. In summary, lowering the regular retirement age is contrary to the current trend and appears to offer no significant advantage to the City of Ames. It should be noted that this report focuses on patterns in the nation and not public employment or utilities. However, we have no reason to believe that trends in this segment of employment are significantly different from the employment market as a whole.