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Benefits and costs of an aging work force

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If you are reading this article with reading glasses you are not alone. The baby boomers (born between 1946 and 1964) are out there in full force and they are not leaving the work force or the planet.

In fact, a boomer's chance of living beyond their mid-80s is 50 percent, and 25 percent will go on to live well into their 90s.

If you employ boomers, you may question whether you will lose them to retirement. The answer is both yes and no -- and it depends on the day.

Boomers face the basic problem of supply and demand. The good news is they have a supply of vital years left to live. The bad news is that they have not planned for the financial demands of retirement. Only 28 percent of individuals age 51 to 60 are on track in saving for retirement, according to a MetLife survey.

Boomers will no longer acquire that gold watch and leave the work force. Rather, they will retire later, work part-time or, if they retire, they may come back.

Employers face the challenge of how best to handle this situation. In the 1980s and 90s, many employers subtly -- or not so subtly -- decided to turn their backs on older employees.

Lay-offs in older ranks were common, resulting in many age-discrimination suits. Employers who favor young employees may run out of future options. The new work force is undeniably gray. In fact, there is negative growth in the U.S. work force between the ages of 35-44. The only significant workforce growth will be above the age of 45. (See chart below.)

Some employers have decided to embrace rather than fight the graying trend. Companies such as MetLife, Home Depot and Deloitte & Touche make an effort to either hire experienced workers or retain them into what was once retirement years.

Companies who provide advice to the public are particularly interested in retaining graying employees because boomer customers migrate to employees with similar experience levels. In addition, seasoned employees are good mentors to the younger work force.

There clearly are benefits to attracting and retaining boomers. There are also significant costs. Whether your company embraces the graying change or goes with the flow, you need to consider the following:

* Insurance costs for the older worker; * Health care, pension/savings, life and disability; * Workers' compensation; * Redefining jobs and workflow to accommodate older workers; * Time off for travel and chronic conditions; and * Physical limitations.

Insurance costs

Health insurance -- Health insurance costs will be the big-ticket cost. It will also be what boomers are looking for when choosing an employer. Don't be surprised if a boomer asks about your health plan before making an inquiry into salary.

When an employee meets the definition of full-time (usually 30 hours a week), and enrolls in your plan, you are generally the primary payer of health care. Translation: Your insurance company or plan pays first, without consideration of any other plan such as Medicare, military or a retiree health plan from a previous employer. In addition, your plan pays first for a spouse, unless the spouse is working and enrolls in another employer's health plan.

So what does this mean in terms of cost? The average cost of health care for an individual is $4,024 and $10,880 per year for a family in 2005.* A sample client has an age-rated health care plan in a California insurance pool with average utilization. The rates for a single employee: $173 per month at age 30, $247 at age 40, $407 at age 55, and $541 at age 65. At 65, the client's employee has health care costs of $6,492, which is 61 percent above the national average of $4,024 for a single. The good news is that a boomer family may not include children, although the vitality of the boomers may change this assumption.

Each employer will need to weigh the contributions and costs of the boomers for their industry and decide how aggressively they want to attract older workers through their health plan. It may be that an employer pays more in insurance costs than salary for an older employee with dependents working a reduced work week. Things to consider include:

* How many hours/week are required to qualify for health insurance? * How much will the employer contribute to health insurance? * Pay a higher amount for employee costs (vs. dependents)? By doing this, a dependent may remain on his own plan. * Pay a set dollar amount toward premiums that is age-neutral? * Offer a consumer-directed health plan. (A high-deductible plan coupled with a spending account.) * Whether to offer post-retirement health care. Upon ceasing employment, an employer-sponsored plan usually becomes secondary to Medicare. With cuts in Medicare, secondary costs will continue to climb. This is a high-cost expenditure for a person who no longer contributes to your bottom line. (General Motors will agree.) If you venture in this area, reserve the right to change or terminate benefits.

Benefits with a bang-for-the-buck for boomers:

* Hearing and eyeglass benefits; * Wellness and prevention training -- a great investment if you plan to keep employees * Covering grandchildren on the health plan if the employee is the caregiver; and * Travel benefits/discount entertainment

Pension/savings -- A 401(k) retirement plan is the plan of choice for employers with older workers. Employers match the employee's savings just as any other worker. If you have a defined benefit pension plan, examine how the benefit is paid when an employee works part-time for the later years of employment.

Life & Disability -- The premiums for older workers are significantly higher. However, these costs pale in comparison to the health care. Also, benefits for employees over age 65 generally are reduced by the insurer, and the costs are based on the reduced benefit.

Workers' compensation -- Employers need to examine the job functions of older employees and match the job to each individual's physical abilities. About 20 percent of females and 10 percent of males over the age of 65 are unable to stoop, kneel or lift over 10 pounds**. At a home improvement store, a customer may prefer talking to a seasoned employee rather than the kid with multiple body piercings. However, that seasoned employee may not be able to lift the product or stock the shelves. A sensitive evaluation of capabilities and work flow is required.

The previous example illustrates how a job may need to be redefined to accommodate physical limitations. Now is the time to start strategizing with your human resource department and risk manager about re-engineering jobs and work flow. Ask these questions: If an employee has a physical limitation, how does that affect the surrounding employees? What needs to be done to form a cohesive team environment?

Human resource policies to consider:

* Will you allow "snowbirds" to split time between your locations. Will you allow snowbirds to work six months of the year?; * Re-hire provisions; * Do you allow for unpaid leave of absence to travel?; and * Do you allow time to care for chronic conditions of employees and their spouses? (Federal/state laws may apply.)

Each manager needs to plan for the costs of employing our aging work force, particularly in the insurance arena. There are ways to balance the costs and benefit from the experience of graying employees. Boomers are not necessarily looking for a big paycheck - you can win them over by: 1) being flexible and accommodating to their needs, and 2) offering reasonable benefits, with an emphasis on healthcare.


Whitlock is an account executive in Barney & Barney's Employee Benefits Department. For more information call (858) 587-7588 or e-mail Suzannew@barneyandbarney.com.>

* Kaiser Permanente Foundation, 2005 Health Care Survey ** Centers for Disease Control and Prevention, National Centers for Health Statistics National Health Interview Survey

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