As the pandemic continues to impact businesses across the country, employers are seeking out more ways to cut costs in order to stay afloat. Recognizing that one of the most significant ways to reduce the strain on the bottom line is to reduce the workforce, more and more companies are offering early retirement to their employees.
In fact, in a 2020 survey conducted by The International Foundation, 11.9% of responding organizations reported that participants are asking more questions about early retirement options.
If your business is one that’s considering an early retirement incentive plan (ERIP) for your workers, there are several factors to consider — including eligibility criteria, adherence to the federal Age Discrimination in Employment Act (ADEA), severance pay, and a host of retirement incentives such as continued perks and bonus pay.
BUT CHIEF AMONG THESE CONSIDERATIONS IS THE CHOICE OF WHETHER — AND HOW — TO CONTINUE PROVIDING MEDICAL COVERAGE.
The availability of continuing medical coverage is often a primary consideration when individuals contemplate an early retirement offer. If the employee is not old enough to apply for Medicare (age 65) they’ll need to find that coverage somewhere — and pricing through both COBRA and the ACA can cause some definite sticker shock. So, having it included as part of the ERIP can be a very motivating factor.
According to a 2019 Kaiser Family Foundation survey, 28% of companies offer health benefits to retired former employees. (For a point of comparison, that number is down from 40% in 1999. But it’s growing again due to the pandemic.)
If you plan to join that group, there are some things to consider.
For those employees taking early retirement before age 65, you have to decide whether and how you want to close the gap before they’re able to apply for Medicare. Employer-provided retirement health plans include the traditional HMO and PPO options, as well as supplemental Medicare plans at age 65. The primary question becomes how much of the premium for these plans you offer to cover for former employees, and just what benefits will continue to be provided. (Including how spouses and dependents are covered following the employee’s retirement.)
You should always consult with your insurers to make sure they’ll allow for any exceptions to plan eligibility requirements.
Also, as more employers seek to limit their exposure to the rising costs of health care, more are considering a Section 105 plan such as a health reimbursement arrangement (HRA). With a retiree health reimbursement arrangement, the funds the company had set aside for the employee to pay for qualified medical expenses can be extended for use after retirement.
Determining the right balance of perks in an early retirement package is an individual choice. The list of options is as extensive as it is customizable; severance, based on the length of the employee’s tenure with the company, bonus incentives, extended coverage for group life insurance, outplacement services, financial planning services, extending the use of a company vehicle, keeping an office laptop or other home equipment, continuing education, and more.
Prior to developing your package, you should be sure to review the eligibility requirements for each individual benefit — some may have provisions that allow them to be provided only to active employees.
There are many factors to consider when exploring your company’s early retirement health benefit options. To determine what’s right for you or your small business, or if you need help outlining an early retirement incentive plan, speak to a Health & Benefits Partners representative today. Our deep industry knowledge and expert guidance can guide you — and your employees.