Medical, Dental, Prescription Drugs: Ain’t Retirement Grand?

Eager to get workers off the payroll, employers consider boosting retirement benefits.

What a difference a few months make.

Until recently, most employers were doing everything they could to keep skilled employees on the payroll. With a tight labor market, and with prized workers jumping from job to job, it made a lot more sense to try to hold onto valuable employees than replace them. Toward that end, many businesses offered an expanded package of benefits, including better medical plans, bigger 401(k) contributions, and more vacation days.

Today that strategy has changed dramatically. Suddenly, with revenues shrinking and with a recession looming, employers are doing everything they can to convince employees to leave. Ironically, though, the approach to losing workers is the same as it was for retaining workers: Offer attractive benefits. As some employers have discovered, better retiree health-care coverage can be particularly attractive to workers in their mid to late 50s. Workers in that age group often qualify for early retirement but are well short of age 65 — when Medicare benefits kick in.

Indeed, benefit consultants say employers now seem keenly aware of how benefits can help reduce labor costs. Retiree health-care benefits “are important in terms of managing the workforce,” insists Frank McArdle, a principal with Hewitt Associates in Washington. “They can increase the willingness of people to retire.” Conversely, if employees know that medical coverage won’t be available when they retire, McArdle says they’re more likely to stay on the job, and “that may not be optimum where there’s a need for downsizing.”

Gold Watch, Free Oranase

That need has been very much on the minds of executives at National Semiconductor. In its latest round of layoffs, the company eliminated an additional 1,000 jobs in May. That’s about 10 percent of the workforce at the microchip maker.

Even with those layoffs, executives at the Santa-Clara, California-based company are looking for other ways to pare payroll. To convince workers to take early retirement, management is considering offering some form of retiree health coverage — a first for National Semiconductor. One option under consideration: Employees leaving the company could take their health and dental benefits along with them. While the company wouldn’t pay for the portable coverage, the new retirees would qualify for a group rate.

Eugene Kiernan, National Semiconductor’s director of risk management and insurance, concedes that plan participants would pay a lot more for healthcare as retirees than as employees. Currently, National Semiconductor picks up 87 percent of the premium for full-time workers. Still, he points out, coverage would be cheaper than retirees could get on their own, and no physical exams would be required. For the first 18 months, the plan would mirror the deal departing workers would get under the Consolidated Omnibus Budget Reconciliation Act (COBRA). (Under COBRA, during that period, former employees can buy coverage for 102 percent of the cost of coverage for active workers.) Kiernan says the price would rise to a market-based, nongroup rate after the 18 months. Early retirees with ongoing medical conditions would benefit by staying in the plan until age 65 because their coverage for pre-existing conditions wouldn’t be limited — as it could be if they chose to buy their own policies.


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