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Retirement: Early Retirement Incentives - Impact Of Eris

aging hybrid labor pension pensions plan

Early retirement incentives can be either permanent or temporary, part of an ongoing pension plan or a special offer to workers. In general, ERIs are adopted by firms seeking to reduce their labor forces by increasing retirements rather than resorting to layoffs. ERIs provide workers with monetary incentives to leave the firm. Evidence indicates that older employees respond to these incentives and retire earlier than they would without the ERI. The impact of ERIs on labor costs depends on the generosity of the incentive plan, whether all retiring workers are replaced or the workforce is actually reduced, and whether the organization is able to use monies in overfunded pensions to finance the ERI. Typically, wage and salary costs will decline; however, pension costs including the ERI will increase. The impact on the quality of remaining workers is less certain, and depends on which workers accept the ERI. Given the economic incentives, firms risk losing their best older workers. As a result, companies may attempt to target their ERIs.

ROBERT L. CLARK

BIBLIOGRAPHY

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CLARK, R., and MUNZENMAIER, F. ‘‘Impact of Replacing a Defined Benefit Plan with a Defined Contribution or Cash Balance Plan.’’ North American Actuarial Journal 5, no. 1 (January 2001): 32–56.

CLARK, R., and SCHIEBER, S. ‘‘Taking the Subsidy Out of Early Retirement: The Story Behind the Conversion to Hybrid Pensions.’’ In Innovations in Managing the Financial Risks of Retirement. Edited by Olivia Mitchell, Zvi Bodie, Brett Hammond, and Steve Zeldes. Philadelphia: University of Pennsylvania Press, 2001.

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KOTLIKOFF, L., and WISE, D. ‘‘Labor Compensation and the Structure of Private Pension Plans: Evidence for Contractual vs. Spot Labor Markets.’’ In Pensions, Labor, and Individual Choice. Edited by D. Wise. Chicago: University of Chicago Press, 1985. Pages 55–85.

KOTLIKOFF, L., and WISE, D. ‘‘Employee Retirement and a Firm’s Pension Plan.’’ In The Economics of Aging. Edited by D. Wise. Chicago: University of Chicago Press, 1989. Pages 279–330.

KOTLIKOFF, L., and WISE, D. The Wage Carrot and the Pension Stick. Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 1989.

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QUINN, J.; BURKHAUSER, R.; and MYERS, D. Passing the Torch: The Influence of Economic Incentives on Work and Retirement. Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 1990.

SWITKES, E. ‘‘The University of California Voluntary Early Retirement Incentive Programs.’’ In To Retire or Not? Faculty Retirement Policy in Higher Education. Edited by Robert Clark and Brett Hammond. Philadelphia: University of Pennsylvania Press, 2000.

U.S. Bureau of Labor Statistics. Employee Benefits in Medium and Large Establishments, 1995. Washington, D.C.: U.S. Government Printing Office, 1998.

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