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Monday, January 24, 2011

The Costs of Having Employees Who Are Unable to Retire

401khelpcenter.com
Guest submission

Question: Our company is trying to decide whether a retirement preparedness program is worth the cost. What are the costs to an employer of having employees who aren't able to retire?
RetirementImage via WikipediaAnswer: The biggest cost is when you have employees who want to retire but cannot. …[Those] who do want to retire but cannot can cost the company dearly. It is nearly impossible to arrive at a set dollar amount, but you can at least get a better understanding of the costs by looking at the impacts in the following areas:
  • Increased health care costs. A key reason employees want to retire, rather than work the rest of their lives, is for the health benefits of a more relaxed lifestyle as they get older. Those who want to retire but are unable to do so for financial reasons are likely to have significantly higher health care costs than average-which translates directly into costs for your company in terms of increased health insurance premiums and indirectly impacts the bottom line in terms of greater absenteeism and lower productivity.
  • Higher costs in the event you need to lay employees off-… . Imagine if no one was ever able to retire due to poor retirement preparedness and your company was shrinking due to financial difficulties. You'd have to lay more people off due to the fact that there was no attrition due to retirement. And you'd probably end up spending more money on severance; especially to the extent the layoff impacted those with more years of service.
  • Declines in performance among older employees who do not want to be working, or cannot effectively handle their job responsibilities but have no choice but continue to work for financial reasons.
  • Declines in performance among those younger employees unable to move up the career ladder, which causes lower morale and decreased motivation-a "mailing it in" kind of mentality rather than the engagement required to take the company to the next level.
Your CFO could run the numbers associated with the increase in health care costs and potential layoffs in a bad economy. Performance declines are harder to measure, but they are often much more expensive over the long run as they compound over time and damage the culture of your organization and its ability to effectively compete.

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