Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 26, 1993 TAG: 9307290467
SECTION: VIRGINIA PAGE: A-8 EDITION: METRO
SOURCE: By Marianne Taylor/Chicago Tribune
DATELINE: LENGTH: Long
By the time he accepted the company's voluntary severance package in December 1991, he'd already turned down six previous offers as part of Sears' ongoing efforts to pare its work force.
"I'd gone through reorganizations within Sears since 1983," he said. "I just didn't want to fool with another one."
As an early retiree, Borg has plenty pf company among fellow former Sears employees and thousands of other recent refugees from corporate America.
At Sears alone from mid-1990 through early 1994, the company expects to have cut 98,050 jobs from its nationwide payroll through voluntary severance offers and direct layoffs, officials said.
Corporations ranging from the size of IBM to the small business down the street have turned increasingly to early retirement offers and severance offers and direct layoffs and direct layoffs, officials said.
Corporations ranging from the size of IBM to the small business down the street have turned increasingly to early retirement offers and severance packages to entice workers out the door. Downsizing has become part of the official language of many corporations in the 1990s.
How do you evaluate such an offer if you are lucky, or unlucky, enough to receive one?
As with any financial planning situation, a lot depends on your age, ambition, financial status and skills. Others themselves vary widely and must be evaluated closely.
In general, there are two types of voluntary severance packages: those for workers nearing retirement age, which usually include an enhanced pension benefit, and those for younger workers, which usually provide several weeks to as much as a year's worth of salary.
A recent survey by Hewitt Associates, a Lincolnshire, Ill.-based pension and benefits consulting firm, found that at companies who offered workers an early retirement incentive, those eligible for the offers, on average, were 55 years of age or older with 10 or more years of service.
Of the offers, almost two-thirds included a sweetened pension benefit. This may include eliminating the penalty for early retirement - which can cause lesser benefits to be paid out every month - or adding a few years to a retiree's age and service record in calculating the pension benefit. Both have the effect of boosting the monthly payment to the retiree over his lifetime compared to what he would receive after an early retirement under normal conditions, said David Graffagna, a consultant at Hewitt Associates.
"If you have an employee who is now 57 with 17 years of service, he might get the same benefit as someone 62 years old and 22 years of service" under an enhanced offer, said Mark Mactas, vice president at Towers Perrin, a pension and benefits consulting firm.
That could mean a boost in pension income from about $7,500 annually to $12,600 for this worker if his final salary was around $50,000 a year, Mactus said. If the person continued to work until 65, the benefit would be $16,300, or possible more with pay increases.
That offer, known as a 5-plus-5 incentive, is considered very generous and somewhat rare, though Sears just recently offered that benefit to 4,000 managers, 3,400 of whom have accepted.
A more typical offer would be to add two years of age and two years of service to an employee's pension calculation, Mactas said. Almost half of the companies surveyed offered a cash payment to early retirees as well as some pension enhancement, according to the Hewitt survey.
Non-retirement age workers are likely to be offered a straight buyout package package with a cash payment, usually based on years of service at the company.
Most commonly, workers are offered one week of pay for every year of service, said Graffagna. M>ore rarely and more generously, a company for every year of service. Companies usually impose a cap, such as a maximum six months or one year of salary.
Non-monetary benefits can be almost as important as the cash benefits in such plans. "Companies that I've been dealing with generally will continue your health insurance coverage for the length of the severance payment, as well as life insurance," said Richard Lehr of RGL Consultants in Orland Park, Ill.
Early retirees, who may retiring well before Medicare coverage starts at 65, should consider whether the package offers any help with health insurance coverage.
Many companies have been dropping health insurance coverage for retiree in recent years, so an employee shouild first check to see if his company for retirees in recent years, so an employee should first check to see if his company even maintains a separate retiree plan. If it does, is an early retiree eligible? Retiree plans offer group rates, so they tend to be less costly than the individual insurance but may be more costly than the plans offered to active employees.
When an employee is receiving regular severance payments from a compnay, he may be able to continue receiving active employee health coverage during that time. In any case, federal COBRA (Consolidated Omnibus Budget Reconcilitation Act) rules require that a laid-off employee be able to continue his own expense - meaning the employee pays what the company formerly paid on his behalf - for 18 months.
In general, the younger the worker who is eligible for an early retirement offer, the greater the personal cost of not continuing to work, according to pension consultants. That's because pension formulas usually consider the pay during a worker's final years in establishing a lifetime benefit, and older workers tend to be paid more because they've had more time to build up salary increases.
In fact, some consultants say that the bulk of an individual's pension payout - as much as two-thirds - is earned in the last 10 years of employment.
by CNB