THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Monday, October 17, 1994 TAG: 9410150148
SECTION: BUSINESS WEEKLY PAGE: 4 EDITION: FINAL
SERIES: Personal Finance
SOURCE: BY LON WAGNER
BUSINESS WEEKLY STAFF
LENGTH: Long : 108 lines
You're faced with what seems like a dream come true: Your company wants to pay you to quit working.
The company wants to trim its work force. If you agree to retire early, you get, say, a cash payout equal to six months' salary, along with five or 10 years added to the time built up in your pension.
At just 55 years old, you could retire with full benefits and bid a hearty ``good riddance'' to the 6 a.m. buzzer on the alarm clock.
Sounds like an easy decision, right?
Not so fast, say the American Association of Retired Persons and other experts who advise on retirement planning.
Though accepting a company's buyout offer may not hurt some people - in fact, some younger retirees use the money or time to start another career - it can catch others off-guard, forcing drastic crimping of their lifestyle.
``You need to make a real tough decision,'' said John K. Loftis Jr., manager of compensation and benefits for Virginia Power. ``We had employees age 50 who had kids still in college, and they might have wanted to retire, but felt they couldn't walk away and still pay for college.''
Virginia Power is just one of several state and regional companies that have used early-retirement incentives to reduce their work forces over the past several years. The Richmond-based utility used buyout offers to pare its 1989 work force of 14,000 to 10,800.
Virginia Power's most recent retirement and separations programs were so enticing that they lured hundreds more people off the payroll than the company expected.
The utility offered what is known as a ``five-by-five window.'' That meant that any employee older than 50 who had five years of service in the company's retirement plan could retire and have five years added to his or her ``age'' and time of service.
Virginia Power sweetened its offer, which it rolled out in March, by offering six months of pay and medical benefits. The company then coupled a voluntary separation program to all of its then-12,000 employees: Any worker, regardless of age, could leave the company and get six months' salary and $5,000.
The company, which crunched numbers for the better part of a year before making the offers, figured 1 percent of its work force, or 120 people, would take the offers. Instead, almost 10 percent, or 1,155 people, signed up.
``Yes, we'll have to hire a few people back,'' Loftis said, ``because we've gotten more people to take it than we thought.''
Companies offering buyouts are careful not to target, at least publicly, a specific number of jobs they would like to eliminate.
``That leads to the conclusion that if you don't get it through normal attrition in early retirement or separations, you're going to get it another way,'' said Bob Fort, a spokesman for Norfolk Southern Corp. The Norfolk-based railroad cut its work force in 1987 and 1992 through separation offers.
Despite company assurances to the contrary, retirement experts say, employees faced with making a decision about a buyout offer often feel that they may be laid off, at least eventually, if they don't take the offer.
``Many times, I think that's the implication,'' said Tom Otwell, an AARP spokesman. ``Here's your choice: Quit or we'll fire you.''
When it made the offers, Norfolk Southern set up a phone bank of company employees who had been coached to offer advice.
Newport News Shipbuilding has ongoing preretirement seminars offering advice investments, legal aspects like wills and not-so-legal hitches like problems that might arise when a husband and wife are suddenly spending a lot of time together.
What hard-and-fast information should a person have in hand before deciding whether to accept an early-retirement buyout? The AARP, in a guidebook called ``Look Before You Leap,'' suggests the following:
Calculate your expected pension and Social Security benefits, and factor in expenses such as health insurance - and don't forget inflation. A rule of thumb is that retirement income should be 65-75 percent of preretirement income.
Focus on your pension. Ask your company's pension plan administrator if your spouse would continue to receive your benefits if you die first. Ask if your pension will be integrated with your Social Security payments. (Some retirees are surprised to learn their company takes Social Security payments into account when calculating a person's pension.)
Estimate what your Social Security benefits would be if you retired at 65. This can be done by completing a ``Request for Statement of Earnings'' (form SSA-7004), which can be obtained by calling 1-800-234-5772. Early retirees should be cautioned that once they accept a reduced Social Security payment, it will remain at that rate permanently. A person who retires at age 62, for instance, will receive 20 percent less in a monthly check than a person who waits until age 65.
And finally, financial planning experts and companies that have offered early retirements warn people considering a buyout that they shouldn't count on latching onto a similar-paying job anytime soon.
``I do think a lot of people decide to take early retirement and think, `Maybe I'll relax a couple of years, then find another job,' '' said Laurie McCann, a lawyer who wrote the AARP guide. ``They don't realize how difficult it is to find a job in this economy.'' ILLUSTRATION: Monthly amount needed for retirement
What $100,000 will be worth
SOURCE: Legg Mason Wood Walker Inc.
[For a copy of the graphic, see microfilm for this date.]
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