efore Larry Benson interviewed for his current graphic designer position at SEIU-Healthcare Workers West, he dyed his gray hair brown.

    That’s because on one of Mr. Benson’s previous job interviews, the 22-year-old woman meeting with him couldn’t stop staring at it, he recalls.

    "She just stared at my head the entire time and then finished by telling me that I was too senior for the position," he said.

    Mr. Benson, 52, joined SEIU-Healthcare Workers West in March after looking for a job for more than a year. Before that, he had been a freelance graphic designer for 15 years, making six figures.

    But in 2004, he lost his two biggest clients, and ended up mainly living off his savings until he got his current position. Today, Mr. Benson, who lives with his partner in Oakland, Calif., can’t even bring himself to look at his retirement statements.

    And he said he is thrilled that he got a job that pays for full health-care benefits and offers a pension, because he will probably be there well into his 70s.

    "I used to think that would be at 68 at the latest, but now I don’t even think that’s possible now," he said about retirement. "I plan on working here a long time."

    Mr. Benson is among a growing number of older workers delaying retirement, either because they actually can’t retire or they’re simply too skittish to do so right now. Epic swings in the financial markets, like the ones recorded in September and October, will have that effect on workers, especially when they’re accompanied by forecasts of a prolonged recession that pepper the front pages of newspapers on an almost daily basis.

    Private sector and public retirement plans have seen their assets decline by roughly $2 trillion, according to a testimony given to the House of Representatives in October by Peter R. Orszag, director of the Congressional Budget Office.

    "Retiring in this kind of economic environment turns unrealized losses into actual losses," said Brian Graff, executive director and CEO of the American Society of Pension Professionals and Actuaries. "Why would you cash out at all now, when you could keep earning an income and wait until your nest egg becomes whole again?"

    More than any other reason, this fear of being financially unprepared for retirement is what’s turning corporate America’s work forces grayer by the day.

    A recent AARP survey of 1,500 workers 45 to 74 found that 64% of respondents say they will continue to work because of financial needs. Today, more than half of the labor force is 60 to 64, up from 43% in 1986, according to the Economic Policy Institute.

    For employers, this trend can be good or bad news. Older workers are more highly compensated and carry higher health-care costs than their younger counterparts. The medical claims for employees 61 to 65 and their dependents hovers close to $8,000 annually, compared with $3,000 for workers 31 to 35, according to Towers Perrin.

    But the baby-boom generation also accounts for a huge chunk of the country’s work force, and many companies are faced with the prospects of a talent shortage upon their exit.

    That some boomers want to stay on the job is the silver lining for many corporations. That’s why companies such as IBM Corp., Devon Energy Corp. and paper company PH Glatfelter Co. are sizing up their benefits platforms and seeing how they could be used to appropriately manage and satisfy their aging work forces.

    "We're hardly anxious to have our older workers leave," said Gregory Paradiso, director of compensation and benefits at Glatfelter, which is based in York, Pa., and whose 3,000-strong work force has an average age of 49.

    The trick for companies is to retain the experienced workers they want and need, while offering tools so older workers who are not high performers can retire when they are ready, experts say.

    "To keep everyone is very expensive," said Jamie Hale, a senior work-force planning consultant at Watson Wyatt Worldwide in Dallas. "It really is a balancing act to retain those older employees they want, while encouraging others to move on."

Benefits tools
    Whether it’s offering wellness programs, financial education classes or phased retirement options, to name a few measures, employers are searching for ways to keep many of their older workers engaged while keeping their own costs down. At the same time, these companies also must have benefits offerings in place that can help older workers retire when they are ready.

    At Devon Energy, which has offered a traditional defined benefit pension plan to its workers for years, the company recently rolled out a "Super 401(k)" option, in which employees are eligible to receive a company match like no other.

    Not only can the plan help older workers save enough for their retirement if they opt in, but it can also help the company compete for younger workers against energy giants such as Chevron Corp. and Royal Dutch Shell PLC, said Frank Rudolph, senior vice president of human resources at Devon Energy in Oklahoma City.

    The new Devon plan matches employees’ contributions with cash, not company stock, which encourages workers to have a more broadly diversified 401(k) right off the bat. But it also matches its employees’ contributions dollar for dollar, a generous match that only about 20% of companies offer, according to the Profit Sharing/ 401(k) Council of America.

    Then comes the matching program on steroids: For workers who spend five years at Devon, the company matches 401(k) contributions on up to 11% of pay. For those who stick around for five to nine years, they get up to 14% of annual pay matched, while workers with 10 to 14 years of service earn a match on as much as 18% of their compensation. And workers who have been with Devon for 15 years or more are eligible for a company match up to 22% of their annual pay.

    The matching contribution is based on an employee’s total years of service at Devon, not from their service since the introduction of the plan. Put in perspective, most companies match 50 cents on each dollar contributed up to the first 6% of pay, according to the Profit Sharing 401(k) Council.

    Not all companies, of course, will go to such extremes. But there are other ways that employers can tweak their benefits to satisfy a significant portion of their older workers.

    "Companies need to rely on fringe benefits to keep older workers engaged because they can't offer the standard benefits like health-care and retirement benefits to just their high performers," Ms. Hale said. "So they are looking at other kinds of benefits to retain these workers."

Wellness = cost control
    Recognizing that their work forces are getting older, many companies are targeting their wellness programs to address issues that older workers may be confronting, such as arthritis, certain cancers and heart disease, said Dr. Bruce Hochstadt, a principal with Mercer LLC, New York, in its health and productivity management practice.

    In January, Sperian Protection started offering free colonoscopies to every worker and pre-retiree older than 50. The Paris-based company, which makes personal protective equipment, had been offering its 1,600 U.S. employees other types of screenings, including mammograms and prostate tests, as well as free preventive care, such as annual physicals, immunizations and lab work.

    "Our employees know we're serious about detecting things early," said Michael Vittoria, Sperian’s vice president of human resources. "We are all being challenged as employers to keep our talent in-house and to keep them healthy."

    Sperian invests in preventive screening because these costs can be less expensive than paying for the acute care of one major cancer case, Mr. Vittoria said. The company’s employees are mostly in their mid-40s, an age when many health issues begin to arise, he added.

    Sperian expects 120 employees to have colonoscopies this year—a screening done every five years after age 50. A major communication effort is under way to increase the number of screenings by 50% in 2009.    

    And although these preventive measures haven’t decreased health-care costs, they have slowed them, Mr. Vittoria said.

    The company saw double-digit percentage increases earlier this decade. In 2007, health-care costs rose 2.6%, to $8.8 million. This year, Sperian projects costs will rise only 1.8%, to just above $9 million.

    "Prevention does pay off, even with an older work force," Mr. Vittoria said.

    Meanwhile, the concept of offering more flexible retirement packages—such as allowing older employees to work part time but still draw a pension—appears to be gaining in appeal for some corporations.

    "It's hardly commonplace and there’s no real model for offering phased retirement benefits right now," said Byron Beebe, U.S. retirement practice leader at consulting firm Hewitt Associates LLC, Lincolnshire, Ill. "But it makes a great deal of sense for both employers and employees at this point, and it will get more consideration."

Incentive to retire
    For another lesson in how to encourage older workers to retire, private employers can look to universities, which have taken a somewhat counterintuitive approach. Studies have shown that in academia, many employees put off retirement specifically because of concerns about health-care costs after they leave their jobs. This trend was leaving colleges and universities in a bind.

    "You end up with inflexibility and the inability to infuse new ideas into the organization because you can’t recruit," said Bill Detwiler, associate vice president of HR and business services at Southern Methodist University in Dallas.

    But continuing to offer health care to retirees was becoming too much of a burden for organizations such as SMU, particularly after accounting rule changes in 1993 that now require employers to deduct the estimated future costs of retiree health benefits from profits. That’s why SMU is one of 51 institutions that during the past three years have signed up with Emeriti Retirement Health Solutions, a nonprofit that allows employees and colleges to set aside money that retirees can use for health-care expenses.

    The program, which is administered by Aetna, works this way: When employees turn 40, the colleges contribute at least 0.5% of their aggregate annual pay into a voluntary employee beneficiary association, a tax-free trust. Employees also contribute—either voluntarily or on a mandatory basis, depending on the college’s policy—to an account.

    Employees can invest the money in mutual funds managed by Fidelity Investments. When employees reach 65 and are eligible for Medicare, they withdraw the money tax-free to pay for one of six supplemental insurance plans offered through Aetna, or for premiums on an outside plan. The premiums through Emeriti on average range from $60 to $250 per month per individual.

    SMU implemented Emeriti in January and mandates that employees begin contributing $40 per month into the program once they turn 40. Their contributions increase by 4% annually, and SMU matches the contribution, Mr. Detwiler said.

    The advantage of making the contribution mandatory is twofold, he said: First, the employees will have more savings for health-care costs when they retire; also, mandatory contributions are tax-free under Emeriti.

    So far, 1,300 of SMU’s 2,100 benefits-eligible employees have begun participating in the program and 500 have retired on it. The university is spending $1.1 million a year, but it projects that in the long term the program will cost less than its old retiree health-care program, Mr. Detwiler said.

Looking ahead
    As more workers like Mr. Benson delay retirement, some experts question whether some companies that are anticipating a talent shortage may actually find themselves with too many experienced workers. Watson Wyatt’s Ms. Hale, for one, doesn’t believe that the talent shortage facing many employers will disappear anytime soon.

    "Most of these companies don't want to keep older workers for 10 more years; they just want them for another three," she said. "In the foreseeable future, this talent shortage will play a role in their benefit design."

    But if it does become an issue, offering older workers the option of taking phased retirement will be a key strategy. At Glatfelter, Mr. Paradiso said that although the company hasn’t implemented any phased retirement benefits, officials are talking about doing something soon.

    For now, Glatfelter is still benefiting from having its older workers stay put. But it may take several years before maintaining a graying work force on a full-time basis becomes problematic.

    "That’s when a phased retirement benefit can become a real solution," Mr. Paradiso said.

—Crain's Benefits Outlook Online, November 2008

Jessica Marquez is Workforce Management’s New York bureau chief.  Mark Bruno is a reporter with Financial Week.  To comment, e-mail editors@workforce.com. Freelancer writer Patty Kujawa also contributed to this report.