Contingent Workforce Solutions

November, 2009 - Using Retirees as Contract Workers

So you want to bring on a retiree for a contract assignment. This can be a great decision for a number of reasons, but you need to take extra precaution to ensure compliance as well or the costs can be significant.

First let's look at the reasons you might want to engage your retired workforce. The obvious advantage to drawing on retirees and alumni for contract assignments is the wealth of knowledge and experience they bring with them. Many of these individuals performed technical roles while they were with the organization, and can have an immediate impact on results. These individuals also possess the experience of having performed specific functions relevant to the organization for many years.

In addition to technical knowledge, retirees and alumni possess a great deal of institutional knowledge that makes them immediately productive. In other words, they know the people, systems, policies and processes that have been developed within the organization over the years. Drawing on this knowledge by bringing these individuals back to work for contract assignments creates a significant gain in worker productivity and lower overall costs. These individuals do not have to "learn the system", but can become productive almost immediately.

Finally, retirees and alumni tend to bring a high degree of commitment and loyalty to their work. Many of these individuals worked for the company for several years and developed a strong loyalty to the organization and its success. This same loyalty and commitment is brought back through individuals who engage in contract assignments, ensuring the work is getting done with attention to cost and quality standards.

Despite these significant benefits to utilizing retirees for contract assignments, there are some risks to the organization if these workers are not utilized properly. Retirees in particular could be benefitting from what is commonly called "double dipping". This occurs when a retiree is simultaneously collecting pension benefits in addition to earning income as an independent contractor or consultant for their former employer. Many of these individuals are performing the exact same work they were doing as an employee of the organization. This practice of "double dipping" is frowned upon by both the Internal Revenue Service (IRS) and Department of Labor (DOL), and if the retiree is reclassified as an employee it could put the tax status of the entire plan in jeopardy. It should be noted that this primarily applies to companies that have a defined benefit plan such as a pension for retired workers. This would not apply to those companies that have a defined contribution plan such as a 401(k). With the exception of certain limitations, defined contribution plans can permit employees to receive distributions even while they are employed by the plan's sponsor.

There are ways for an organization to benefit from these extremely valuable workers, although some companies have established policies that strictly prohibit using retirees for contract assignments. The more logical approach however has been to put specific provisions in place to protect the organizations interests and take advantage of the benefits we have outlined earlier. Some of the options include:

• Use retirees through a specialized third-party service to avoid scrutiny and ensure compliance including plan compliance, proper classification and management of co-employment issues.
• Bring back retired workers in a completely different work function than when they were an employee.
• Create a waiting period before retirees receiving pension benefits can return as independent contractors or consultants and limit the time they can work each year for the organization depending on the plan requirements.

There are companies like Synergy Services that can help you develop a complete Reutilization Program using the people, process and technology required to benefit from the vast knowledge and experience of retirees and alumni, while ensuring against the potential pitfalls from non-compliance. We have technology platform for developing talent pools including retirees and alumni, the processes for ensuring proper compliance vetting in addition to trained consultants to manage the program for reutilizing these workers.

For additional information on this subject, please refer to the report for AARP prepared by Towers Perrin: "The Business Case for Workers Age 50+: Planning for Tomorrow's Talent Needs in Today's Competitive Environment".

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