People are living longer and working longer, and this has implications for pension plans and workforce strategies. There are a rising number of employees, particularly in knowledge-intensive industries, who plan to work past age 65 and who don't have a lifelong relationship with one employer. How can companies attract and retain these workers?

Making it easy for employees to save for retirement and giving them financial knowledge to make sound investment decisions is essential, according to Olivia S. Mitchell, Ph.D., academic director of the executive education program, Pension Strategy: Designing Resilient Retirement Systems, who spoke at last fall's Wharton Impact Conference, Maximizing Your Workforce: Employees Over 50 in Today's Global Economy.

Employees increasingly want flexible benefit plans, she said. Designing a palette of less conventional benefits, such as phased-in retirement and job sharing, will be an important step in attracting and retaining top employees. "U.S. workers work more hours than workers in other developed countries, so offering time off is an example of a nonconventional benefit that is attractive."

Using an "a la carte" approach lets employees select the levels of life insurance they want or the health insurance provider and whether or not they want long-term or disability insurance plans. Companies also are offering portability of these benefits.

Keep It Simple

More flexibility often means more choices, and employees have not typically been good at making these decisions. While many companies have moved to defined contribution pension plans (as opposed to "defined benefits"), placing more investment decisions in the hands of employees, workers have limited knowledge to manage such investment decisions. They still invest less than they should in these plans, particularly when retirement is longer and more active than in previous generations. "People today are living 20 or more years after retirement and are much more active in those years than ever before," Mitchell said.

"Most people are not rational investors, so if you are going to offer defined contribution plans you have to make sure people invest enough," said Mitchell. While workers should be saving 15 to 20 percent of income, employers may set a mandatory contribution level of only 3 percent to encourage more workers to participate. "As employers are no longer the nexus of all these benefits that employees have come to expect, the workers themselves will have to decide which benefits they want and whether they can afford them or how they can afford them," she said. "These are complicated decisions and, as a rule, people don't have a lot of financial knowledge."

Even employees who know what they should do in planning for retirement have trouble following through. "People may have good intentions financially, but on the whole they are poor executors," she said. One study revealed that while 100 percent of a group of employees said they would open a 401(k) program, 4 months later only 14 percent had actually started one. "That's why I like personal accounts," she said, "because in my experience, money you don't see is money that is saved. If you get paid and then have to decide to put some money away--or take a trip to Cancun while it's January in Philadelphia--what are you going to do?"

Given the complexity of these decisions, simplicity is a virtue. While serving on President Bush's Commission to Strengthen Social Security, Mitchell helped craft a voluntary personal retirement account, and she believes this model can help encourage more workers to save. The committee kept its proposed model simple. It recommended limiting the number of investment options to three or four "plain vanilla" plans, including stock indexes, money market, and TIPS; keeping the administrative costs to 2 percent; and banning any day trading. But, she warned, "The devil is in the details."

When creating personal-account-style plans, Mitchell advises:

• Avoid choice overload: "People have vague ideas of what to invest in. They tend to focus on the plans at the top of the list."
  
  
• Don't overlook the administrative costs: Costs of these plans can be significant over the long term. For instance, fees amounting to 1 percent of assets can accumulate over the life of the investment to as much as 25 percent.
  
  
• Pay attention to exposure to company stock: Today, about the same amount of employee 401(k) plans have the same amount allocated to company stock as before the Enron scandal. "People want to think they are going to be the next Microsoft millionaire," Mitchell said.

Grey Power: Strategies for Meeting and Maximizing an Aging Workforce

"Aging workers and retirees can be an asset for organizations if they have the flexibility to utilize these experienced employees," said Ramani Ayer, chairman and CEO of The Hartford Financial Services Group, who also spoke at the Wharton conference. "We recognize the older workforce as a vital part of our employee base," he said. "As a provider of financial and retirement services, we're consumed with how to meet the needs of retirees around the country. At the same time, we have become an innovator in techniques for keeping our own older workers engaged."

Among Hartford's 30,000 employees worldwide, 22 percent are over 50. In 2003, almost 12 percent of Hartford's new hires and one-third of its executives were over 50. Among the ways The Hartford has taken advantage of a growing pool of retirees and entered new markets are:

• Using retirees as reserves: The 2004 hurricane season saw many of Hartford's policyholders sustain multiple damages from different hurricanes. To meet the spike in demand for claims professionals, the company used its "reactivation list" of retired claims professionals who indicated they would be willing to work during emergencies. "We knew we couldn't just say to our policyholders, 'We'll get to you.' Some claimants had their whole lives destroyed, their family heirlooms demolished. The result was that the claims of the hurricane victims were handled by older, experienced claims representative who brought years of wisdom and maturity to the situation. The customers were very impressed."
  
  
• Look for opportunities to serve the market: Aging populations create opportunities for companies such as insurance providers. As the leading annuity provider in the United States, The Hartford's biggest market segment is made up of older Americans, and it has recently begun offering retirement products in Japan.
  
  
• Create flexible schedules: Hartford's commitment to creating flexible work schedules is one of the Ayer's proudest accomplishments — and one in which he shares the credit with his entire management team. Ayer's listening skills led to one retiree being "phased back into work" at the request of his wife. "That employee is actually now in Japan helping design our technology platform. His wife, who loves to travel, is with him. They're blissful, and we have one of our best workers in place in a crucial new market."
  
  
• Promote understanding leadership: This flexibility requires that the company's managers are aware of the value of these older workers and committed to working with them. "Creating flexible schedules, job sharing, job rotation, and phased retirement requires tremendous engagement from all levels of management," Ayer said.

In developing these strategies, listening has been crucial. "I was led on many of these issues by my managers," Ayer said. "You have to listen to your managers. It's all about competitiveness and creating a more engaged, satisfied, and vibrant workforce. If you have a worker who needs to spend more time with his or her family, we'll do what we can to make it work."

• Pension Strategy: Designing Resilient Retirement Systems
  
  
• Pension Fund and Investment Management
  
  
• Wharton Pension Research Council

• Wharton Executive Education
  
  
• The Wharton School

This month's articles:

• In the Classroom
  What really motivates people? Forget the mission statements, and focus on what people value, says Professor Chuck Dwyer.
  
  
• Wharton School Publishing
  Self-made billionaire Jon Huntsman writes that his success is based on values he learned as a child in the sand box.
  
  
• Thought Leaders
  As Viagra, Cialis, and Levitra battle in the market for ED treatments, Professor David Reibstein looks at lessons about first-mover advantages.
  
  
• Thought Leaders II
  With Boomers reaching old age, Professor Olivia Mitchell looks at pension implications, and the CEO of The Hartford considers "Grey Power" strategies for meeting and maximizing an aging workforce.
  
  
• Senior Management Programs
  On a visit to India, Wharton Fellows ask, "Will we soon be speaking Hinglish?"
  
  
• Wharton Leadership Conference
  Leaders from Patagonia, HP, Wipro, and other companies offer insights on leading with "creativity and conviction."
  
  
• Education à la Carte
  Bring knowledge to your values.