Consumer Agenda for Retirement Security

Initiative #5: Make retirement plans fairer for workers and their spouses

E. Clarify the effects of phased retirement on participant benefits.

Employees sometimes move from full-time to part-time work as they get older as a means of phasing into retirement.  The move into part-time work, however, can result in a reduction of previously earned benefits in a plan that bases benefits on final pay.  Congress should enact legislation to make clear that a participant’s benefits cannot be reduced because of the decision to work part-time.1

For example, an employee might work in a plan that provides a benefit equal to one percent times years of service times final pay.  Assume an employee who has worked 20 years and is earning $50,000 annually.  The employee’s annual retirement benefit would be $10,000.  But if the employee takes part-time status and now earns half that amount, her benefit after one year would be 21 percent of 25,000, or $5,250, an almost 50 percent benefit reduction because the employee changed to part-time work.

Learn more about the other initiatives in the Consumer Agenda for Retirement Security.

Initiative 1: Promote a more adequate and secure private retirement income system.
Initiative 2: Empower workers to promote their own retirement security.
Initiative 3: Improve retirement savings plans.
Initiative 4: Improve traditional and hybrid pension plans.
Initiative 5: Make retirement plans fairer for workers and their spouses.

Print the Consumer Agenda for Retirement Security [PDF].