To Accept or Decline an Early Retirement Benefit Buyout?

To Accept or Decline an Early Retirement Benefit Buyout?
  • Opening Intro -

    Corporate downsizing has become a pretty common trend in the modern business world.

    Sadly, such strategies leave employees jobless with little or no cash to start over.

    As such, companies have devised mechanisms that create stability for employees on termination of employment: early retirement buyout packages...

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Corporate downsizing has become a pretty common trend in the modern business world. Sadly, such strategies leave employees jobless with little or no cash to start over. As such, companies have devised mechanisms that create stability for employees on termination of employment: early retirement buyout packages.

Early retirement buyouts are compensation packages that provide incentives for employees to retire ahead the required period. In the past, the packages were designed for older workers in a bid to reduce payroll expenses. Today however, companies present early retirement buyout packages even to younger employees when downsizing. Thus, early retirement buyouts may be voluntary or forced.

Forced vs. voluntary early retirement benefits

A voluntary retirement buyout provides compensation packages to employees who have the option of taking or leaving the offer. As such, such, buyouts are tailored to fit a particular employee’s profile and may be available for a short period.

Forced retirement buyouts, on the other hand, are similar to layoffs; employees have no option but to accept the buyout. In such a scenario, the organization targets older workers close to their retirement age. Such packages are designed to provide employees with retirement benefits inclusive of years of credit toward the benefits.

Here are a few things employees should bear in mind when accepting early retirement buyouts:

1. The financial impact

A retirement buyout’s financial potential can make or break the package. Remember employers hope to persuade workers to sacrifice future employment and compensation thus the need to make the package as attractive as possible.

However, the size of the package is tied to an employee’s years of experience in the organization and staff have to give up their current salary earlier. Most companies offer early retirement packages in the form of annuities or lump sum amounts and may include a bonus (cash), health insurance, stock options or salary continuation. Employees should carefully choose the compensation package that suits them best.

2. Refusing to take the offer

Declining the offer poses the risk of being laid off from employment. As earlier highlighted, companies offering early retirement buyouts are looking for effective ways to reduce costs (salary expenses in particular). And most if not all cases, retirement buyouts precede layoffs. Employees are therefore encouraged to accept the packages that are superior to severe layoffs.

3. Health benefits

Different organizations offer various health insurance covers to early retirement buyout candidates. Some companies may offer no-cost or low-cost health insurance benefits as part of the packages until the employee turns sixty-five years (when he qualifies for Medicare), while others don’t provide any health insurance coverage. The latter scenario imposes an extra financial burden on the employees.

Conclusion

Of course, no employee wants to wake up to an early retirement benefit buyout, but when faced with such a decision, the points discussed should help him understand the implications. Note that if the company offers an individual voluntary retirement package, negotiation will, by all means, provide better benefits.

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Last update on 2017-12-13 / Affiliate links / Images from Amazon Product Advertising API

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