Older Workers: Labor Can Help Employers and Employees Plan Better
for the Future (05-DEC-05, GAO-06-80).				 
                                                                 
Demographic changes pose serious challenges for employers, the	 
economy, and older Americans. As the baby boomers near		 
traditional retirement ages, the loss of experienced workers	 
could have adverse effects on productivity and economic growth.  
Also, many older Americans face less-secure retirements due to	 
rising health care costs, pension coverage changes, and fiscal	 
pressures on the nation's retirement programs. Due to the growing
importance of workers aged 55 or older, GAO examined: (1) areas  
of the labor market affected by the aging of the workforce; (2)  
factors that influence the timing of retirement; and (3) what	 
employers are doing to hire and retain older workers.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-80						        
    ACCNO:   A42557						        
  TITLE:     Older Workers: Labor Can Help Employers and Employees    
Plan Better for the Future					 
     DATE:   12/05/2005 
  SUBJECT:   Baby boomers					 
	     Employee retention 				 
	     Hiring policies					 
	     Labor force					 
	     Occupational surveys				 
	     Older workers					 
	     Pensions						 
	     Personnel recruiting				 
	     Retirement 					 
	     Retirement benefits				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-80

Report to Congressional Committees

United States Government Accountability Office

GAO

December 2005

OLDER WORKERS

Labor Can Help Employers and Employees Plan Better for the Future

GAO-06-80

Contents

Letter 1

Results in Brief 2
Background 4
All Parts of the Labor Market Will Be Affected by the Aging of the
Workforce 14
Health, Finances, Lay-offs, and Perceptions about Lifestyle and Work Are
the Primary Factors Influencing the Timing of Older Workers' Retirement
and Work Decisions 19
While Some Employers Make a Special Effort to Hire and Retain Older
Workers, Most Do Not 26
Conclusions 30
Recommendation for Executive Action 32
Agency Comments and Our Evaluation 33
Appendix I Objectives, Scope, and Methodology 36
Appendix II Comments from the Department of Labor 39
Appendix III Occupational Categories 41
Appendix IV Focus Group Moderator's Guides 43
Appendix V Employer Participant List for Roundtable Discussion on Older
Workers 52
Appendix VI GAO Contact and Staff Acknowledgments 54

Tables

Table 1: Stress and Physical Requirements of Work by Occupation, 2002 19
Table 2: Focus Group Participant Statements on the Importance of Finances
22

Figures

Figure 1: Life Expectancy at Age 65, 1970-2000 and Projected 2001-2020 5
Figure 2: U.S. Labor Force Growth Through 2080 7
Figure 3: U.S. Elderly Dependency Ratio, 1950-2000 and Projected 2005-2050
8
Figure 4: Percentage of Workforce Aged 55 and Older, 1970-2000 and
Projected 2010-2050 9
Figure 5: Older Workers (Aged 55 to 74) as a Share of the Total Workforce
(Aged 25 to 74) in each Occupational Category (Historical and Extrapolated
Data) 16
Figure 6: Number of Workers Aged 55-74 by Occupation (Historical and
Extrapolated Data) 17
Abbreviations

ADEA Age Discrimination in Employment Act

BLS Bureau of Labor Statistics

CPS Current Population Survey

CRS Congressional Research Service

DB defined benefit

DC defined contribution

DROP Deferred Retirement Option Plan

EBSA Employee Benefits Security Administration

ETA Employment and Training Administration

HRS Health and Retirement Study

IRS Internal Revenue Service

OPM Office of Personnel Management

SSA Social Security Administration

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office

Washington, DC 20548

December 5, 2005

Congressional Committees

In the coming decades, the combination of increasing life expectancy and
declining birth rates is expected to reduce the number of workers per
retiree, a trend that will strain the finances of national pension and
health programs and may affect productivity and economic growth. In
addition, the impending retirement of the baby boom generation and slower
labor force growth will result in the loss of many experienced workers and
possible skill gaps in certain occupations. At the same time, many older
workers face the possibility of less secure retirements. While longer life
spans have increased the number of years individuals spend in retirement,
pension plans have increasingly shifted financial and longevity risk to
individuals and health care costs have risen rapidly. In addition, the
increasing ratio of the elderly to younger workers will place added
pressure on public benefits such as Social Security and Medicare, both of
which face long-term financial problems. Though the oldest baby boomers
have not yet reached retirement age, new public policies may be necessary
to address the economic challenges these demographic changes present.

As we reported previously, these problems could be mitigated with policies
that remove disincentives to work for older Americans and allow those who
want to work to continue doing so either by delaying retirement or
retiring only partially.1 Working later in life could help minimize job
vacancies and skill losses, increase personal retirement savings, and ease
fiscal pressures on Social Security and Medicare through increased tax
revenues. Yet most American workers take Social Security retirement
benefits at age 62, and little has been done to encourage those who can
and want to work later in life to do so.

We have prepared this report under the Comptroller General's authority to
assist Congress in addressing these issues. As it may prove helpful in the
deliberations of committees with jurisdiction over aging and workforce
issues, we have addressed this report to each of these committees.

1GAO, Older Workers: Demographic Trends Pose Challenges for Employers and
Workers, GAO-02-85 (Washington, D.C.: November 2001).

Due to the growing importance of older workers to the labor force, the
economy, and the future health of U.S. retirement programs, we examined:
(1) which areas of the labor market will be most affected by the aging of
the workforce; (2) the factors that most influence the timing of older
workers' retirement; and (3) what employers are doing to hire and retain
older workers.

To find out which areas of the labor market will be most affected by the
aging of the workforce, we developed a method of analyzing Current
Population Survey data from the Bureau of Labor Statistics (BLS) that
allowed us to perform a 10-year extrapolation of employment by age and
occupation. To identify the factors that most influence the timing of
older workers' retirement, we conducted 16 focus groups in four cities
across the country. In each city, we grouped participants, aged 55 to 70,
into four categories according to their education and work status; in
addition, Washington, D.C., participants were screened to include only
current and former federal employees. We also analyzed data from the
Health and Retirement Study (HRS), a national survey of older Americans
produced by the University of Michigan, to better understand their
decisions and circumstances regarding work and retirement. To identify
what employers are doing to hire and retain older workers, we reviewed the
findings of several surveys of employers, some with generalizeable samples
and some of selected employers. With the assistance of the Department of
Labor's Employment and Training Administration, we facilitated a
roundtable discussion of employers' concerns and strategies for their
workforces. We conducted our work between October 2004 and October 2005
according to generally accepted government auditing standards. For
additional information on our methodology, see appendix I.

                                Results in Brief

All areas of the labor market employ workers nearing traditional
retirement age and are likely to be affected by the aging of the
workforce. Almost 80 percent of older workers, those between the ages of
55 and 74, are employed in professional, management, service, office and
administrative support, and sales occupations; these occupations make up
approximately 76 percent of the total workforce aged 25 to 74. By 2014,
the number of older workers in each of these occupations is projected to
grow considerably-some, such as professional occupations, may grow by as
much as 41 percent. Employers in every occupation face the likelihood that
a greater percentage of their workforce will be nearing retirement age,
and that impending retirements will result in the loss of a significant
number of experienced workers in a short period of time. Given these
potential skill gaps and a slowdown in the growth of the labor supply,
older workers may become a resource of growing importance to employers.

Based on focus group discussions, participants without a college degree
most often cited health, finances, and lay-offs as the most important
factors constraining the timing of their retirement and work decisions.
Some of these older workers indicated they were forced to retire either
due to health problems or because they were laid off. Others stated they
have no choice about when to work and retire because their finances
dictate that they remain employed. For participants with a choice about
work and retirement decisions, work and lifestyle perceptions were the
most often cited factors that motivated the timing of their work and
retirement choices. For example, both college graduates and non-college
graduates who were satisfied with their workplaces were more likely to say
they will work indefinitely, while those who said that they are not valued
were more likely to say they would retire. Also, lifestyle considerations
were important to many older workers with a college degree. For example,
some older workers said that the desire to have flexibility and control
over their time influenced their retirement decisions. Similarly, the HRS
national survey data indicate that just over 60 percent of full-time
workers age 55 or older express a desire to gradually reduce their hours
at their current jobs. However, individuals in our focus groups generally
did not see opportunities to do that with their current employers, and
they did not perceive that their current or former employers sought to
retain them. In addition, many saw general barriers to future employment
such as outdated or limited skills on their part, age discrimination by
employers, and employment opportunities limited to lower skilled, lower
paid jobs.

While some employers are making an effort to hire and retain older
workers, most have not yet made targeting older workers a priority.
Certain employers have special programs in which they recruit older
workers. For example, the Home Depot has a partnership with AARP to
actively recruit older workers for full-time, part-time, and seasonal
work. We also found examples of employers who were making an effort to
retain certain older workers already on staff. Employers participating in
a roundtable discussion on the aging workforce reported using a number of
practices to hire and retain older workers, such as flexible or reduced
hours, mentoring, and training. Some studies have found that, while a
fairly large number of employers think that phased or partial retirement
is important, a much smaller number have actually implemented such
policies. Nonetheless, surveyed employers indicated a willingness to
initiate practices to retain certain older workers. About 73 percent of
employers in a study by Cornell University said they would allow partial
retirement, though they had no written policy for doing so. In addition,
only about one-third of the 16 employer roundtable participants indicated
that they provided a specific plan or program to recruit or retain older
workers, despite agreeing that the aging workforce was an important issue
for the future. Employers cite a number of factors for not offering more
opportunities, such as the constraints of federal pension regulations.

This report contains a recommendation to the Secretary of Labor to design
a comprehensive and highly visible public awareness campaign as a way to
help employers and employees plan better for the future and by so doing,
bridge the gap between employer and employee needs. In designing the
campaign, the Department of Labor (Labor) should involve other relevant
agencies with regulatory jurisdiction or a clear policy interest. We
provided a draft of this report to the Department of Labor, the Internal
Revenue Service (IRS), the Office of Personnel Management (OPM), and the
Social Security Administration (SSA) for comment. Officials from the
Department of Labor provided written comments (see app. II), and generally
agreed with our findings and the recommendation. In response to their
comments, which highlighted actions that the Department has already taken,
we clarified our recommendation to include other federal agencies in the
development of a public awareness campaign. OPM and SSA provided no
written comments on the draft, while Labor and the IRS provided us with
technical comments, which we have incorporated into the report as
appropriate.

                                   Background

Significant demographic changes in the United States, such as the aging of
the baby boom generation (those born between 1946 and 1964), increased
life expectancy, and falling fertility rates pose serious challenges for
individuals, employers, and the economy. As the baby boom generation
retires, employers face the loss of experienced workers and their skills
and an expected slowdown in the growth of the labor supply, which could
have adverse effects on productivity and economic growth. At the same
time, many older Americans face a less secure retirement as the increasing
number of elderly relative to younger workers will place added pressure on
Social Security and Medicare, both of which face long-term financial
problems.

Demographic changes

In the 21st century, older Americans are expected to make up a larger
share of the U.S. population, live longer, and spend more years in
retirement than previous generations. The baby boom generation is fast
approaching retirement age. The oldest baby boomers will start to turn age
65 in 2011, just 6 years from now, and in just 3 years, they will become
eligible for Social Security benefits.2 The share of the U.S. population
age 65 and older is projected to increase from 15.6 percent in 2000 to
almost 24.2 percent in 2030. In addition, life expectancy is increasing.
The average number of years that men who reach age 65 are expected to live
has increased from just over 13 in 1970 to 16 in 2005, and is projected to
increase to 17 by 2020. Women have experienced a similar rise-from 17
years in 1970 to over 19 years in 2005. By 2020, women who reach age 65
will be expected to live another 20 years. (See fig. 1.)

Figure 1: Life Expectancy at Age 65, 1970-2000 and Projected 2001-2020

2The age of eligibility for early Social Security retirement benefits is
62.

While life expectancy has increased, labor force participation rates of
older Americans only began to increase slightly in recent years. As a
result, individuals are generally spending more years in retirement. The
average male worker spent 18 years in retirement in 2003, up from less
than 12 years in 1950.

In addition to these factors, falling fertility rates are contributing to
the increasing share of the elderly population and a slowing in the growth
of the labor force. In the 1960s, the fertility rate was an average of
three children per woman.3 Since the 1970s, the fertility rate has hovered
around two children per woman, meaning fewer future workers are being born
to replace retirees. Also contributing to the slowing in the growth of the
labor force is the leveling off of women's labor force participation rate.
While women's share of the labor force increased dramatically between 1950
and 2000-from 30 percent to 47 percent-their share of the labor force is
projected to remain at around 48 percent over the next 50 years. By 2025
labor force growth is expected to be less than a fifth of what it is
today.4 (See fig. 2.)

3The fertility rate is defined as the total number of children born per
1,000 women aged 15 to 44 years.

4Although a lower fertility rate contributes to the increased share of
retirees in the population, the increased participation of women in the
workforce has helped to reduce the number of retirees per worker. Some
researchers have hypothesized that a rising fertility rate would
correspond to a decline in the labor force participation of women.

Figure 2: U.S. Labor Force Growth Through 2080

Note: Percentage change is calculated as a centered 5-year moving average
of projections based on the intermediate assumptions of the 2005 Trustees
Reports.

The aging of the baby boom generation, increased life expectancy, and
falling fertility rates are expected to significantly increase the elderly
dependency ratio-the estimated number of people aged 65 and over in
relation to the number of people of aged 15 to 64. In 1950, there was one
person over age 65 or over for every eight people aged 15 to 64. The ratio
increased to one to five in 2000 and is projected to further increase to
one person aged 65 and over for every three people aged 15 to 64 by 2050.
As a result, there will be fewer younger workers to support a growing
number of Social Security and Medicare beneficiaries. (See fig. 3.)

Figure 3: U.S. Elderly Dependency Ratio, 1950-2000 and Projected 2005-2050

Note: The elderly dependency ratio is the ratio of the population aged 65
years or over to the population aged 15 to 64. Data for 2005 through 2050
are projected.

The aging of the population also has potential implications for the
nation's economy. If labor force growth continues to slow as projected,
fewer workers will be available to produce goods and services. Without a
major increase in productivity or higher than projected immigration, low
labor force growth will lead to slower growth in the economy and slower
growth of federal revenues. These circumstances in turn will accentuate
the overall pressure on the federal budget, which will be encumbered with
increased claims for benefits for seniors such as Medicare and Social
Security, while relatively fewer workers are paying into the benefits
systems.

An additional concern is the possible loss of many experienced workers as
the baby boomers retire. In the next 10 years, as workers near retirement
age, those aged 55 and over will make up a larger proportion of the
workforce. (See fig. 4.)

Figure 4: Percentage of Workforce Aged 55 and Older, 1970-2000 and
Projected 2010-2050

Some research has indicated that the impending retirements of the baby
boom generation and the decline in the growth of the labor supply could
affect certain industries and occupations more than others.5 These trends
could create gaps in skilled worker and managerial occupations, leading to
further adverse effects on productivity and economic growth.

These demographic changes and their economic and financial implications
are not unique to the United States. Other countries are also confronting
the economic and labor force effects of aging populations. In fact, the
challenges arising from these demographic shifts will be less pronounced
in the United States than in several other high-income nations, such as
Japan, Italy, and Sweden. In prior work, we found that Japan, Sweden, and
the United Kingdom had enacted retirement policy reforms that included
incentives for older workers to extend their working lives.6 At the same
time, these countries were also seeking policies that would reduce
barriers to employment for older workers.

5Arlene Dohm, "Gauging the Labor Force Effects of Retiring Baby-Boomers,"
Monthly Labor Review, July 2000; GAO-02-85.

Changes in Retirement Security

As they are expected to live longer and spend more years in retirement,
older Americans today face several challenges that contribute to the
growing insecurity of retirement income. First, while more older Americans
are working, many claim Social Security benefits when they first become
eligible and many more claim them prior to reaching the full retirement
age, resulting in lower monthly payments.7 Data from the Social Security
Administration show that in 2002 a majority of people (56.1 percent)
elected to start benefits at the early retirement age of 62, thus
receiving over a 20 percent reduction in monthly benefits.

Second, workers bear greater risk and responsibility for their retirement
savings than in the past. About half of U.S. workers do not have a pension
plan through their employer, and those who do are less likely than in the
past to be covered by defined benefit (DB) plans, which pay a specified
amount per month. Employers have increasingly shifted from traditional DB
to defined contribution (DC) plans, such as 401(k)s, which are based on
contributions to and investment returns on individuals' accounts. Compared
to DB plans, DC plans place greater responsibility on workers to make
prudent investment decisions and to manage longevity risk. According to
data from the Employee Benefits Security Administration (EBSA), the number
of participants in DB plans in the United States increased by about 12
percent, while the number of participants in DC plans more than tripled
from 1978 to 1997.8 One study found almost 58 percent of families
participating in an employment-based retirement plan had only a DC
retirement plan in 2001, up from about 37 percent in 1992.9

6GAO, Older Workers: Policies of Other Nations to Increase Labor Force
Participation, GAO-03-307 (Washington, D.C.: Feb. 13, 2003).

7The full eligibility age (or normal retirement age) for Social Security
benefits is being raised from 65 to 67 from 2000 to 2022. When the full
eligibility age was 65, the benefit reduction for taking benefits at age
62 was 20 percent. When the age increase to 67 is fully implemented, the
reduction will be 30 percent. The reduction in monthly payments for
claiming early Social Security retirement benefits takes account of the
longer period of time over which benefits will be paid.

8EBSA data also indicates that the number of defined benefit plans
declined by 54 percent from 1978 to 1997.

Furthermore, rising health care costs have made health insurance and
anticipated medical expenses increasingly important issues for older
Americans. A long-term decline in the percentage of employers offering
retiree health coverage has leveled off in recent years, but retirees face
an increasing share of costs, eligibility restrictions, and benefit
changes that contribute to an overall erosion in the value and
availability of coverage.10 A recent study estimated that the percentage
of after-tax income spent on health care will almost double for older
married couples and singles by 2030.11 People with lower incomes will be
the most adversely affected. The study projected that by 2030, those in
the bottom 20 percent of the income distribution would spend more than 50
percent of their after-tax income on insurance premiums and health care
expenses, an increase of 30 percentage points from 2000.

Another implication of the changes in demographics, the shift to more
employee-driven pension plans, and rising health care costs is that
retirees may be more dependent upon public benefits such as Social
Security and Medicare than their predecessors. As older Americans face
less secure retirements, many may need additional income from continued
employment.

Partial Retirement

If older Americans remain in the labor force longer at least on a
part-time basis, it could mitigate some of the economic pressures on
Social Security as well as supplement individual retirement incomes and
help finance health care. Researchers have noted that partial or phased
retirement options could encourage more older workers to stay in the
workforce longer. "Partial retirement," like "retirement," may mean
different things to different people. Some people consider themselves
retired when they are no longer working for pay, while others who continue
to work may consider themselves retired if they have reduced hours,
changed jobs, or are collecting some type of retirement benefit. For the
purposes of this report, we generally consider a person to be partially
retired if they classified themselves as partially or fully retired but
were still working for pay on a part-time basis. A partial retiree may
transition directly from full- to part-time work at either a current or a
new job, or may return to work after full retirement. Phased retirement
refers specifically to employees who reduce their hours at their existing
(previously full-time) job.12

9Craig Copeland, "Individual Account Retirement Plans: An Analysis of the
2001 Survey of Consumer Finances," Employee Benefit Research Institute,
Issue Brief No. 259, July 2003.

10GAO, Retiree Health Benefits: Options for Employment-Based Prescription
Drug Benefits under the Medicare Modernization Act, GAO-05-205
(Washington, D.C.: Feb. 2005).

11Richard W. Johnson and Rudolph G. Penner, "Will Health Care Costs Erode
Retirement Security?" Issue in Brief, Center for Retirement Research at
Boston College, (2004) No. 23.

According to the Health and Retirement Study (HRS), about 20 percent of
older Americans who were working full-time in 1992 became partially
retired at some point by 2002. On average, partial retirees reduced their
work hours from full-time employment by half, about 22.5 hours a week.
Most partial retirees report that they have a pension plan from a current
or previous employer. About 47 percent have a DB pension plan, 41 percent
have a DC plan, 11 percent have a hybrid plan, and 16 percent have no
pension plan. However, almost 62 percent of partial retirees do not have
employer-provided health insurance from their current or previous
employer.

Research indicates that current pension regulations may be a barrier to
partial retirement. Regulations under the Internal Revenue Code of 1986
(the Code) currently prohibit "in-service" distributions from DB pension
plans until the employee attains the plan's normal retirement age.13 Older
workers who want to partially retire after their plan's early retirement
age, but before the normal retirement age, will not be able to access
their pension benefit if they continue working for the same employer.
However, they may legally access their pension benefit if they leave their
employer to work part-time with a new employer. Some employers report that
some employees will officially retire and begin receiving pension income
and then return to work after a certain period of time, but this practice
does not appear to be widespread.14

12While we refer to phased retirement as any reduction in hours at an
existing job, it should be noted that proposed IRS regulations, 69 Fed.
Reg. 65108 (2004), refer to a "bona fide phased retirement program" as one
that is a written, employer-adopted program under which employees may
begin working fewer hours and receiving phased retirement benefits on or
after a specified retirement date.

13In-service distributions refer to the receipt of pension benefits while
the participant is still employed with the employer that sponsored the
pension plan. Individuals with DC pensions are able to access their
pension benefits once they have attained age 59  1/2 regardless of their
work status.

The IRS proposed regulations in November 2004 to allow for partial
in-service distributions of DB pensions.15 These proposed regulations may
alleviate the barriers to partial retirement posed by current pension
regulations. The new regulations would permit eligible older workers who
reduce their hours by at least 20 percent to receive a pro-rated portion
of their pension benefits. The arrangements would need to be voluntary and
in writing. Employer representatives who provided feedback to the IRS at a
hearing in March 2005 indicated that the proposed regulations are a step
in the right direction, though some felt that they would be too
administratively burdensome.

Concerns about permitting in-service distributions have been outlined by
the Congressional Research Service (CRS). They note that the effect of
in-service distributions on total lifetime work hours is unknown. By
allowing in-service distributions, some older workers may stay in the
workforce longer and increase total lifetime work hours. However, other
older workers may choose to reduce their hours when they would have
otherwise continued working full-time until reaching their plan's normal
retirement age, which could reduce their total lifetime work hours. In
addition, CRS notes that some observers believe permitting in-service
distributions would make the pension benefit become a tax-subsidized wage
supplement.16 At this writing, the IRS has not yet issued final
regulations.

Age discrimination and uncertainty about legal protections against age
discrimination may also affect older workers' employment opportunities.
Employees and job applicants aged 40 and over are legally protected from
age discrimination by the Age Discrimination in Employment Act (ADEA). The
ADEA applies to the following terms, conditions, or privileges of
employment: hiring, firing, promotion, lay-off, compensation, benefits,
job assignments, and training. The breadth and impact of the ADEA
continues to develop under case law by the courts in interpreting key
provisions.17 Some experts have noted that, because of this, employers are
unsure of how the law might apply to phased retirement programs and are
reluctant to expose themselves to such legal uncertainty.

14Proposed IRS regulations concerning phased retirement programs
(discussed below) do not address when a full retirement occurs and do not
endorse a prearranged termination and rehire as constituting a full
retirement. "Distributions From a Pension Plan Under a Phased Retirement
Program," 69 Fed. Reg. 65108 (2004).

15Ibid.

16Patrick Purcell, "Older Workers: Employment and Retirement Trends,"
Congressional Research Service Report for Congress, Sept. 14, 2005.

In our 2001 report that described these demographic and legal challenges,
we recommended that the Secretary of Labor convene an inter-agency task
force to develop legislative and regulatory proposals addressing the
issues raised by the aging of the labor force.18 To date this
recommendation has not been implemented.19 However, recent legislation
introduced in Congress includes a provision to create such a task force.20

  All Parts of the Labor Market Will Be Affected by the Aging of the Workforce

The aging of the workforce will affect all parts of the labor market.
Older workers are distributed throughout the economy and employers are
likely to be affected as their workers near traditional retirement ages.
By 2014, the number of older workers in each major occupational category
is expected to increase considerably, especially in white-collar and
service occupations. As the proportion of older workers increases, their
employers face the loss of a significant number of workers with
institutional knowledge and skills to retirement over a short period of
time. Given the potential loss of skills and the expected slower growth in
the labor supply, older workers may become an increasingly important
resource for employers.

17A recent Supreme Court ruling on the ADEA held that employees are
allowed to make "disparate impact" claims under ADEA, meaning that
employees do not have to prove intentional discrimination by the employer.
Smith v. City of Jackson, Miss., 125 S. Ct. 1536 (2005). Another recent
ruling held that employers are allowed to favor older workers over younger
workers even if the younger workers are age 40 and over and, thus, are in
ADEA's protected class. Therefore, a benefit geared toward relatively
older workers, such as partial or phased retirement, would likely not be
considered discriminatory toward relatively younger workers who are age 40
and over. General Dynamics Land Systems v. Clines, 540 U.S. 581 (2004).

18GAO-02-85.

19In November 2004, the Department of Labor's Employment and Training
Administration (ETA) did form an intra-agency taskforce, composed of DOL
staff only, focused on the issues and concerns of the older worker
population.

20See Older Worker Opportunity Act (S. 1826).

Older Workers Are Distributed Throughout the Workforce and the Number of Older
Workers Will Grow in Every Occupational Category

Like the workforce as a whole, the majority of workers ages 55 to 74 are
employed in white-collar and service occupations.21 Data from the BLS
indicate that, in 2004, almost 80 percent of older workers fell into these
categories, which include professional, management, service, office and
administrative support, and sales occupations; these occupations also make
up approximately 76 percent of the total workforce aged 25 to 74. In
particular, professional and related occupations, which include lawyers,
teachers, and scientists, employ the largest number of older workers- 4.5
million or 21 percent of older workers. Blue-collar occupations employ a
smaller number of older workers than white-collar occupations.22 Among
blue-collar occupations, production and transportation and material moving
occupations employ the most older workers. These occupations each employ
about 1.3 million older workers. For more information on the types of jobs
in each major occupational category, see appendix III.

Based on our extrapolations using data from the BLS, the proportion of the
workforce represented by older workers is expected to increase in every
occupational category.23 The share of total employment comprised of older
workers is expected to be largest in white-collar occupations, as shown in
figure 5. From 2004 to 2014, the proportion of white-collar employment
made up of older workers is expected to increase from 19 percent to 23
percent. Over the same period, the share of employment in service and
blue-collar occupations comprised of older workers also is expected to
increase. Although some occupations may have a smaller number of older
workers, they may still be significantly affected by the aging of the
workforce because older workers make up a considerable share of their
workforce. For example, by 2014, approximately 25 percent of farming,
fishing, and forestry occupations will consist of older workers.

21The workforce refers to employment of the total civilian population aged
16 and older. We define white-collar occupations to include the following
BLS occupational categories: management, business and financial
operations; professional and related; sales and related; and office and
administrative support. Blue-collar occupations include the following BLS
categories: farming, fishing, and forestry; construction and extraction;
installation, maintenance, and repair; production; and transportation and
material moving (for more information on occupational categories see app.
III). Occupational data includes both public and private sector
employment.

22In prior work we found that the movement away from blue-collar work is
more pronounced among older workers. See: GAO-02-85, 14.

23We define older workers as those between the ages of 55 to 74 for
purposes of our extrapolations. Labor force participation rates are
considerably lower in the age 65 to 74 group compared to the age 55 to 64
group. However, recently, labor force participation rates among workers
aged 65 to 74 have been rising and are projected to continue rising as the
population ages.

Figure 5: Older Workers (Aged 55 to 74) as a Share of the Total Workforce
(Aged 25 to 74) in each Occupational Category (Historical and Extrapolated
Data)

Note: Data for 2014 are based on GAO extrapolations.

Similarly, by 2014, the number of older workers in each major occupational
category is expected to increase considerably, especially in white-collar
and service occupations. In earlier work in 2001, our employment
projections to 2008 also indicated that the largest change in the number
of older workers is expected to be in white-collar occupations.24 Among
the different occupations, the number of older workers in professional
occupations is expected to increase the most-from almost 4.5 million in
2004 to more than 6.3 million in 2014, a growth rate of about 41 percent.
See figure 6.

24GAO-02-85, 14.

Figure 6: Number of Workers Aged 55-74 by Occupation (Historical and
Extrapolated Data)

Note: Data for 2014 are based on GAO extrapolations.

Management, business, and financial operations occupations employ the
second largest number of older workers, and employment in this area is
expected to grow by 35 percent, to almost 5.3 million in 2014. The number
of older workers in farming, fishing, and forestry occupations is expected
to grow the most, almost 68 percent in the 10-year period; however, these
occupations in aggregate account for less than 1 percent of total
employment of older workers.

At the industry level, the public sector, including federal, state, and
local governments, also employs a relatively large number of older workers
and faces the possibility of many retirements in the near future.
According to data from the BLS, almost 21 percent of the nation's 3.2
million federal workers were aged 55 or older in 2004. At the state and
local government level, slightly more than 19 percent of workers, out of a
workforce of 16.7 million, were aged 55 or older. The public sector has a
greater share of older workers compared to private industries in
aggregate, where the share of workers aged 55 and over was 14 percent, or
about 15.1 million older workers in 2004.

Employers of Older Workers May Face Skill Losses and Many Job Vacancies

As the proportion of older workers increases in each occupational
category, employers face the possibility that the impending retirement of
the baby boom generation will result in losses of institutional knowledge
and create many job vacancies over a short time period. For example,
employers in white-collar management, business, and financial operations
occupations are expected to have the greatest share of their workforce
consist of older workers. According to our extrapolations using BLS data,
by 2014, older workers could make up 26 percent of employment in these
occupations. Given older workers' skills and the fact that there may be
relatively fewer younger workers available to take their places, older
workers may become an increasingly important resource for employers.

With significant numbers of experienced, skilled older workers poised to
retire and an expected slowdown in the growth of the labor supply,
employers may need to retain or recruit older workers. This may, however,
be complicated by the nature of the jobs and older workers' preferences.
Data from the HRS indicates that while occupations that tend to employ the
most older workers are less likely to be physically demanding, they are
more likely to entail considerable stress. (See table 1.) According to the
HRS, almost 66 percent of workers in managerial occupations and 63 percent
of workers in professional occupations report that their jobs involve much
stress all or most of the time, which is higher than reported for the
other major occupational categories. Survey data from the AARP indicate
that not having too much stress is an important consideration for
post-retirement work for the vast majority of pre-retirees and working
retirees.25 The degree of physical effort required by a job will also be a
consideration for employers as the workforce ages, particularly for
blue-collar and service occupations that employ a large percentage of
older workers. While relatively few workers in white-collar occupations
indicate that their jobs are physically demanding, the majority of workers
in many blue-collar and service occupations report that their jobs often
involve considerable physical effort. For example, about 52 percent of
those employed in service occupations said that their job requires much
physical effort all or most of the time.

25S. Kathi Brown, "Staying Ahead of the Curve 2003: The AARP Working in
Retirement Study," AARP, (2003) 7.

Table 1: Stress and Physical Requirements of Work by Occupation, 2002

                            Percent reporting that Percent reporting that job 
                                 job involves much     involves much physical 
                             stress all or most of  effort all or most of the 
Occupation                             the time                       time 
White-collar:                                   
Managerial                                 65.5                       12.7 
Professional                               62.9                       17.9 
Sales                                      54.4                       24.5 
Clerical, administrative                                                   
support                                    55.6                       15.6
Services                                   43.2                       51.6 
Blue-collar:                                    
Farming, forestry, and                                                     
fishing                                    46.6                       63.4
Mechanics and repair                       55.1                       53.4 
Construction and                                                           
extraction                                 42.5                       66.2
Precision production                       47.8                       46.9 
Operators                                  46.0                       51.8 

Source: GAO analysis of 2002 HRS data.

Note: Occupational categories in the HRS are not exactly the same as in
the BLS and Current Population Survey (CPS) data. BLS and CPS occupational
categories were reclassified in 2003.

  Health, Finances, Lay-offs, and Perceptions about Lifestyle and Work Are the
  Primary Factors Influencing the Timing of Older Workers' Retirement and Work
                                   Decisions

Focus group participants without a college degree most often indicated
that the timing of their work and retirement decisions was constrained by
health, finances, and lay-offs. "Health" was the most often cited factor
for these participants, who reported that they had no choice but to retire
or limit work when they did because of health problems, while others
reported felt they had to continue working to earn more money, and still
others were laid off. For participants with a choice about work and
retirement decisions, work and lifestyle perceptions were the most often
cited factors that motivated the timing of their work and retirement
choices. For example, both college graduates and non-college graduates who
were satisfied with their workplaces were more likely to say they will
work indefinitely, while those who said that their work environments have
changed or that they are not valued were more likely to say they would
retire. Also, lifestyle considerations were important to many older
workers with a college degree. For example, some older workers said that
the desire to have flexibility and control over their time influenced
their retirement decisions. Across all the groups, few saw opportunities
to gradually or partially retire with their current or former employer,
and few felt that their current employer would offer them incentives to
continue working later in life. In discussing obstacles to working later
in life, participants across groups most often cited lack of demand for
their skills and age discrimination in the workplace; many also felt that
their employment options were limited to lower paid, lower skilled jobs.

Health, Finances, and Lay-offs May Dictate When Some Older Workers Work and
Retire

Health was the most-often cited constraint on work and retirement
decisions by participants without college degrees. Participants without
college degrees cited health as a constraint more often than
college-educated participants. Among participants in all the focus groups,
many indicated they had no choice but to retire or limit work when health
problems made them unable to work. For example, some participants said
that they would not be able to get a new job because their health
situation prevented it; others found that they could not stay at their
current job.

Relatively few participants in each focus group indicated that they were
compelled to work to acquire health insurance. The fact that at least 95
percent of focus group participants had health insurance may be an
explanation. The rate of insured participants is similar to that of the
general population of older Americans. According to the U.S. Census
Bureau, of all Americans ages 55 to 64, about 87 percent have some form of
health insurance.26

Although few participants stated that health insurance was a major factor
in their decisions about work or retirement, some participants were
generally concerned about health care. For example, one participant
stated, "If you don't have any health insurance it's tough out there."
Another was concerned that the cost for their health insurance would be a
barrier for employment. "I'm thinking they let me go because of my age,
and they don't have to pay extra insurance, whatever they have to pay." On
the other hand, others stated that they were desirable employees to
prospective employers because they already had health insurance.27

26According to the U.S. Census Bureau, among those aged 55 to 64,
approximately 67 percent of coverage was through an employer, 18 percent
was through a public program, and 10 percent was through direct purchase.
Workers who are 65 or older or are disabled qualify for the federal
Medicare insurance program. Carmen DeNavas-Walt, Bernadette D. Proctor,
and Cheryl Hill Lee, U.S. Census Bureau, "Income, Poverty, and Health
Insurance Coverage in the United States: 2004," (2005) 74.

As with health insurance, focus group participants also did not often cite
pension rules as a reason for making retirement and work decisions. In
fact, much of the discussion on retirement income focused on Social
Security rather than on employer-provided DB pension plans, even though at
least 49 of the 152 participants were receiving income from DB pension
plans.

Some participants, particularly those in groups without college degrees,
indicated that they had no choice but to work because they needed the
income.28 Focus group participants without a college degree cited issues
related to finances when indicating that their choices were constrained
more often that those with a college degree. Participants overall listed
finances second most often as a constraint. See table 2.

27For workers aged 65 or over federal law requires that employers be the
primary health insurer and Medicare becomes a secondary payer. Some people
are concerned that the provision stipulating Medicare as a secondary payer
creates barriers or at least complicates the continuation of work past age
65. Specific concerns raised are that the provision increases the cost of
employing older workers, may prevent a person working for a firm from
getting a benefit to which he or she is otherwise entitled, and therefore
may be considered a tax on work, at least at those firms offering such
health benefits.

28Research has shown that having a college degree is often closely tied to
other outcomes such as higher income and better health. According to one
national study, in 2004, those over 25 with a college degree on average
earn $23,000 more than those without a college degree. Moreover, 93
percent of those with a college degree reported being in "excellent, very
good, or good" health, compared to 82 percent of those with a high school
diploma. Institute for Higher Education Policy, "The Investment Payoff: A
50-State Analysis of the Public and Private Benefits of Higher Education,"
(2005) 7, 13.

Table 2: Focus Group Participant Statements on the Importance of Finances

I am a taxi driver and I don't make very much, so I don't think I'm  
going to retire, because with Social Security I won't be able to do  
it. What makes me happy is I see taxi drivers that are 80 years old, 
so I guess if I can pass my vision test I can still drive a cab.     
...I've got a 2-year-old and I can probably not retire. I will be    
working all my life.                                                 
The thing that kept me from retiring for a while was that I was      
worried about the financial aspect of it. The thought of having my   
income go down so drastically was very frightening to me...It held   
me back for several years. Now I kick myself that I waited as long   
as I did.                                                            
I wish I had thought about retirement when I was younger. You know,  
you don't think about it when you are in your 20s and 30s, and you   
get close to your 50s and 60s, and all you've got is your Social     
Security. I have got a 401(k), but I can't retire on that. I can't   
see me retiring for another 5, 6, or 7 years.                        
I have no retirement whatsoever. We got married very young, and we   
were always one step ahead of being financially in trouble...We have 
lived on [my husband's] pension, plus my part-time job...as a        
teaching assistant. It's only 30 hours a week; it's not enough. To   
be honest, the people around me now who are starting to retire are   
making me become pretty panic stricken.                              
I would like to travel, but I don't know what financial shape we     
will be in. As it looks right now, I don't think I am ever going to  
retire.                                                              

Source: GAO focus group with retirees and near retirees.

A recent national survey of workers by Rutgers University and the
University of Connecticut reached similar conclusions about the importance
of finances. Only 16 percent of respondents age 55 and older believed they
would be able to retire from full-time work by age 60.29 Twenty-four
percent of all workers reported that they would be working either
full-time or part-time because they need income after retirement.30 The
study also found that 30 percent of those with no more than a high school
education plan to either work full-time or part-time for needed income,
compared with 17 percent of college graduates.31

Furthermore, some participants in our retiree focus groups said they were
forced into retirement when they lost their jobs, either by being laid off
or as several participants stated, "downsized." Participants who had no
college education and were already retired cited being laid off more
frequently than did others.

29Scott Reynolds, Neil Ridley, and Carl E. Van Horn, "A Work-Filled
Retirement: Workers' Changing Views on Employment and Leisure," Work
Trends, (2005).

30Ibid, 5.

31Ibid, 6.

Workplace and Lifestyle Considerations May Influence Work and Retirement
Decisions for Some Older Workers

Both working and retired focus group participants who reported that they
had a choice about when to work and retire most often said their decisions
were influenced by perceptions about their workplace, such as satisfaction
or dissatisfaction with the management. Workplace perceptions were cited
often both by participants with a college degree and without a college
degree. Some participants indicated that they continued to work at their
job not solely for income, but because they perceived that their workplace
was enjoyable,

I am eligible to retire...my boss, she is a lot of fun. As long as she is
[there] maybe 3, 4 or 5 years as of now...I am in a very good position. If
I decide to leave, I can leave. If I decide to stay, I would stay.

On the contrary, others left their jobs because they did not enjoy their
positions or their relationship with management, rather than because of
health constraints or other concerns.

[My reason for retiring] was upper management. We didn't agree, so that's
really what the big factor was...That's the only reason that I left,
otherwise, I would have stayed until I was 70. I would have worked as long
as I could have, as long as my health was good, but they were edging me
out.

Similarly, a number of participants indicated that they felt pressure from
their employer to leave their jobs. One participant said,

I felt like I was starting to get leaned on....I felt they were pushing me
out... And one of the reasons was that one of my supervisors was about 40
and I was 65, and I think he felt more comfortable with a young person
because he could talk to that person.

Other participants indicated that they chose to discontinue working or
work part-time for lifestyle reasons, such as to have more flexibility and
control over their time.

The great thing is I also have the free time to do the things that I want
to do. It really is good if you can reach a point where you can afford to
work part-time.

Focus group participants with a college degree more often noted lifestyle
considerations as a reason to retire or continue working than those
without a college degree. For example, some college graduates indicated
that they would like to continue working for enjoyment or to retire to
volunteer. One participant commented, "I like to keep my hand in my field.
It keeps me cutting edge. I can take it or leave it."

A recent national survey of workers conducted by Rutgers University and
the University of Connecticut supports these findings. The survey found
that college graduates are more likely to view their retirement as a time
for volunteering or choosing to work part time, whereas 30 percent of
those without a college degree believe they will need to continue to work
for money.32

Current and former federal workers in our focus groups most often cited
perceptions about the workplace as a reason for retiring. Workplace
perceptions were cited notably more often by federal participants who said
they had a choice about whether to work or retire than similar non-federal
participants. For example,

I was a manager...so at that time they had a reorganization. They bring
new management in and they made some changes, so it was very stressful. At
one point in time when they organized they want you to do more work with
less people...They had their own mindset where you didn't count. It was
very stressful. The opportunity [to retire] presented itself and I just
took advantage of it.

Few federal focus group participants indicated that they made work and
retirement decisions based on financial or health constraints.
Additionally, none of the federal retirees indicated that they had been
laid off by the federal government, whereas being laid off was cited often
by non-federal workers as the reason they stopped working.

32Ibid, 6.

Retirement Decisions May Be Influenced by What Older Workers Think Are Viable
Options

Among all the focus group participants, few saw opportunities to gradually
or partially retire at their current or former employer. Participants in
each focus group indicated that they either were not aware of
opportunities to continue working after retirement or that their current
or former employer did nothing to retain them as workers; differences
between groups of college educated and non-college educated participants
were not significant. For example, in response to the question, "What
opportunity did your employer offer for phased or partial retirement prior
to your retirement?" one participant responded, "They showed me the door
and that was the end of it." Some participants indicated that their
current or former employers wished that they would retire. In response to
a question regarding opportunities at their current employer for phased or
partial retirement, one respondent replied, "I think they were glad to get
rid of me." A few participants said that their current or former employers
offered them opportunities to gradually or partially retire. For example,
one person said, "If you are good at what you do, you can be hired back on
a consultant basis."

Similarly, recent research has shown that many older workers do not follow
through on their plans to reduce their hours in transition to retirement.
One study found that only 35 percent of older Americans who wanted to
reduce their hours in the next 2 years, prior to full retirement, followed
through on these plans.33 The reason for the difference between these
plans and actual behavior is unclear, although one author of the study
speculated that workers who want to reduce their hours often must do so by
finding another job, which can entail difficulties that may ultimately
lead to full retirement. Survey data from the HRS indicates that almost 60
percent of full-time workers aged 55 and over say they would like to
gradually reduce their work hours at their current job. But only about 20
percent of HRS respondents who were working full-time in 1992 became
partially retired at some point by 2002 and the majority of partial
retirees left their full-time employer.

Focus group participants cited what they perceived as their own limited
skills and employers' age discrimination most often as barriers to
continued employment. These barriers were not cited more or less often by
different groups of participants. When asked what barriers they perceived
to continuing to work or finding a new job, some felt that they lacked
technological skills. For example, one participant stated, "I could never
go anywhere and work with computers." Age discrimination was the second
most frequently cited obstacle to participants working later in life or
finding a new job. Many felt that employers preferred younger workers.

33Katherine G. Abraham and Susan N. Houseman, "Work and Retirement Plans
among Older Americans," Upjohn Institute Staff Working Paper No. 04-105,
(July 2004) 18.

When they see your age, they don't even give you the courtesy of an answer
back. You know what it is, when they see your age they don't know how
capable you are. They just see the age and say I don't want to mess around
with you guys.

Similarly, a national survey found that 40 percent of older workers
believe that older workers are treated less fairly than younger workers in
the workplace.34

In addition to employment barriers, many focus group participants felt
they had limited employment options. A number of participants indicated
that their employment options were limited to mostly lower skilled and
lower paid jobs. For example, one participant said, "I think there are
plenty of jobs, but I think you are going to have to work just as hard as
you did for $25 an hour as you do for $5."

  While Some Employers Make a Special Effort to Hire and Retain Older Workers,
                                  Most Do Not

Some employers have actively attempted to recruit and retain older
workers. For example, AARP, an advocacy organization for people over 50,
partners with select employers to provide opportunities for older workers,
and the federal government, one of the country's largest employers, also
offers some opportunities to retain select older workers. Some employers
participating in a roundtable discussion on the aging workforce reported
using special practices like mentoring opportunities to recruit or retain
some older workers.35 However, as we reported in 2001, most employers are
not yet engaged in these practices.36 Only about one-third of participants
in a roundtable discussion of employers concerned about the aging
workforce indicated that their company had established a program designed
to recruit or retain older workers. The federal government also has not
made widespread efforts to recruit or retain older employees. Employers
have cited a number of factors, such as pension regulations, that
discourage or prevent them from offering more opportunities for older
workers.

34Reynolds, Ridley, and Van Horn, "A Work-Filled Retirement: Workers'
Changing Views on Employment and Leisure," 11.

35The U.S. Department of Labor assisted us in assembling a group of
employer representatives to discuss the issues raised by the aging of the
workforce. See appendix VIII for more information.

36GAO-02-85, 4.

Some Employers Use Special Practices to Recruit and Retain Older Workers

Some employers currently offer older workers incentives to work longer,
such as partial retirement. National survey data from HRS indicates this
practice is most common in professional and service occupations. In 2002,
about 20 percent of partial retirees were employed in professional
occupations and 17 percent in service occupations.37 Among service
occupations, partial retirees were most often employed in food preparation
and personal services occupations, such as child care workers and home
care aides.38

In addition to offering some partial retirement opportunities, certain
employers have actively attempted to recruit and retain older workers.
Many employers believe older workers have certain advantages, such as
reliability, institutional knowledge and experience, and a strong work
ethic. AARP has established a "Featured Employer" program to encourage its
partner companies to recruit and retain older workers. Through this
program AARP collaborates with companies that are actively recruiting
older workers for full-time, part-time, and seasonal work by providing
information on employment opportunities. To date, AARP has entered into
partnerships with 13 large companies, which include firms in retail,
finance and insurance, health care, and staffing industries.

Employer representatives participating in a roundtable discussion on the
aging workforce listed numerous practices they use to recruit or retain
older workers. Overall, many participants agreed that flexibility was the
key feature necessary to recruit and retain older workers. Specifically,
individual employers listed these examples of programs and practices
offered to their older employees:

37In addition, 15 percent of partial retirees were employed in clerical
and administrative support occupations; 13 percent were employed in
operator occupations; 11 percent were employed in managerial occupations;
11 percent were employed in sales occupations; 6 percent were employed in
farming, forestry, and fishing occupations, 3 percent were employed in
construction trade and extraction occupations; 2 percent were employed in
mechanics and repair occupations; and 2 percent were employed in
production occupations.

38However, data show that many partial retirees are no longer working for
their career employer, but rather are self-employed. Self-employment is
much more prevalent among partial retirees than among full-time workers.
According to the HRS, 36 percent of partial retirees were self-employed in
2002 compared to 18 percent of full-time older workers.

           o  using older workers as mentors for younger workers;

           o  offering workers the opportunity to work at different locations
           so that they might live in different places over the course of a
           year;

           o  recruiting older workers at events geared toward seniors;

           o  launching a Web site and newsletter for older workers already
           employed by the company;

           o  using training as a retention tool, with the understanding that
           employees who are engaged and invested in their work are more
           likely to remain at their current jobs; and

           o  respecting some older workers' desire for less stressful work
           by allowing former managers to work as staff members.

           The federal government, one of the country's largest employers,
           offers some opportunities to retain select older workers, some of
           which are part of the opportunities for all workers, such as
           flexible schedules. Also, some retirees may draw their pension and
           return to work on a reduced schedule as "re-employed annuitants"
           or as private contractors,39 but these opportunities are not
           targeted broadly at older workers and the usage of these options
           does not appear to be widespread. Similarly, we previously found
           that state and local governments have addressed teacher shortages
           by implementing programs, such as a Deferred Retirement Option
           Plan (DROP), that provide incentives for older employees to remain
           on the job.40

           Although many employers indicate a willingness to recruit or
           retain older workers, most employers are not currently engaged in
           these practices, as we reported 5 years ago.41 National surveys
           show that employers are interested in options to accommodate the
           desire of older workers to reduce their hours or retire partially.
           One survey from Cornell University indicated that 73 percent of
           organizations would allow older workers to reduce their hours
           before retirement, although few have a formal written policy
           allowing this reduction. In fact, only 36 percent of organizations
           surveyed that would permit reduced hours actually had an employee
           do this in the last 3 years.42 Some studies have found that, while
           a fairly large number of employers think that phased or partial
           retirement is important, a much smaller number have actually
           implemented such policies.43 Another study that interviewed
           selected Fortune 500 company executives found that opportunities
           are ad hoc.44

           Only about one-third of the 13 participants in a roundtable
           discussion of employers concerned about the aging workforce
           indicated that their company or organization had established a
           program designed to recruit or retain older workers, although most
           indicated a positive view of older workers. These companies
           generally agreed that the aging workforce was a serious concern
           for their organization in terms of knowledge loss and job
           vacancies as older workers retire. Still, some felt that it was
           only recently that their organization had become aware of the
           severity of the challenges facing them in the future.

           Despite employing a large number of older workers, the federal
           government has not made significant, widespread efforts to recruit
           or retain older employees. Although some specific programs and
           incentives exist to recruit and retain select older workers,
           representatives of an association of current and retired federal
           employees felt that the federal government did not wish to keep
           its older employees in the workforce longer but rather planned for
           them to retire and be replaced by younger workers.

           Employers, including federal officials, have cited a number of
           factors that discourage or prevent them from offering more
           opportunities for older workers. Some employers cite certain
           federal regulations as a reason for not offering more
           opportunities for older workers to reduce their hours before
           retirement, such as regulations prohibiting the distribution of DB
           pension benefits while the employee is still working for the
           company. Employers have also stated that pension regulations may
           force some employees who wish to partially retire to do so at
           another firm, or to retire and be hired back after a break in
           service. Furthermore, one national survey showed that many
           employers perceive that some older workers are resistant to new
           technology and roundtable participants indicated that some older
           workers are resistant to change. With regard to federal employees,
           some experts believe that the process of rehiring retired federal
           employees is cumbersome and rules that calculate retirement
           annuities based on the highest 3 years of pay provide federal
           workers with a disincentive to reduce hours before retirement.
           Also, some argue that current federal rules encourage federal
           employees to leave the federal government and seek employment
           elsewhere in order to collect their pension without an offset in
           their wages.

           Another barrier to offering opportunities for older workers noted
           at the roundtable was the practice of retiring when eligible for
           pension, Social Security, or Medicare benefits. Some indicated
           that defined benefit plans encourage employees to retire when they
           maximize their pension. However, another participant noted that
           even a combination of DB and DC plans did not encourage workers to
           remain working later because retiring around age 65 is
           traditional. Many employers at the roundtable felt that
           eligibility for Social Security and Medicare tends to drive
           workers' retirements. In fact, many of the employer participants
           agreed that employees tend to retire in their mid-60s because it
           has become the norm in the United States. One employer noted "the
           entire nation has been preconditioned to expect to retire in the
           mid-60s." Many of the employers agreed that raising the
           eligibility age for Social Security and Medicare would be the kind
           of large-scale change necessary to keep older workers employed
           later in life.

           The impending retirements of millions of older workers pose
           significant challenges for the economy, employers, and workers.
           With these retirements, employers may lose older workers'
           firm-specific and general knowledge and skills, and there may not
           be enough younger workers in the labor market to replace them. At
           the same time, older workers themselves may need additional income
           from employment because they face less secure retirements due in
           part to rising health care costs and more years spent in
           retirement.

           While many, including GAO, have reported on these trends and their
           likely consequences, little has been done to address them. Despite
           evidence indicating the future importance of older Americans to
           the workforce, few employers have yet implemented widely available
           programs to recruit or retain older workers. In addition, many
           older Americans in our focus groups perceive that employers prefer
           younger workers and prefer to see older workers retire rather than
           offer them more opportunities to stay or find other work. This
           perception is at odds with employers' statements at the roundtable
           and through surveys indicating their readiness to address issues
           related to the aging workforce. The disparities between actions,
           preferences, and communications are a concern as the workforce
           ages.

           With the first baby boomers becoming eligible for Social Security
           benefits in just 3 years, the time to prepare for these challenges
           is running out. Both employers and employees have a role to play
           in addressing the gap between them. Employers could attract and
           retain older workers by responding to their work and lifestyle
           preferences. For instance, employers could give older workers more
           control over their schedules by making greater use of flexible
           work arrangements such as partial retirement, part-time work,
           job-sharing, and telecommuting. Additionally, employers could
           respond to older workers' perceptions about job stress by
           adjusting their job responsibilities such as by allowing former
           managers to switch to support or mentor roles. Also, employers
           could help their older employees learn new skills by investing
           more in training, and strengthen internal policies to address
           concerns about age discrimination. These efforts may also help
           older workers feel more valued by their employers. For their part,
           workers who are near traditional retirement age but who need or
           want to continue working will need to position themselves to take
           advantage of employment opportunities. For instance, they could
           learn new skills through either on- or off-the-job training, and
           adapt to new technologies and changes in the workplace.
           Additionally, older workers could utilize available resources,
           such as those provided by advocacy organizations like AARP, and
           communicate their needs and preferences to employers. Workers also
           need to assess their financial status in preparation for
           retirement, in particular the impact of reduced income from
           earnings, and may need to consider options such as partial or
           phased retirement.

           While employers and employees must take an active role in
           addressing the challenges of an aging population, there is also a
           role for government to help as well. As we recommended previously,
           we continue to believe an inter-agency task force on older
           workers, led by the Department of Labor, would help various
           agencies better align their efforts to remove barriers and create
           opportunities for older workers.45 Continued coordination of
           issues related to older workers by government agencies remains
           important, but the government can and should play a greater role
           in helping employers and employees prepare for these challenges.
           In addition to removing barriers and creating opportunities, the
           government could help bridge the gap between employers and
           employees.

           Enhanced public awareness of demographic trends, their likely
           consequences, and possible solutions that could help promote both
           economic growth and retirement security for individuals, could
           help mitigate the potentially serious implications of the aging of
           the U.S. labor force, avoid possible knowledge and skill gaps in
           the future, and help ensure the financial security of older
           Americans. The Department of Labor has taken sound first steps in
           this area, including convening an intra-agency task force on older
           workers and working with business leaders interested in issues
           concerning the aging workforce. However, these challenges warrant
           a higher priority and a high-visibility campaign involving a wider
           group of employers as well as employees. Specifically, we
           recommend that the Secretary of Labor design a comprehensive and
           highly visible public awareness campaign as a way to help
           employers and employees plan better for the future and by so
           doing, bridge the gap between employer and employee needs. In
           designing the campaign, the Department of Labor should involve
           other agencies that have either regulatory jurisdiction or a clear
           policy interest, such as the Social Security Administration and
           the Health and Human Services Department's Administration on
           Aging. The campaign should target employer organizations and
           groups that interact with employees and ultimately, would serve to
           encourage employers to find ways to retain and recruit older
           workers, and assist employees in creating and finding
           opportunities for continued work.

           We provided a draft of this report to the Department of Labor, the
           Internal Revenue Service, the Office of Personnel Management, and
           the Social Security Administration for comment. Officials from the
           Department of Labor provided written comments (see app. II), which
           generally agreed with our findings and the recommendation. Their
           comments also highlighted some actions that the Department of
           Labor has already taken in response to the challenges of an aging
           workforce. Consequently, we clarified our recommendation to the
           Department of Labor to include other federal agencies in the
           development of a public awareness campaign geared to older workers
           and their current and potential employers. The Office of Personnel
           Management and the Social Security Administration provided no
           written comments on the draft. The Department of Labor and the IRS
           also provided us with technical comments, which we have
           incorporated into the report as appropriate.

           We are sending copies of this report to the Secretary of Labor,
           the Commissioner of Internal Revenue, the Director of the Office
           of Personnel Management, the Commissioner of Social Security,
           appropriate congressional committees, and other interested
           parties. We will also make copies available to others upon
           request. In addition, the report will be available at no charge on
           GAO's Web site at http://www.gao.gov.

           If you or your staff have any questions about this report, please
           contact me at (202) 512-7215 or at [email protected]. Contact
           points for our Offices of Congressional Relations and Public
           Affairs may be found on the last page of this report. GAO staff
           who made major contributions to this report are listed in appendix
           VI.

           Barbara D. Bovbjerg Director, Education, Workforce, and Income
           Security Issues

           List of Congressional Committees

           The Honorable Charles E. Grassley Chairman The Honorable Max
           Baucus Ranking Minority Member Committee on Finance United States
           Senate

           The Honorable Michael B. Enzi Chairman The Honorable Edward M.
           Kennedy Ranking Minority Member Committee on Health, Education,
           Labor, and Pensions United States Senate

           The Honorable Mike Dewine Chairman The Honorable Barbara A.
           Mikulski Ranking Minority Member Subcommittee on Retirement
           Security and Aging Committee on Health, Education, Labor, and
           Pensions United States Senate

           The Honorable Gordon H. Smith Chairman The Honorable Herb Kohl
           Ranking Minority Member Special Committee on Aging United States
           Senate

           The Honorable George Miller Ranking Minority Member Committee on
           Education and the Workforce House of Representatives

           The Honorable William M. Thomas Chairman The Honorable Charles B.
           Rangel Ranking Minority Member Committee on Ways and Means House
           of Representatives

           The Honorable Jim McCrery Chairman The Honorable Sander M. Levin
           Ranking Minority Member Subcommittee on Social Security Committee
           on Ways and Means House of Representatives

           Our objectives were to (1) describe the areas of the labor market
           that will be most affected by the aging workforce, (2) determine
           the factors that most influence the timing of workers' retirement,
           and (3) examine what employers are doing to hire and retain older
           workers.

           To address the first objective, we extrapolated employment data by
           occupation and age 10 years into the future. To do this, we
           obtained data from the Bureau of Labor and Statistics (BLS)
           describing the number of people employed in different occupations
           and age groups from 1985 to 2004 based on data from the Current
           Population Survey. We analyzed these data sets and found each to
           be reliable for purposes of this study. Occupation categories
           included: management, business, and financial operations;
           professional and related; service; sales and related; office and
           administrative support; farming, fishing, and forestry;
           construction and extraction; installation, maintenance, and
           repair; production; and transportation and material moving
           occupations. Because occupations were categorized differently
           prior to 2003, we applied conversion factors provided by BLS to
           convert the pre-2003 data and ensure consistency. Age groups were
           divided into the following groups: 16-24; 25-34; 35-44; 45-54;
           55-64; and 65-74. The number of people employed in each age and
           occupation category was then averaged in 10-year groups, 1985-1994
           and 1995-2004. We then compared the rate of change in employment
           by cohort between the two time periods for those aged 55-64 and
           65-74. Based on the assumption that the rate of change for the two
           oldest age groups stays the same for the next 10 years, we
           extrapolated the employment levels of older workers, those aged
           55-64 and 65-74, in each occupation in 2014. We applied BLS's
           projections of overall employment growth for each occupation and
           then calculated the share of workers aged 55-74 as a percentage of
           the workforce aged 25-74 in each occupation in 2014. To better
           understand their decisions and circumstances regarding work and
           retirement, we also analyzed data from the Health and Retirement
           Study (HRS), a national survey of older Americans produced by the
           University of Michigan. We analyzed this data set and found it to
           be reliable for purposes of this study. Using data from the HRS
           and the RAND Corporation supplement to the HRS, we created a
           definition of partial retirement based on the hours or weeks
           worked per year and self-reported labor force status. In order to
           be classified as partially retired, a respondent must report the
           following: working for pay, working part-time (defined as working
           fewer than 35 hours a week or fewer than 36 weeks a year), and
           being either partially or fully retired on the subjective
           retirement status or employment status questions. Using this
           definition of partial retirement, we analyzed characteristics of
           partial retirees, such as whether or not they changed jobs to
           partially retire, their average reduction in work hours, and
           pension and health insurance coverage. We also examined partial
           retirement by occupation and self-employment status. In addition,
           we analyzed data about older workers' desire to gradually reduce
           their hours in transition to retirement and the degree of
           self-reported mental stress and physical activity required by
           occupation.

           To address the second objective, we gathered information from 16
           focus groups in four cities across the country: Chicago, Illinois;
           Phoenix, Arizona; New York, New York; and Washington, D.C. We
           selected four cities in which to hold focus groups based on
           geographic diversity and potential for occupational diversity. To
           gather information from the focus groups, we hired a contractor,
           IQ Solutions, to screen participants, select sites for the groups,
           and moderate the groups. In each city, participants were grouped
           into four categories: (1) retirees with a college degree; (2)
           retirees with no college degree; (3) older workers with a college
           degree; and (4) older workers with no college degree. In addition,
           Washington, D.C., participants were screened to include only
           current and former federal employees. Each group was comprised of
           8 to 10 participants who were age 55 to 70. We prepared a series
           of questions that the moderator asked about the participants'
           decisions regarding work and retirement. Participant responses
           were recorded on audio tape and transcribed to text by IQ
           Solutions. To analyze the transcripts, we developed a coding
           scheme to identify common themes and patterns observed and
           responses were coded using GAO's self-developed, internet-based
           Questionnaire Programming Language software. Each code was
           reviewed and agreed upon by two analysts to check for coding
           reliability. Code frequencies were downloaded and analyzed using
           SAS software.

           To address the third objective, we conducted interviews with
           several experts and reviewed the findings of several surveys of
           employers conducted by research organizations whose inquiries
           ranged from broad human capital issues to specific questions about
           provisions for older workers. We also participated in a roundtable
           discussion with employers. The roundtable discussion was assembled
           by the Department of Labor's Employment and Training
           Administration (ETA). The 16 participants represented several of
           ETA's national business partners as well as other businesses and
           organizations that the Business Relations Group within ETA works
           with on workforce development issues, particularly those that have
           expressed an interest in recruiting and retaining older workers. A
           GAO moderator asked a series of questions that we developed
           regarding perceptions, challenges, and actions toward older
           workers. (See app. V for a list of participants.)

           We conducted our work between October 2004 and October 2005 in
           accordance with generally accepted government auditing standards.

           Source: U.S. Department of Labor, Bureau of Labor Statistics,
           Occupational Outlook Handbook, 2004-2005 Edition and Bureau of
           Labor Statistics, Current Population Survey, Unpublished data,
           "Table 23. Experienced Labor Force, Employed, and Unemployed
           (Levels and Rates) by Intermediate Occupation, Sex, Race, Hispanic
           or Latino Ethnicity, and Age, Annual Average 2004."

           Debra Kilpatrick National Program Consultant AARP

           Jennifer Tracy Director of Staffing and College Relations Aramark

           Kathy Corcoran Principal L&OD Consultant Constellation Energy

           Barbara Hoenig Consultant on Mature Workers and Workforce
           Development CVS

           Steve Wing Director of Government Programs CVS

           Sara Freeman-Smith (by phone) Director, Human Resources First Data

           Donna Yurdin Assistant Vice President, Organizational
           Effectiveness HCA

           Cindy Milburn Senior Director, Staffing The Home Depot

           Terry Hansen Manager, Public Partnerships IBM

           Rick Ohmer Pension Administrator Johns Hopkins Medicine

           Melanie Holmes Senior Vice President, Business Operations Support
           Manpower

           Andy Chaves Manager, Youth Programs, Talent Management Marriott

           Brooke Hirschfelder Work/Life and Diversity Program Manager
           MetLife

           Sue Roselle Staffing Manager Toys R Us

           Jan Magill Senior Program Officer, Center for Workforce
           Preparation U.S. Chamber of Commerce

           Eileen Bove Director of Human Resources Universal Health Services

           Barbara D. Bovbjerg, Director (202) 512-7215

           In addition to the contact named above, Alicia Cackley, Assistant
           Director; Mindy Bowman; Anna Bonelli; Sharon Hermes; Kristy
           Kennedy; Luann Moy; Lynn Musser; Nhi Nguyen; Corinna Nicolaou; Jay
           Smale; Roger Thomas; and Rachael Valliere made significant
           contributions to this report.

           The Government Accountability Office, the audit, evaluation and
           investigative arm of Congress, exists to support Congress in
           meeting its constitutional responsibilities and to help improve
           the performance and accountability of the federal government for
           the American people. GAO examines the use of public funds;
           evaluates federal programs and policies; and provides analyses,
           recommendations, and other assistance to help Congress make
           informed oversight, policy, and funding decisions. GAO's
           commitment to good government is reflected in its core values of
           accountability, integrity, and reliability.

           The fastest and easiest way to obtain copies of GAO documents at
           no cost is through GAO's Web site (www.gao.gov). Each weekday, GAO
           posts newly released reports, testimony, and correspondence on its
           Web site. To have GAO e-mail you a list of newly posted products
           every afternoon, go to www.gao.gov and select "Subscribe to
           Updates."

           The first copy of each printed report is free. Additional copies
           are $2 each. A check or money order should be made out to the
           Superintendent of Documents. GAO also accepts VISA and Mastercard.
           Orders for 100 or more copies mailed to a single address are
           discounted 25 percent. Orders should be sent to:

           U.S. Government Accountability Office 441 G Street NW, Room LM
           Washington, D.C. 20548

           To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax:
           (202) 512-6061

           Contact:

           Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail:
           [email protected] Automated answering system: (800) 424-5454 or
           (202) 512-7470

           Gloria Jarmon, Managing Director, [email protected] (202) 512-4400
           U.S. Government Accountability Office, 441 G Street NW, Room 7125
           Washington, D.C. 20548

           Paul Anderson, Managing Director, [email protected] (202)
           512-4800 U.S. Government Accountability Office, 441 G Street NW,
           Room 7149 Washington, D.C. 20548

39Federal governmental plans are not covered by IRS regulations, including
restrictions on in-service pension distributions.

40GAO-02-85, 27-28.

Most Employers Are Not Actively Recruiting or Retaining Older Workers despite
Indicating a Willingness to Expand Such Practices

41Ibid, 23.

42Robert M. Hutchens, "The Cornell Study of Employer Phased Retirement
Policies: A Report on Key Findings" Faculty Publications - Labor
Economics, (2003) 3.

43Hewitt Associates LLC, "Employer Approaches to Phased Retirement,"
(2003) 1; Laurene Graig and Valerie Pagenlli of Watson Wyatt, "Phased
Retirement: Reshaping the End of Work," Compensation & Benefits
Management, 1999, Vol. 16, No. 2; Jessica Collision, SHRM, NOWCC, CED,
"Older Workers Survey," (2003) vii.

44Lynne Morton, Lorrie Foster, and Jeri Sedlar, The Conference Board,
"Managing the Mature Workforce: Implications and Best Practices," (2005)
20.

                                  Conclusions

                      Recommendation for Executive Action

45GAO-02-85.

                       Agency Comments and Our Evaluation

Appendix I: Objectives, Scope, and Methodology  Appendix I: Objectives,
Scope, and Methodology

Appendix II: Comments from the Department of Labor  Appendix II: Comments
from the Department of Labor

Appendix III: Occupational Categories  Appendix III: Occupational
Categories

Major occupational                                                         
categories:                Selected Sub-categories:
Professional and related   Computer and mathematical Architecture and      
                              engineering Life, physical, and social science  
                              Community and social services Legal Education,  
                              training, and library Arts, design,             
                              entertainment, sports, and media Healthcare     
                              practitioner and technical                      
Service                    Healthcare support Protective service Food      
                              preparation and serving related Building and    
                              grounds clearing and maintenance Personal care  
                              and service                                     
Management, business, and  Advertising, marketing, promotions, public      
financial operations       relations, and sales managers Computer and      
                              information system managers Construction        
                              managers Education administrators Food service  
                              managers Top executives Accountants and         
                              auditors Financial analysts and personal        
                              financial advisors Loan counselors and officers 
Sales and related          Cashiers Counter and rental clerks Insurance    
                              sales agents Real estate brokers and sales      
                              agents Retail salespersons Sales                
                              representatives, wholesale, and manufacturing   
                              Securities, commodities, and financial services 
                              sales agents Travel agents                      
Office and administrative  Communications equipment operators Computer     
support                    operators Customer service representatives Data 
                              entry and information processing workers        
                              Financial clerks Office and administrative      
                              support worker supervisors and managers Office  
                              clerks, general Postal Service workers          
                              Secretaries and administrative assistants       
Farming, fishing, and      Agricultural workers Fishers and fishing vessel 
forestry                   operators Forest, conservation, and logging     
                              workers                                         
Construction and           Boilermakers Carpenters Operating engineers and 
extraction                 other construction equipment operators          
                              Construction laborers Electricians Pipelayers,  
                              plumbers, pipefitters, and steamfitters Roofers 
                              Sheet metal workers                             
Installation, maintenance, Electrical and electronic equipment mechanics,  
and repair                 installers, and repairers Vehicle and mobile    
                              equipment mechanics, installers, and repairers  
                              Heating, air-conditioning, and refrigeration    
                              mechanics and installers Millwrights Precision  
                              instrument and equipment repairers              
Production                 Assemblers and fabricators Food processing      
                              Metal workers and plastic workers Printing      
                              occupations Plant and system operators          
Transportation and         Air transportation Motor vehicle Rail           
material moving            transportation Water transportation Material    
                              moving                                          

Appendix IV: Focus Group Moderator's Guides  Appendix IV: Focus Group
Moderator's Guides

Appendix V: Employer Participant List for Roundtable Discussion on Older
Workers  Appendix V: Employer Participant List for Roundtable Discussion
on Older Workers

Appendix VI : St  Appendix VI : GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

(130402)

GAO's Mission

Obtaining Copies of GAO Reports and Testimony

Order by Mail or Phone

To Report Fraud, Waste, and Abuse in Federal Programs

Congressional Relations

Public Affairs

www.gao.gov/cgi-bin/getrpt?GAO-06-80.

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Barbara D. Bovbjerg at (202) 512-7215 or
[email protected].

Highlights of GAO-06-80, a report to congressional committees

December 2005

OLDER WORKERS

Labor Can Help Employers and Employees Plan Better for the Future

Demographic changes pose serious challenges for employers, the economy,
and older Americans. As the baby boomers near traditional retirement ages,
the loss of experienced workers could have adverse effects on productivity
and economic growth. Also, many older Americans face less-secure
retirements due to rising health care costs, pension coverage changes, and
fiscal pressures on the nation's retirement programs. Due to the growing
importance of workers aged 55 or older, GAO examined: (1) areas of the
labor market affected by the aging of the workforce; (2) factors that
influence the timing of retirement; and (3) what employers are doing to
hire and retain older workers.

What GAO Recommends

GAO recommends that the Secretary of Labor design a comprehensive and
highly visible public awareness campaign as a way to help employers and
employees plan better for the future and by so doing, bridge the gap
between employer and employee needs. The campaign should involve other
relevant agencies and target employer organizations and groups that
interact with employees and, ultimately, encourage employers to find ways
to retain and recruit older workers, and assist older workers in finding
opportunities for continued work. The Department of Labor generally agreed
with our findings and recommendation.

All areas of the labor market are likely to be affected by the aging of
the workforce. Like workers in general, a majority of older workers are
employed in professional, management, service, office and administrative
support, and sales occupations. However, employers in every occupation
face the likelihood that a greater percentage of their workforce will be
nearing retirement age. Potential skill gaps from impending retirements
and a slowdown in the growth of the labor supply may make older workers a
resource of growing importance.

Focus group participants without a college degree cited health, finances,
and layoffs most often as factors constraining the timing of their
retirement and work decisions. Participants without such constraints, most
often cited lifestyle and work perceptions as the factors driving their
decisions. Also, despite survey findings showing that many older workers
wish to gradually reduce their hours, overall, focus group participants
indicated they either were not aware of options for continued work after
retirement or that their current or former employer did nothing to retain
them. Many saw barriers to future employment, including their own limited
skills and perceived age bias.

While some employers are making an effort to hire and retain older
workers, such as offering flexible work arrangements, most have not yet
made these efforts a priority. We found some examples of programs targeted
toward older workers, and many employers express a willingness to initiate
practices to retain older workers. However, most surveyed employers do not
implement these practices widely. In addition, only about one-third of
participants in a roundtable discussion of employers concerned about the
aging workforce indicated that they provided a specific plan or program to
recruit or retain older workers. Employers cite a number of barriers to
offering more opportunities, such as federal pension regulations.

Percentage of Workforce Aged 55 and Older, 1970-2000 and Projected
2010-2050
*** End of document. ***