Early-retirement offers are not for everyone

The recent announcement by Delta Airlines that early-buyout packages will be offered to about half of its nearly 60,000 workers is the latest salvo in what could be an unprecedented surge in early-retirement offers.
The combination of an economic slowdown and a growing portion of company payrolls with employees approaching retirement age make buyouts an attractive option for employers trying to trim payrolls without resorting to wholesale layoffs.
Employees accepting early-retirement offers comprised 31,695 of the 768,264 job cuts announced in 2007, according to Challenger, Gray & Christmas Inc., which tracks job-cut announcements daily. However, many of the remaining 736,569 job cuts that were attributed to other causes, such as cost cutting, reorganization or demand changes, were partially achieved through early-retirement buyouts.
Companies typically rely on multiple tools to adjust their payrolls to fluctuations in business and economic conditions. Shutting down a department or handing out pink slips have the most immediate impact and receive the most attention, but companies also rely on attrition, consolidations and no-layoff reorganizations to fine-tune their work forces.
Right now, companies see large portions of their payrolls approaching or reaching retirement age. As companies adjust to the current economic slowdown, many will be turning to the oldest segments of their work forces and offering them lucrative packages as enticements to leave sooner than later.
The most recent major buyouts have been concentrated in the struggling automotive industry, where the Big Three (General Motors, Ford and Chrysler) have shed tens of thousands of workers through buyouts. However, the auto industry is not the only contributor to increasing buyout activity. Recent buyouts have occurred among a variety of employers in a variety of industries, including the airline industry, technology sector and retail.
Last week, Delta Airlines offered buyout packages to approximately 30,000 workers. Deals are being offered to those who are already eligible for retirement or for those whose age and years of service add up to at least 60, with at least 10 years of service. It is also offering an “early out” option for frontline employees, such as flight attendants, with 10 or more years of service, and for administrative and management employees, with one or more years of service.
In addition to severance payments, employees who accept the offer will also receive travel privileges and additional benefits to manage career transitions.
In September, Southwest Airlines offered 8,500 employees early separation packages that included a $25,000 cash payment, medical and dental benefits and travel privileges.
In an effort to reduce its U.S. payroll, Plano, Texas-based Electronic Data Systems offered packages worth $10,000 plus five times EDS’s annual contribution to the employee’s retirement and benefit-restoration plan. Of the 12,000 employees who were eligible, 2,400 accepted.
The most lucrative deals have come from the automotive companies. Over the past 36 months, each of the Big Three has initiated at least two rounds of buyout offers. In 2006, every one of General Motors’ 126,000 hourly workers was eligible for buyout packages. Workers at or above retirement age received $35,000 cash and full benefits. Those with ten years on the job but below retirement age would receive $140,000 and their pensions, but no health coverage. Workers with fewer than ten years received $70,000 and no benefits. A similar offer now has been extended to the remaining 74,000 hourly workers still on the payroll.
Ford and Chrysler have also extended buyout offers, ranging in value from $35,000 to $140,000. Ford alone has eight different buyout packages based on age, years of service, type of worker, and what, if any, health benefits will be included. Some workers even have the opportunity to receive money earmarked for tuition and other education costs.
For an employee offered an early-buyout package, the big question is whether to accept. While the lump-sum payment is often enticing, there are many factors to consider.
Many people simply look at the financial aspect of the buyout. They may even seek advice from financial planners and tax experts. What some people overlook, however, are the employment and job market factors.
For someone in his or her early 40s, an offer of $100,000 to leave a job may seem like hitting the jackpot, but it is critical to realize that at that age, it will probably be necessary to continue working, especially if one’s retirement savings lacks funds.
For those who decide to take a buyout offer, other questions will arise: What do I do now? Do I go back to school? Do I move to a new city? Do I take some time off?
Some who stay are doing so to see if a better offer comes down the road. More lucrative offers do occasionally occur, but in most cases the buyout offers decline in value, particularly if the company’s situation does not improve or gets worse. The worst-case scenario, of course, is that no second offer is extended and the company instead opts to enact widespread job cuts or shuts down completely.
For those who opt to accept a buyout offer but are not ready for retirement, it is critical to be aggressive about finding a new job. It is tempting to live off of the buyout package for a while … [but] prospective employers will not greet a long hiatus from the job market with enthusiasm. •
John A. Challenger is CEO of global outplacement and business coaching company Challenger, Gray & Christmas Inc. To learn more, visit www.challengergray.com.