Formal phased retirement is an employer-based program in which older workers can reduce their working hours in order to transition into retirement. Phased retirement may include partial drawdown of defined contribution or defined benefit pension benefits and a knowledge-transfer component. Depending on the employer, the program may include health coverage for participants. In contrast to formal programs, informal phased retirement arrangements are not part of a formal program but are alternate methods to ease into retirement with the same employer, such as an ad hoc agreement or retirement followed by a term as a contractor. Employer goals for formal phased retirement programs vary, but may include knowledge retention, skills transfer, workforce planning, and retirement planning. Employers can use phased retirement as a human resource tool not only to retain workers with essential skills or knowledge, but also to provide an incentive for other workers to retire. Additionally, workers may find phased retirement to be a positive way to ease into retirement. Income in retirement can come from multiple sources, including but not limited to: (1) Social Security, (2) payments from defined benefit (DB) plans, and (3) retirement savings, such as savings in an individual retirement account (IRA) or a defined contribution (DC) plan, such as a 401(k). Social Security: Social Security retirement benefits partially replace earnings lost due to retirement and provide a base of income upon which to build. The initial monthly benefit amount depends on the worker’s earnings history and the age at which he or she chooses to begin receiving benefits, as well as other factors. Social Security pays unreduced benefits at the full retirement age, which has gradually increased from 65 (for 1937 and earlier birth cohorts) to 67 (for 1960 and later birth cohorts). Workers can elect to receive retirement benefits as early as age 62, but the benefit amount is reduced compared to benefits at full retirement age. Workers who retire after their full retirement age receive a benefit increase for each month they delay claiming retirement benefits, up to age 70. A worker may also choose to work and receive Social Security benefits. However, depending on his or her earnings, those benefits may be reduced until full retirement age, although any earnings in and after the month a worker reaches full retirement age will not reduce retirement benefits. Additionally, for workers who have income above a certain threshold, their Social Security benefits may be taxed. Social Security faces significant financial challenges, as we have previously reported. According to the 2016 report from the Social Security Board of Trustees, the Old-Age and Survivors Insurance trust fund (from which Social Security retirement and survivors’ benefits are paid) is projected to be able to pay full benefits until 2035. The report warns that unless action is taken to avert depletion of the trust fund, continuing revenue is projected to be sufficient to cover about 75 percent of scheduled benefits at that time. This projection raises the possibility of changes to Social Security benefits, taxation, or both before 2035. Defined Benefit Plans: DB plans offer pension benefits in the form of an annuity that provides a periodic payment for life, typically on a monthly basis, and may offer a lump-sum distribution option. They are employment-based and offer benefits determined by a formula that includes factors specified by the plan, such as salary and years of service. Specifics on how the calculation takes those factors into account can affect the final benefit amount. For example, this amount may be determined by the average of the worker’s last 5 years of wages, or the average of the worker’s highest 5 years of wages. Workers may be able to receive in-service distributions from their DB plan (i.e., draw a pension benefit while they are still working), generally no earlier than age 62. Over the past several decades, private sector employers have shifted from providing a large share of retirement benefits through DB plans to relying much more heavily on DC plans, according to Department of Labor data. In 1975, there were about 103,346 DB plans and 207,748 DC plans. By 2014, the number of DB plans had shrunk by more than half (to 44,869) while the number of DC plans had more than tripled (to 640,334). Retirement Savings: Two primary types of retirement savings vehicles are IRAs and employer-sponsored DC plans (such as 401(k) and 403(b) plans). For both DC plans and IRAs, benefits accrue in the form of account balances, which grow from contributions made by workers (and sometimes by their employers) and investment returns. DC plans and IRAs often place the primary responsibility on individuals to participate in, contribute to, and manage their accounts throughout their working careers and to manage their savings throughout retirement. Workers and employers who contribute to retirement savings accounts generally receive favorable federal tax treatment, such as tax deductions or exclusions for contributions and tax-deferred or tax-free returns on investment. A worker may start to withdraw, without a penalty, from these types of retirement savings vehicles as early as age 59 ½, if the DC plan or IRA allows it. In prior work, we analyzed data from the 2013 Survey of Consumer Finances and found that about half of households age 55 and older had no retirement savings, such as in a 401(k) or an IRA. Moreover, we also found that many older households without retirement savings had few other resources, such as a DB plan or nonretirement savings, to draw on in retirement. Social Security remains the largest component of household income in retirement, making up an average of 52 percent of household income for those ages 65 and older. The Internal Revenue Service (IRS) within the Department of the Treasury (Treasury), the Department of Labor (DOL), and the Equal Employment Opportunity Commission (EEOC), as part of their work, have the primary responsibility for administering the laws and regulations that affect employment programs for older workers such as phased retirement. The Employee Retirement Income Security Act of 1974 (ERISA) is the primary federal law governing the sponsoring of pension plans in the private sector. Under ERISA, both IRS and DOL have important authorities and responsibilities. IRS: IRS determines whether private sector pension plans qualify for preferential tax treatment under the Internal Revenue Code. In determining the qualification of a plan, IRS enforces Internal Revenue Code nondiscrimination requirements, which prohibit a qualified pension plan from discriminating in favor of highly compensated employees (in comparison to lower paid, rank and file employees). These nondiscrimination requirements would apply to qualified plans, including those maintained by employers that offer phased retirement. Specifically, qualified plans must show that they do not discriminate in two ways: 1) by demonstrating they do not favor highly compensated employees in terms of plan coverage, and 2) they are not providing disproportionate contributions or benefits to those highly compensated employees. DOL: Under ERISA, DOL is responsible for protecting the interests of plan participants. DOL’s Employee Benefits Security Administration takes primary responsibility for enforcing ERISA reporting and disclosure requirements, such as informing participants and sponsors of their rights and obligations under the plan. The Employee Benefits Security Administration also enforces ERISA’s fiduciary requirements, i.e., the standards of conduct for those who exercise discretionary authority or manage a plan or have authority to dispose of its assets. Under ERISA, the ERISA Advisory Council was established to advise the Secretary of Labor with respect to carrying out his/her duties under the act. The Council established a Working Group on Phased Retirement to, among other things, examine issues facing employers who wish to create phased retirement programs and the various legal and regulatory obstacles to implementing phased retirement. EEOC: As part of its responsibility, the EEOC enforces the Age Discrimination in Employment Act of 1967 (ADEA) and Titles I and V of the Americans with Disabilities Act of 1990 (ADA). The ADEA provides protection for workers ages 40 and older from employment discrimination because of age. The ADEA applies to all the terms, conditions, or privileges of employment, including hiring, firing, promotion, lay-off, compensation, benefits, job assignments, and training. The ADA provides, among other things, for protections from employment discrimination due to disability and reasonable accommodation for qualified workers. While not all researchers agree, it has been suggested by some that as the population ages and the number of baby boomers leaving the labor force increases, there could be a loss of economic productivity. This potentially has important implications for future economic growth. In a 2016 study, researchers found that a 10 percent increase in the percentage of the population age 60 and older decreases the growth rate of gross domestic product (GDP) per capita by 5.5 percent. According to this study, two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. The researchers say their results imply that annual GDP growth will slow by 1.2 percentage points this decade. The availability of phased retirement, by extending labor force participation, has the potential to provide options that would be beneficial both to the older workers and the overall economy. In 2005, GAO reported that labor force participation rates of older workers were projected to rise between 2005 and 2015 and this has indeed been the case. This increase in labor force participation among older workers occurred at the same time that the workforce participation of the U.S. population overall declined by approximately 3 percentage points (see fig. 1). The Bureau of Labor Statistics (BLS) and GAO reports anticipated this trend among older workers prior to the recession of 2007-2009, and the negative effect of the recession on the income security of older workers may have added an incentive for older workers to keep working. Increases in labor force participation by women ages 55 to 64 and by women and men age 65 and older were the primary contributors to the overall increased labor force participation among older workers. Men ages 55 to 64 kept their labor force participation relatively stable from 2005 to 2016.