Anthony P. DaSilva, Jr. quoted in "Considering a Voluntary Retirement Program to Cut Costs? Read This First"02/16/2023
While a voluntary retirement offer is considered more employee-friendly than outright cuts, it’s a balancing act. For instance, it takes time to implement a voluntary plan — more so than a basic reduction in force, said Anthony P. DaSilva Jr., a partner with the Massachusetts-based firm Mirick O’Connell, who has advised insurers on these issues.
For insurance companies with overfunded pension plans, this can be a compelling option, DaSilva said. He offers the hypothetical example of an insurer whose plan obligation is $1 billion. If there’s $1.2 billion in the plan, the overage can fund the early retirement benefits at nominal extra cost to the employer, he said. Even if the plan is adequately funded, it can still be an effective way to fund a voluntary retirement plan, he added. Assume it costs $200 million to fund the program. While the insurer eventually has to fund the plan to make up for it, that can be done gradually. “In that kind of program, it could be very tempting,” DaSilva said.
There’s always a chance that the offer will be oversubscribed, meaning the company
will lose good resources and cause itself operational challenges, DaSilva said. Or it
could be undersubscribed and the company will still need to determine next steps,
which might include a second, more generous offer. That, too, can have issues,
though, if people decide to hold off in anticipation of a third, even better, offer, he