Baby Boomers' exit calls for plan changes.

It isn't happening tomorrow, but the looming brain drain associated with retiring Baby Boomers will be a tremendous challenge in a few years. That's particularly true for large organizations, where the cumulative effect of these retirements could be enormous.

Companies determined to retain segments of their older employees need to focus on compensation and benefits plans, says Matt Sicking, executive director of Ernst & Young's Human Capital Practice. Most plans were designed to encourage specific behavior--including retirement at or around 65--and companies seeking to extend workers' careers need to selectively modify their strategies, he says.

Sicking contends that companies should look at restructuring their plans with specific programs aimed at retaining the institutional knowledge of workers who might otherwise choose to retire. Specifically, these strategies could include:

* Phased-in retirement. Sicking says companies should look at ways to slow the retirement process and allow for a longer period of time for potential retirees to mentor and train their successors. "A lot of Baby Boomers don't have the wherewithal to retire full-time; it may simply be a matter of creating a program and they will come," he says. "In other cases, those strategic employees may have to be incented" to stay.

* Creating flexible or special benefits. One possibility here involves different types of post-retirement medical benefits, which could be subsidized, Sicking says. Or pension benefits could be enhanced if the person agreed to stay on for a certain number of years. Medical benefits will be an increasingly important issue--especially for those too young to qualify for Medicare.

* Delayed retirement enhancements to pension plans. One example could be a partial retirement payout while the employee is drawing a part-time salary. But Sicking warns that "the regulatory environment is not accommodating to creativity." Changes here might mean different phased-in benefits from government, as well as amending the Employee Retirement Income and Security Act (ERISA) of 1974 and the taxation of benefits, he notes.

* Retention bonuses. Bonuses could be paid upfront or after certain time periods, and aimed at specific types of workers, Sicking says. "Employers need to take surgical approach" to such programs, rather than offer them broadly, he adds.

* Modifications to early retirement subsidies. Lots of companies with rich pension plans have targeted headcount reduction by offering incentives for employees to leave, by giving them bigger payouts than they would otherwise have qualified for. Those companies need to rethink those payouts in order to keep critical people--and to prevent them from simply taking a payout and start working for a competitor.

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While these issues may not yet be imminent, Sicking says, "companies need to look not at what everyone else is doing, but where their strategic value is being directed, as well as age distribution, over the next five to 10 years."