Legislation was introduced in the U.S. Senate last week aimed at making it easier for older Americans to stay in the workforce longer and encourage employers to recruit and retain older workers. The bill has bi-partisan sponsorship of Senators Gordon H. Smith (R-OR), Herb Kohl (D-WI), and Kent Conrad (D-ND).

I’ll have more on this in a future column over at RetirementRevised, but here are key provisions, according to a press release from the sponsors:

- Removing penalties in certain pension plans for workers who phase into retirement by receiving a lower salary while working reduced hours;

- Allowing seniors to earn delayed retirement credits for Social Security purposes for an additional two years until age 72, instead of age 70;

- Reducing the amount of Social Security benefits lost to seniors who claim benefits before reaching normal retirement age and while they continue working;

-Forming a National Resource Center on Aging and the Workforce within the Department of Labor to collect, organize and disseminate older worker information;

- Changing how Civil Service Retirement System (CSRS) annuities are calculated by correcting a glitch that results in a disproportionate reduction in benefits for certain employees who phase into retirement by working part-time;

- Requiring states to include older worker representatives on the state and local workforce investment boards and set aside five percent of the Workforce Investment Act (WIA) funds to assist older individuals;

- Expanding eligibility of the Work Opportunity Tax Credit (WOTC) to include older workers; and

- Clarifying that certain defined benefit pension plans can define normal retirement age under their plans as the earlier of (1) the attainment of a specified age or (2) attainment of 30 or more years of service.

Kohl chairs the U.S. Senate Special Committee on Aging; Smith is its ranking member. A recent committee hearing on the bill is available as a webcast [requires Real Player].

Predictions that Social Security will melt down as the Boomer generation retires don’t take into account the likelihood that most will keep working for a living. That’s the conclusion drawn by J. Walker Smith, president of Yankelovich Inc. and co-author of Generation Ageless, a new book on the Boomer future. Smith was interviewed this morning on National Public Radio, and explained that Boomers will be working well past the traditional retirement age of 65, are better off financially than their parents were, and less likely to draw Social Security benefits at younger ages. “It’s going to be a longer middle age, instead of a longer old age,” he said. Economic modeling of Boomers’ impact on Social Security don’t take that into account, he argues.

Former Fed Chairman Alan Greenspan urged Boomers to take more responsibility in planning for retirement, noting “we’ve never had such a huge group of individuals going into the [retirement] system at once and then living so long in their retirement years.” Speaking at a conference for financial planners, Greenspan said government would have increasing difficulty meeting its obligations in programs like Social Security and Medicare as the Boomer age wave hits. But he also predicted Boomers will get creative in planning for the years ahead, “determining the resources at their disposal, and ultimately making decisions to best prepare for their future.”

It’s not the first time Greenspan has worried out loud about the looming economic impact of aging. In a March speech to the Futures Industry Association, he described the retirement of the Boomer generation as a “seminal event” of the 21st Century.

Earlier discussion of the economics of aging is here.

The impact of an aging global population is well documented. The culprits fingered by forecasters usually include rising healthcare cost and shrinking labor pools. The McKinsey Global Institute (MGI) worries about another issue: shrinking savings rates. A McKinsey study of Germany, Italy, Japan, the United Kingdom, and the United States shows accelerating retirements will reduce savings rates, with a resulting enormous impact on household wealth. Solutions, McKinsey argues, are hard to come by: “MGI argues that the policy changes fashionable today—promoting immigration, raising the retirement age, and encouraging households to have more children—won’t mitigate the crisis. Yet a sustained effort to allocate capital more efficiently, boost savings rates, and close government deficits could.”

The Federal Reserve and others have pointed often to federal budget deficits and low household savings rate as a looming U.S. economic issue. In a speech last Fall, Fed Chairman Ben S. Bernanke stressed the need to boost savings rates in the face of an aging population and rising entitlement costs:

Although some adverse effect of population aging on future per capita output and consumption is probably inevitable, actions that we take today, in both the public and the private spheres, have the potential to mitigate those effects. One such action would be to find ways to increase our national saving rate. If the extra savings were used to increase the nation’s capital stock–the quantity of plant and equipment available for use by workers–then future workers would be more productive, ameliorating the anticipated effects on per capita output and consumption.

Some legislators, by the way, don’t agree with McKinsey’s conclusion that delayed retirement won’t help mitigate the problem. A bill kicking around the U.S. Senate would reward employers who establish flexible work schedules for older employees with tax credits.

Earlier McKinsey work on this issue can be found in The McKinsey Quarterly.

More evidence of short-sighted corporate employment policies: the Federal Reserve predicts that the looming exodus of 50+ employees from the workforce will start putting the brakes on U.S. economic growth after 2010. Yet employers are doing little or nothing to retain older employers with more flexible work arrangements–and many continue to actively push out older workers due to their higher salary and benefit expense.

A Fed staff study projects economic growth after 2010 will be reduced by about one percentage point due to a labor force shortage associated with Boomer retirements. And that’s to say nothing about the harder-to-quantify brain drain some employers are worried about. And, of course, the worries about Boomer retirement costs sinking the Social Security system. What a disconnect. Boomers say they want to keep working past traditional retirement age, and U.S. economic health depends on it. When will employers wake up and start implementing policies aimed at keeping older workers on the job?

Sen. Herb Kohl (D-Wis.), who chairs the Senate’s special committee on aging, is pushing legislation that would reward employers who establish flexible work schedules for older employees with tax credits. Other provisions of the bill include job training and a national clearinghouse for employers on hiring and retaining older workers. Kohl tells the Los Angeles Times: “We need to begin a national discussion to change the way we think about retirement. . “