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If you had the opportunity to ease into retirement by working part time while drawing part of your pension, would you do it? Current federal rules say workers who are covered by traditional pensions, or defined benefit plans, must retire completely from that company to collect benefits. But that may soon change. The Internal Revenue Service is proposing to allow phased retirement, a change that could ease the transition from employee to retiree for millions of workers and help alleviate the upcoming worker shortage.

The Social Security problem that's been front page news for quite some time centers on a future imbalance that has too many retirees siphoning money from a pot that will have too few workers plunking money into it. That same inverted-pyramid scenario may portend too few employees to fill all the jobs needed to keep the American economy rumbling along.

"Our research suggests that if we expect to continue experiencing the domestic product growth that we've seen historically, we don't have the workforce to sustain that growth," says Valerie Paganelli, senior retirement consultant at Watson Wyatt, a Washington, D.C., consulting firm. "Even with immigration, more women in the workforce, off-shoring, the impact of technology, and extending the working lifetime all layered together, there still may not be enough people to get us there."

Some of the key aspects in the IRS-proposed phased-retirement program are that participation by employees is voluntary, employees must reach age 59 1/2 to participate and employees must reduce their work hours by 20 percent or more. In addition, employees would still be entitled to the same benefits upon full retirement as an employee who doesn't opt for phased retirement.

"If they lose those protections it would be like, why bother," says AARP senior attorney Mary Ellen Signorille. "But no matter what the situation, people need to sit down with paper and pencil and figure out the numbers."

The government has long allowed employees who are covered by a 401(k), or defined contribution plan, to draw benefits after age 59 1/2 while working. When Doreen Bellino, benefits supervisor at Mitre Corporation in Bedford, Mass., went on phased retirement, it let her see whether it suited her, and it allowed Mitre to hold on to a key employee.

"Being in the benefits office for 20 years I was familiar with all the plans and could answer all the questions regarding medical plans, dental, life insurance and the like," says Bellino, who is now fully retired. "I was in phased retirement for eight months because I wanted to see how it would work being home an extra day. I worked four days a week, 32 hours. It allowed me to keep medical and dental at the regular employee rate." Mitre officials estimate that only six to 12 employees take advantage of the phased retirement program each year. The company employees 5,700 scientists and support personnel, says Bill Albright, director of quality work life and benefits, who expects the program to become much more popular as the bulging baby boomer generation marches toward retirement.

"Last year we ran some pre-retirement workshops and we started talking much more about phased retirement. We're finding it puts us ahead of the curve. It adds a flexible work option and a mechanism for holding on to intellectual capital, which is all we have. We don't manufacture anything."

Watson Wyatt surveyed 1,000 employees and found that one out of three would continue working longer than otherwise planned if phased retirement was an option. But some employers aren't quite as enthusiastic about all of the proposed elements, says Paganelli. "It's really been targeted for certain groups--people with critical skills. It's not necessarily for the broad population. IRS rules require nondiscriminatory standards, but phased retirement demands a level of flexibility as to who might be deemed eligible.

"Also, the IRS proposal sets 59 1/2 as the age for phased retirement. It ties in with [the 401(k)] so it's a legitimate age from the IRS standpoint, but many employers find it restrictive. They're losing key employees who are retiring at 55, so the regulation won't help as much as it could."

On the other end of the spectrum, AARP, the advocacy group for people 50 and over, wants to see phased retirement kick in at age 62. "If you make it too young, some will leave the workforce at an earlier age," says AARP attorney Signorille. "The benefit of it is keeping people engaged in the workforce. People live longer. Staying employed is positive. They contribute to Social Security and to Medicare. Some say 62 is not young enough. We don't know, no one knows. IRS can scale back at a later time. If they use 59 1/2 and there's too much uptake, they can't put the horse back in the barn."

As Signorille mentioned, everyone considering phased retirement needs to crunch the numbers and make sure their financial needs will be met. The IRS points out that while phased retirement can give employees additional time to save for retirement, it can also reduce retirement payments because the employee is receiving money before normal retirement age.

Phased retirement for defined benefit plans won't take place until final rules are published.

There's no word yet as to when that might happen.