Gabriel, Roder, Smith & Company has a very good article on the issues facing phased retirement and DROP arrangements for private sector employers: “Phased Retirement Arrangements and Deferred Retirement Option Plans.” You can also access the American Academy of Actuaries December 30, 2002 letter to the IRS encouraging the IRS to adopt rules facilitating phased retirement.
More on DROP Plans:
From Carol V. Calhoun: “Deferred Retirement Option Plans (“DROP Plans”)
From the Society of Actuaries: “Design and Actuarial Aspects of Deferred Retirement Option Programs” (article continued here)