Another possibility for Tom being "out" is that, in order to go legit, Michael needed someone "clean" to represent him with the various licensing boards and politicos in Nevada. The Don retired to facilitate Michael's takeover and the "legitimization" of the family. By officially announcing that Hagen was no longer consigliere, just a lawyer, and keeping Hagen out of the planning for the big massacre, Michael may have been distancing Hagen from the last vestiges of the "olive oil business." That way, if any of the Nevada entities grilled him on past nefarious activities, Hagen wouldn't perjure himself by denying involvement.