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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education 6 Conclusions and Recommendations Congress asked the committee "to analyze the potential consequences of the elimination of mandatory retirement in institutions of higher education" (Age Discrimination Employment Act [ADEA], 1986, Section 12(c)). In this chapter we present the conclusions and recommendations we have reached on the basis of our research (discussed in preceding chapters) and the committee members' extensive experience as faculty, administrators, and trustees at a range of colleges and universities. EFFECTS OF ELIMINATING MANDATORY RETIREMENT Two Key Conclusions At most colleges and universities few tenured faculty would continue working past age 70 if mandatory retirement is eliminated. Most faculty retire before age 70. At many colleges and universities the average faculty retirement age is below 65. Furthermore, patterns of faculty retirement have remained stable over time, even though the mandatory retirement age has been raised from 65 to 70 and, at some institutions, has been eliminated. The proportion of faculty over age 65 is now low, and it has been low over the past decade. All of the uncapped colleges and universities with data report that the proportion of faculty over age 70 is less than 1.6 percent. At some research universities a high proportion of faculty would choose to work past age 70 if mandatory retirement is eliminated. Faculty at research universities retire later on average than faculty at other institutions. At a small number of research universities, more than 40
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education percent of the faculty who retire each year have done so at the current mandatory retirement age of 70. (At most other institutions few or no faculty members work until age 70.) Evidence suggests that faculty members who are actively engaged in research are more likely than others to work past age 65. More generally, faculty who are research oriented, enjoy inspiring students, have light teaching loads, and are covered by pension plans that reward later retirement are more likely to work past age 70. These factors are not unique to research universities, but they are present to a greater degree at some of those institutions than at other types of colleges and universities. Consequences for Institutions and Faculty If mandatory retirement is eliminated, some research universities are likely to suffer adverse effects from low faculty turnover: increased costs and limited flexibility to respond to changing needs and to support new fields by hiring new faculty. The committee notes that new fields of scholarship are a source of vitality for research and teaching and that colleges and universities enter new fields and expand their coverage of fields by hiring new faculty. Research universities at which a significant number of faculty work past age 70 would have fewer available positions and thus would be less able to hire either prospective junior faculty or more senior faculty from other institutions, which would limit their ability to enter new fields. This loss of flexibility would also limit opportunities for some prospective faculty who would otherwise have been offered positions at those research universities. However, faculty qualified for positions at adversely affected research universities are likely to attract offers from other research universities. Postponed retirements will increase costs at those research universities—and any other colleges and universities—at which a significant number of faculty work past age 70. If an institution expands its faculty as a way of supporting new fields, costs will increase. Our modeling exercise (see Chapter 2) suggests that faculty salary budgets could increase by 1–2 percent over the first 5 years and another 1–2 percent over the following 10 years. Costs would rise even without additional hiring as the average age of faculty members rises, because, on average, salaries and benefits increase with age. Administrators and faculty can best assess the potential impact of uncapping at their own colleges and universities by studying their faculty age distributions, retirement patterns, and hiring needs. The effects of uncapping on any college or university depend on its proportion of older faculty, on whether the faculty choose to work past age
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education 70, and on whether the institution plans to expand or reduce its faculty size. The committee believes the impact will be small at most colleges and universities. In sum, the elimination of mandatory retirement could limit hiring flexibility and adversely affect some institutions, particularly some research universities. The committee believes that Congress and institutions of higher education need to seek nondiscriminatory ways to avoid those adverse effects. A faculty member's retirement decision is a complex one that depends on individual factors—such as continuing career interests, health, and personal finances—as well as on incentives, intentional and unintentional, in an institution's retirement policies. No one policy lever can create faculty turnover or reduce costs at all institutions or under all circumstances. Therefore, we have considered a number of options that colleges and universities could use to increase their ability to hire and to maintain their quality (Chapters 3, 4, and 5). Since individual retirement decisions can involve a number of factors, we have also considered ways that Congress, regulatory agencies, and state legislatures and agencies could help colleges and universities avoid the adverse effects of eliminating mandatory retirement (Chapters 4 and 5). An increase in the number of faculty over age 70 or, more generally, an increase in the average age of faculty does not necessarily affect institutional quality. Although there is little evidence on age and research quality, the evidence on age and cognitive abilities, age and teaching, and age and rates of publication suggests that faculty in their 70s can continue to perform well and that there are variations in performance among faculty of any age. However, in some cases a faculty member may fall into patterns of poor teaching and uninspired research. The committee believes many of these cases have been mistakenly attributed to inevitable age-related declines. Available evidence does not show significant declines caused by age. Eliminating mandatory retirement would not pose a threat to tenure. Tenure is intended to protect academic freedom, not to protect faculty against dismissal for inadequate performance. Tenure affords a guarantee of due process. Colleges and universities can dismiss tenured faculty provided they afford due process in a clearly defined and understood dismissal procedure in which the institution bears the burden of proof, although dismissal of faculty members for poor performance is rare now and likely to remain rare. There is no evidence that the number of inadequate faculty would increase if faculty were allowed to work past age 70; some evidence suggests that poor performers may be less likely to keep working past age 65. Faculty performance evaluation can be a useful tool for maintaining
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education and improving faculty quality, particularly when administrators and faculty use it to provide faculty with feedback on the quality of their work and on how their activities fit disciplinary and institutional directions. Most colleges and universities already use reviews by colleagues and administrators to assess faculty performance, usually as part of such actions as promotions and sometimes as part of allocating resources such as salary increases, internal grant funds, and sabbaticals. The committee recommends that faculty and administrators work to develop ways to provide faculty with feedback on their performance. The committee believes faculty and administrators can find collegial, informal, and positive ways to assist some faculty who get stuck in unproductive scholarship or teaching. However, there is evidence that elaborate systems for review may not be worth the additional effort and cost. Colleges and universities hoping to hire scholars in new fields or to change the balance of faculty research and teaching interests will need to encourage turnover using mechanisms other than performance evaluation and dismissal. RETIREMENT POLICIES Retirement Incentive Programs Retirement incentive programs are clearly an important tool for increasing turnover; they should be considered by any college or university concerned about the effects of faculty working past age 70, including reduced faculty turnover and increased costs. Retirement incentive programs are specifically designed to encourage faculty turnover. They have been widely used in higher education and can significantly affect faculty retirement behavior. Colleges and universities can target such programs to fields or disciplines in which turnover is most needed, and they can limit participation to control both turnover and costs. Accepting a retirement incentive must be voluntary, so such incentive programs and individual buyouts create additional retirement options for faculty, not forced retirements. They can offer faculty additional financial benefits and the opportunity to make a gradual transition to retirement. Whether these plans are money savers for the institution or are a way of exchanging a retirement problem for a financial one will depend on the institution's circumstances and actions. (In Chapter 5 we describe ways in which some institutions have taken costs into account when offering these programs.) The committee emphasizes that retirement incentive programs and individual retirement incentive contracts must be entered into freely and without coercion, when seen by both the institution and the individual as benefi-
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education cial. Although it is unlikely that a college or university would tie a retirement agreement to the granting of tenure, in order to avoid the possibility of coercion, colleges and universities should limit offers of retirement incentive programs or individualized retirement incentives to tenured faculty. It is also inappropriate to ask a faculty member to decide whether a retirement incentive offer would be beneficial when retirement is only a remote prospect. Therefore, colleges and universities should offer retirement incentive programs and individual buyouts only to faculty ready to consider seriously when to retire. We believe 50 is an appropriate minimum age. Moreover, since these programs and buyouts are commonly designed for faculty in their 60s, by extending the opportunity to participate in retirement incentive programs to tenured faculty aged 50 and over, colleges and universities could benefit by increasing turnover and in planning for faculty retirements. The committee recommends that colleges and universities offer retirement incentive programs and individual retirement incentive contracts only to tenured faculty aged 50 and over. Congress has clearly authorized retirement incentive programs that include a minimum age for participation, that are offered for a window of time, and that provide bridge payments until retirees are eligible for Social Security. However, the legal status of some features of retirement incentive programs may still need clarification; Congress and the responsible federal agencies could assist colleges and universities by clearly preserving several options. The committee recommends that Congress, the Internal Revenue Service, and the Equal Employment Opportunity Commission permit colleges and universities to offer faculty voluntary retirement incentive programs that: are not classified as an employee benefit, include an upper age limit for participants, and limit participation on the basis of institutional needs. Pensions We believe that financial concerns should not be pivotal in faculty retirement decisions. Faculty pension, health insurance, and other retirement policies should create neither disincentives to retirement nor inadvertent incentives to postpone retirement. We recommend that colleges and universities offer pension plans designed to provide retired faculty with a continuing retirement income from all sources equal to between 67 and 100 percent of their preretirement income.
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education Actual pension incomes vary depending on institutional policies and market performance. Furthermore, individual pensions may be based on service at more than one institution or outside academia. In some cases faculty can choose how to invest their retirement contributions, so an individual faculty member's pension will depend on the rates of return of his or her investment choices. Thus, our recommendation is for upper and lower bounds to guide pension contribution policies, rather than a single target percentage of preretirement income. The committee recommends that TIAA-CREF, other private pension plan providers, and state retirement systems work with institutions of higher education to develop pension plans that provide continuing retirement incomes within the committee's suggested range. We suggest a maximum as well as a minimum goal for inflation-protected pension income in the interest of best allocating scarce resources and limiting inadvertent incentives to postpone retirement. We found that faculty at some universities with generous pension plans, usually of the defined contribution type, could increase their pension income by 10–14 percent, or several thousand dollars, by postponing retirement for 1 year. If colleges and universities save any funds by limiting institutional pension contributions, they can redirect them to other benefits for retired faculty, such as health benefits and programs for retirees. Colleges and universities could limit their contributions to a pension plan in several ways not requiring congressional or regulatory action. Colleges and universities with defined contribution plans are less able to limit the cost of their pension programs. Institutions that offer defined benefit plans can limit their contributions on the basis of years of service or a maximum percentage of preretirement salary. Institutions that offer hybrid plans—that is, plans with both defined contribution and defined benefit components—can limit their contributions to the defined benefit component. Colleges and universities with defined contributions plans are less able to limit the cost of their pension programs. Institutions that offer defined contribution plans can convert their plans to defined benefit plans or hybrid plans, although the administrative difficulties of conversion and the disadvantages of defined benefit plans may outweigh the benefits (see Chapter 4). Although legal violations are, of course, determined by the courts, Congress and the agencies responsible for interpreting pension regulations could assist colleges and universities by clarifying the laws and regulations governing limits to contributions in defined contribution plans. The committee recommends that Congress, the Internal Revenue Service, and the Equal Employment Opportunity Commission adopt poli-
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education cies allowing employers to limit contributions to defined contribution plans on the basis of estimated level of pension income. Our recommendation is for a continuing level of income. A pension income will continue to be adequate over the course of a retirement only when protected against inflation. The committee believes that further study of indexed investments is needed, and it urges the IRS to examine the costs and benefits of regulations that would make indexed investments available. We also encourage pension plan providers to consider them as a means of protecting pension incomes from inflation. Because this option is not now available, we urge states and colleges and universities to offer defined benefit plans that provide retirees with cost-of-living adjustments that reflect the inflation rate. We encourage faculty covered by defined contribution plans to take advantage of annuity payment options designed to adjust for inflation. Lastly, we encourage the organizations that administer defined contribution plans to seek better ways to protect pension incomes from inflation. Health Benefits Inadequate or expensive retirement health coverage creates a disincentive to retirement. Institutions can give retirees additional financial security by providing retirement health care coverage. Institutions can share the cost of retirement health care with retirees by allowing them to remain in college or university group insurance plans at their own expense. The committee recommends that administrators and faculty seek affordable ways to improve retirees' medical coverage, such as redirecting funds from other retirement benefit programs or establishing tax-sheltered health savings plans for faculty to save for their own retirement health costs. We note, however, that the national health care cost crisis cannot be resolved entirely within the framework of higher education. The rising cost of medical care creates financial concerns not only for faculty, retired faculty, and institutions of higher education but for people and institutions in all sectors of the economy. Faculty Perquisites for Retirees and Retirement Planning Assistance Faculty members who are considering retirement may be reluctant to give up regular contact with students and colleagues or such faculty privileges as access to a laboratory or library. Colleges and universities can
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education offer some continued faculty perquisites as a way to make retirement more attractive. At the same time, retired faculty can continue to contribute to the life of their college or university. Many perquisites, such as office space, entail significant costs to colleges and universities, but others, such as invitations to events, involve little or no marginal cost. The committee recommends that colleges and universities seek opportunities for retired faculty to maintain their contacts with colleagues, students, the institution, and their field of scholarship. Retirement planning assistance can ease the transition to retirement and make retirement a more attractive option. Ideally, faculty members should know about retirement options throughout their careers, consider retirement options in the context of their individual needs, and be able to learn from others' experiences with retirement. In addition to the services offered by pension plan providers, ways to do this include assigning an individual or office to coordinate retirement planning and reimbursing faculty for the services of outside retirement planners. The committee recommends that all colleges and universities assist their faculty in planning for retirement. THE ADEA EXEMPTION In creating a series of exemptions for higher education in age discrimination legislation, Congress recognized the special nature of higher education. Congress responded to concerns that, without mandatory retirement, tenure and low turnover could make it difficult for colleges and universities to hire new faculty as a source of new ideas and new research fields. The committee believes that if colleges and universities—with assistance from Congress and regulatory agencies, states, and pension plan providers—vigorously pursue the recommendations in this report, all but a few institutions of higher education will adjust to the elimination of mandatory retirement without significant effects. For those few universities at which a high proportion of faculty members are most likely to work past age 70, the greatest adverse effects will occur during an initial adjustment period when turnover will be most reduced. These universities in particular will need the congressional and regulatory actions we recommend: clarifying retirement incentive options and revising pension policies. The committee also believes that some aspects of eliminating mandatory retirement are clearly beneficial. Most obviously, faculty gain freedom in deciding when to retire. Eliminating mandatory retirement would also be in keeping with the general intent of the Age Discrimination in Employment Act to extend protection against age discrimination. In this report the committee has examined a number of practical steps
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Ending Mandatory Retirement for Tenured Faculty: The Consequences for Higher Education that are available or could be made available to address the problems raised by the elimination of mandatory retirement. The committee recommends that Congress and regulatory agencies, states and pension plan providers, and colleges and universities take these practical steps. Given that these steps can be taken, there is no strong basis for continuing the exemption for tenured faculty. The committee recommends that the ADEA exemption permitting the mandatory retirement of tenured faculty be allowed to expire at the end of 1993.
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