Ending Mandatory Retirement for Tenured Faculty The Consequences for Higher Education (1991) / Chapter Skim
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5 RETIREMENT INCENTIVE PROGRAMS
5 RETIREMENT INCENTIVE PROGRAMS
Pages 91-102
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From page 91... ...
Faculty members can accept retirement incentive programs as a means of making up for fewer years of accumulating pension benefits and of making a gradual transition to retirement. Colleges and universities that consider offering retirement incentives face several issues: which type of program will be attractive to faculty not otherwise planning to retire, what will be the cost of offering a program, what will be the legality of different program designs, and whether to restrict incentives to particular individuals or groups of faculty.
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From page 92... ...
. · Common additional benefits offered include disability benefits, medical plan membership, tuition benefits for the retiree and his or her dependents, free admission to campus activities, a one-time lump sum payment in addition to severance pay, and preretirement planning assistance.
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From page 93... ...
Full retirement incentive programs offer a range of benefits in exchange for an agreement to retire. Most programs include financial benefits, such as · lump-sum severance payments or additional credit in a defined benefit pension plan, offered at a flat rate or on the basis of age, salary, length of service, or some combination of these; · annual payments from the institutional budget equal to full preretirement salary or a percentage of it, which can be based on age, salary, or service; and · institutional purchases of supplemental annuities.
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From page 94... ...
However, other colleges and universities have found budgetneutral ways to offer retirement incentive programs for example, by spending funds from an overfunded defined benefit pension plan on financial inceniives to retirement. The Consortium on Financing Higher Education found, in a 1987 survey of its member colleges and universities and a set of public universities, that the reported savings or costs of retirement incentive programs ranged from $2 million saved from eight retirements to programs designed to break even and to estimated costs of $60,000-$500,000 per year.
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From page 95... ...
For example, a faculty member agreeing to retire in 5 years could receive a bonus payment or 5 years of additional service credit in a defined benefit pension plan. Poorly constructed programs, however, can result in costly and inefficient strategies, such as paying 2 years' worth of salary as a retirement incentive to faculty members who had already intended to retire in 2 years or less or encouraging more faculty members to retire than the institution is able to replace.
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From page 96... ...
, and an additional optional factor to account for "management needs." Fourth, institutions limit participation based on age. The 1990 Older Workers Benefit Protection Act made it clearly legal to set a minimum age for participation in retirement incentive programs.
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From page 97... ...
Colleges and universities have offered retirement incentive programs limited to periods ranging from 1 month to 1 year. For example, one college "established a five month window during which faculty could contract for an immediate or deferred early retirement" in exchange for severance payments based on age at retirement (Chronister and Clevenger 1986b:8~.
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From page 98... ...
The university then had to scramble to adjust course offerings and faculty assignments. The committee recommends that states offering retirement incentive programs to all state employees consider the impact of the program on state institutions of higher education and consider program designs or exceptions in program rules to avoid disrupting state colleges and universities.
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From page 99... ...
CONCLUSIONS AND RECOMMENDATIONS Retirement incentive programs, which have been widely used in higher education, can significantly affect faculty retirement behavior. Colleges and universities can offer retirement incentive programs for fields or department in which turnover is most needed and can limit participation to control both turnover and costs.
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From page 100... ...
The committee recommends that colleges and universities offer retirement incentive programs and individual retirement incentive contracts only to tenured faculty age 50 and over. In the 1990 Older Workers Benefit Protection Act, which extended employee protection against age discrimination, Congress clearly permitted retirement incentive programs that include a minimum age for participation, are offered for a window of time, and provide bridge payments made until retirees are eligible for Social Security.
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From page 101... ...
However, colleges and universities that are considering retirement incentive programs need to plan carefully to design a program that is appropriate to faculty and institutional needs, including the needs to support new fields, allocate resources wisely, and respond to faculty concerns about retirement. Congress could assist colleges and universities in this effort by ensuring that a wide range of options is available.
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