AAUP Proposal for a Faculty

 

Retirement Transition and Renewal Program

 

December 15, 2004

 

This document was prepared by an ad hoc committee comprised of James W. Reed, Chair; Rudolph M. Bell, ex officio; Ken Carlson; P. Dennis Cate; Janet Golden; Briavel Holcomb; Ted Kruse; Steven Lawson, and Peter Simmons. Galina Moser and Patrick Nowlan served as staff support. Margaret McMahon of McMahon Consulting LLC provided external expertise on matters related to New Jersey state provisions for benefits and pensions.

 

Age-based mandatory retirement was abolished a decade ago. Since then, an effective means for universities to achieve the dual goals of bringing new scholars to the community while maintaining a core of experienced faculty has been transitional, or phased, retirement. The very existence of a well-articulated transitional program is a significant factor in attracting and retaining distinguished scholars. Phased retirement allows faculty members to continue their contributions to teaching, research, and service, while providing resources for the recruitment of new academics to the university. Specific advantages to Rutgers University in adopting the program we propose include:

 

·        Providing substantial new resources for hiring tenure-track faculty, including salary dollars, benefit-bearing lines, and savings from reduced pension pay-ins at minimal cost to the state and the university.

·        Retaining the talents of established faculty on a part-time basis at a fair salary.

·        Encouraging mid-career faculty to remain at Rutgers because they are assured of an excellent program for phased retirement.

·        Facilitating predictable, gradual adjustment by departments to changing personnel configurations, with better mentoring of graduate students and new faculty members.

 

Successful phased retirement programs exist within many institutions including AAU public university systems in California, Colorado, Florida, and North Carolina.  Private universities also offer a wide variety of phased retirement options. Study of these plans is useful, but it is clear that the appropriate plan for Rutgers University will be one closely attuned to the legal setting in New Jersey. Fortunately, the key elements of a phased retirement plan are already in place.

 

·        Continued health benefits (with minor modifications) are guaranteed by the state of New Jersey for all state employees who retire with twenty-five years state pension credit, regardless of age.

·        Alternate Benefit Program (ABP) plans -- TIAA-CREF or other -- make the full value of an individual’s pension plan accessible upon retirement, which may be taken at any age.

·        ABP plans are defined contribution (not defined benefit), so that the amount of pension available is based on accumulated dollars, not on annual salary in the years immediately preceding retirement.

·        ABP plan members in New Jersey are not restricted as to the amount they may earn from post-retirement employment, even if re-employment is with the same institution where the pension was earned.

 

In short, Rutgers is able under current law and pension regulations to encourage faculty to retire and then to rehire them. Faculty with twenty-five years of state pension credit, regardless of age, are eligible to retire while retaining health benefits, gaining access to their full pensions, and continuing to work for the university.

 

            Graph 1 provides an age distribution of the 571 faculty members who will have achieved 25 years of service (usually, but not always, congruent with state pension credit, which individuals must determine for themselves) by July 1, 2005.  Under current pension regulations, these faculty members will retain health benefits at current cost (zero for the State Plan) or less, when they retire. Roughly one in four faculty members fall into this group, each currently occupying a slot as an active-employee in the state benefits plan that could be used instead to support the hiring of a new faculty member.  The retiring faculty member would retain health coverage as a retiree with 25 years state pension credit, as provided for by the state of New Jersey. Chart 1 groups the same 571 faculty members into age cohorts and shows their projected July 1, 2005, salaries. Potential dollars available over the coming years for new hires clearly are considerable, even if a substantial fraction of the eligible 571 faculty members with 25 or more years of state pension credit may not be contemplating retirement just yet.

 

Graph 1

 

 

Chart 1

 

Salary dollars for faculty with 25 years of service by July 1, 2005

 

 

            There may well be members of the faculty with fewer than 25 years of state pension credit who do not need health benefits because they have coverage in some other way.  Others would find phased retirement sufficiently attractive that they would be willing to pay for the health coverage individually (which all employees are entitled to do).  Although the three favorable ABP plan features outlined in the previously bulleted points apply regardless of entitlement to health coverage, the remainder of this proposal concentrates on those faculty members who are eligible for state-supported health benefits upon retirement, regardless of age.

 

Re-employment Contract

 

Many of the 571 faculty members plotted in Graph 1 could retire now and be financially secure, with excellent health coverage. But the sharp break caused by a shift from working full time to not working at all may be unappealing for many reasons. Phased or transitional retirement is intended to meet the aspirations of active faculty who still have much to contribute but who would be comfortable with an employment situation carrying fewer obligations than a full-time position. The plan we propose is as follows:

 

·        The employee retires and is entitled to all university benefits and privileges currently accorded to retirees, including, but not limited to, free parking and library and computer access.

·        The former employee is hired on a written contract of five years duration at 50% work for 50% pay (hereinafter called “5@50%”). Subsequent contracts may be of any duration and rate of pay, as set by mutual written agreement between employee and employer.

·        Health, life, and disability insurance is accorded under the retirement provisions of the state of New Jersey applicable to all state retirees and is not provided in the “5@50%” contract.

·        Individuals retain their former academic titles, prefixed with the word “Senior.”

·        Senior Status academic titles do not carry tenure. Nonetheless, Senior Status faculty will retain the rights, protections, obligations, and privileges of their former tenured status in all matters except participation in personnel decisions (including promotion and tenure decisions, FASIP-related committees, and votes for department chair). In all other matters they are treated as regular, voting department members.

·        Reductions of workload below 50% during the five years, and a corresponding reduction of pay, may be made by mutual written agreement, taken as leave-without-pay or as a reduction-of-work-with-less-pay.

·        The 50% work may be bundled into a semester if the Senior Status faculty member wishes, but must be completed within each academic year.

·        Senior Status faculty are not eligible for FASIP salary adjustments, but their base pay will be adjusted to match the salary increases (both across-the-board and average FASIP) for their rank, as specified in the University/AAUP contract for full-time faculty.

·        Senior Status faculty are not eligible for sabbaticals.

·        Work assignments at 50% shall be based on the individual’s usual work assignment over the three years immediately preceding retirement, excluding semesters when the individual was on leave or on special assignment with reduced teaching or other specific and temporary work reductions. Where the resulting calculation produces unwieldy fractions, such as dividing a 3/2 teaching responsibility in half, the issue should be resolved by mutual written agreement at the unit level. Assignments of office space, secretarial support, travel funds, and other matters of this sort also shall be left to mutual written agreement within the individual’s unit. In any instance where mutual written agreement is not reached, Senior Status faculty shall retain their former rights to unit-based arrangements for resolution and to contractual University/AAUP grievance processes.

·        Pre-existing individual emoluments and perquisites, financial or otherwise, shall be continued at the rate of 50% for the duration of the “5@50%” contract.

·        Senior Status faculty shall continue as members of the full-time AAUP bargaining unit.

 

Pension and Benefit Issues

 

Under New Jersey state law, faculty members upon retirement gain unrestricted access to their full ABP accounts, regardless of age. The law requires that individuals make at least some withdrawals from their pension funds in order to be classified as retired and therefore eligible for retiree health benefits. Individuals must judge their financial circumstances on a personal basis and manage their money accordingly. It will often be the case that faculty members with over 25 years of state pension credit who opt for Senior Status at 50% pay will have more disposable income during their years in Senior Status than they did before retiring, because the amounts they withdraw from their pension turn out to be less than the amounts of increase to the base from interest and growth. Since the faculty member is retired, however, there will be no further contributions to the ABP account by the employer. Individuals are still free, of course, to invest in any investment plan that they find suits their needs. Faculty members considering phased retirement are urged to consult with a financial counselor before making any commitments to retire.

 

Under New Jersey state law, faculty members with 25 years of state pension credit upon retirement continue to be covered by the provisions of their health plan immediately prior to retirement, regardless of age. When individuals become eligible for Medicare, usually at age 65, then Medicare Part A and Medicare Part B become primary providers.  This change affects the way care is paid for but not the breadth of coverage itself (except for Medicare restrictions, which also apply to nonretirees). Individuals who have opted for the Traditional Plan (Blue Cross, Blue Shield) and achieved 25 years of state pension credit prior to July 1, 1997, will see a gain since they will no longer have to pay their regular monthly co-premiums. Others in the Traditional Plan will continue to pay monthly co-premiums, while those in the State Plan will not, just as is the case for nonretirees. Different health benefit plans offer retirees different options concerning vision care, dental plans, and prescription drug coverage. Individuals will want to consult the rules of their chosen health plan before deciding whether to retire and opt for Senior Status.

 

Life insurance coverage will be reduced in accord with state provisions for retired persons, including eligibility to purchase additional continued coverage. The state does not provide disability coverage for retirees.

 

The Future

 

            This plan is not a buyout or a one-time offer. The stability and permanence of the plan should provide faculty members not yet ready to retire with an important incentive to stay at Rutgers and further their careers here, knowing precisely when they will have access to its options. There may be adjustments to the plan based on experience in the initial years, but the basic foundation seems solid. Graph 2 looks ahead to the faculty members (and their salary dollars as of July 1, 2005) who will achieve 25 years of service in the period from 2006 to 2010. These faculty members are in addition to the 571 included in Graph 1.

 

Graph 2

 

Renewal of the Faculty

 

We recognize that under current law, the hiring of new faculty is not subject to negotiation with the AAUP. Nonetheless, we think everyone recognizes that the replacement of retiring tenured faculty with newly hired tenure-track faculty is essential to the academic future of the university. Therefore, we call on the university administration to commit to the renewal of the faculty by hiring tenure-track faculty in numbers equal to the number of faculty members who choose Senior Status, as soon as possible, in order to maintain the university’s faculty at full strength overall. We call for a pledge to spend 100% of the dollars saved under this proposal on tenure-track faculty hiring, both the dollars from the 50% salary reductions for Senior Status faculty and from the additional savings that come from not paying into a pension plan for them. Such new hires would be further facilitated as Senior Status faculty members give up their state benefit packages as active employees and enroll instead in plans for retirees. This is truly a win-win-win proposal for students, faculty, and the administration. It is in that spirit that we urge its adoption in the very near future.

 

 

 

Resources:

 

For a service credit audit to determine how the state of New Jersey has recorded your years of pension credit, write to: New Jersey Department of the Treasury, Division of Pensions and Benefits, P.O. Box 295, Trenton, N. J. 08625-0295.

 

For the Rutgers University gateway on retirement issues, go to:

 

For the New Jersey Division of Pensions and Benefits home page, go to:

For the TIAA/CREF home page, go to:

For an assessment on phased or transitional retirement nationwide, see:

 

Ronald G. Ehrenberg (Irving M. Ives Professor of Industrial and Labor Relations and Economics, Cornell University), “The Survey of Changes in Faculty Retirement Policies,” American Association of University Professors (updated Jan., 2003).

 

John H. Pencavel (Department of Economics, Stanford University), “Faculty Retirement Incentives by Colleges and Universities,” TIAA-CREF Institute, Working Paper Series 24-040104 (May, 2004).