What Drives Retirement

The uncertainty over health insurance benefits may be the biggest determinant for faculty members delaying retirement, says Ronald G. Ehrenberg, Cornell University's Irving M. Ives professor of industrial and labor relations and director of the Cornell Higher Education Research Institute.

"Chief business officers must be in conversation with their benefits people to figure out whether the institution can afford its existing benefits packages, and if not, what changes can be made that do not adversely affect the institution's ability to attract and retain faculty members," says Ehrenberg. The importance of this conversation is underscored by the advent of recent accounting standards for both private and public universities that now require institutions to calculate the future liabilities for unfunded post-retirement benefit promises. Ehrenberg asserts that the particulars of what an institution offers do matter. "When mandatory retirement was still in effect, you still had faculty moving from institutions with low mandatory ages to those with higher age requirements," says Ehrenberg. "In the future, senior faculty may be looking more carefully not only at retirement benefits but also health insurance, and what an institution offers in that realm may actually have a significant effect on the institution's ability to attract and retain faculty."

Since 2000, only 45 percent of responding institutions reported no changes to their health-insurance benefits for both active and retired faculty members, according to the recently published Survey of Changes in Faculty Retirement Policies 2007 based on a study by the American Association of University Professors (AAUP). (See sidebar, "About the AAUP Survey.") Twenty-six percent reported equal reductions in benefits for both groups, and 8 percent reported reducing benefits for retired faculty more than benefits for active faculty. When asked about their future plans, most institutions indicated intentions to maintain retiree health insurance benefits at current levels, although 20 percent either did not respond to this question or indicated that they were unsure.

Survey enhancements. The survey, conducted in 2006, asked about the availability and cost of medical insurance and long-term health care options for retiring faculty members and their spouses and dependents—questions that were not asked in AAUP's inaugural survey in 2000. AAUP's Committee on Retirement initiated its first survey in 2000 to help address a lack of systematically collected information about faculty retirement at U.S. colleges and universities. The earlier survey focused on regular retirement programs for tenured faculty members, the prevalence and characteristics of retirement incentive and phased retirement programs, polices applicable to retired faculty, and perceptions regarding the end in 1994 of mandatory retirement for tenured faculty members.

Whereas a primary goal of the 2000 survey was to gauge whether and how institutions were changing retirement policies, the 2006 survey set out to explore how institutions might have changed their policies to deal with escalating health care costs and the aging of so many faculty members nationwide. As noted in AAUP's most recent study, the National Study of Postsecondary Faculty—a project of the National Center for Education Statistics—estimates that between 1988 and 2004, the average age of faculty increased from 47 to 50 years of age, with 54 as the average age of full-time tenured faculty members in 2004.

Need for more data. One conclusion of the 2006 survey is that much greater data collection and monitoring of faculty retirement policies and practices across higher education are needed to help institutions fully understand associated trends and financial and human resource impacts. According to the report's author, Valerie Martin Conley, associate professor of higher education and director of the Center for Higher Education at Ohio University, ongoing data collection should include data about specific subgroups of faculty such as mid-career faculty, faculty at four-year versus two-year institutions, and part-time faculty.

"One finding of this recent study is that part-time faculty are aging, too," says Conley. "We often tend to think about part-time faculty as younger faculty who are trying to get their foot in the door. In reality, part-time faculty are very diverse," says Conley. She thinks collecting more information about what various institutions make available to part-time faculty as far as incentives and phased retirement programs might also be useful.

Financial Incentives

According to the 2006 survey, since 2000, more than 38 percent of responding institutions report having offered tenured faculty one or more institutionwide, financial incentive retirement programs—most of which have originated from governing boards or administrations. This suggests that such buyouts have become an accepted practice within the mix of strategies employed by institutions to manage faculty retirements. For most institutions offering financial incentives, faculty were eligible to participate once they met a plan's requirements for age or years of service. As for the amount of incentives, most institutions reported providing one-time additional cash payments totaling less than nine months' salary and typically offered the incentive for a specified window of time.

"It's important for institutions to be aware of faculty receptivity to these kinds of incentives," says Conley. "One thing the data indicated, although it's difficult to tease out, is that institutions that offer incentives or buyouts have offered more than one, and faculty may learn to wait around for a better deal." Depending on an institution's specific strategy, phased retirement programs may provide a better mechanism for an institution to strategically manage the academic direction of the institution in terms of growing programs and shaping their programmatic mix, says Conley.

Phased Retirement

While the number of institutions offering phased retirement is on the rise, according to the 2006 survey, only 32 percent of responding institutions reported having a phased retirement program. Of those institutions, 67 percent required faculty members to secure administrative approval and 43 percent required faculty members to relinquish tenure to participate in a phased retirement program.

The two most frequently cited minimum ages for eligibility were ages 55 (42%) and 60 (27%). As for a maximum age at which faculty could continue participation, 44 percent reported ages 63, 64, or 65; 19 percent reported a maximum of age 70. As for how long faculty members could participate in a phased retirement program, most institutions specified a maximum number of years, with 35 percent capping length of participation at three years and 38 percent setting a maximum of five years.

Phased retirement programs also vary widely when it comes to additional incentives offered. For responding institutions that offer these programs, incentives included additional contributions to health insurance (78%), partial retirement benefits plus salary (56%), and extra salary (34%), among others.

Growing momentum. According to Conley, phased retirement as a strategy is gaining a foothold in the process to better manage faculty retirements. A plus for institutions is that it provides greater certainty about when retirements will occur. It also is an effective option for continuing to engage faculty and tap their knowledge and expertise, but there can be downsides, notes Conley. "Institutions have to set policies to make clear, for instance, the appropriate relationship between phased retirees and new faculty coming in who may want to move programs in a new direction."

Through its survey, AAUP's Committee on Retirement is tracking policies to better understand the criteria associated with these programs—what is being offered to whom and when. Much more research is needed, says Conley. She suggests that a future survey might collect more specific information about the benefits associated with phased retirement programs, including health insurance contributions.

Recruitment and Retention

Among the major findings of the 2006 survey is the percentages of responding institutions that indicate the high importance of recruiting new faculty (96%) and retaining current faculty (89%) compared to concerns about retiring older faculty. Only 19 percent reported the latter as "very important" despite an increasingly aging faculty population at most institutions.

What might the low concern about faculty retirement mean? "I think it could point to several conclusions," says Conley. "One is that there has been a lot of focus on recruitment and retention in recent years. I also wonder whether this is an indication that institutions have not traditionally assumed a strong role in retiring older faculty, perhaps because of legal constraints, and therefore don't view this as a priority," posits Conley.

Ehrenberg suggests that the low concern about retiring faculty may reflect the fact that institutions are currently focused foremost on finding replacement faculty. However, he believes that as the current swell of aging faculty are replaced during the next decade, institutions will turn greater attention to concerns related to retiring faculty, including health insurance. In fact, Ehrenberg views health insurance benefits as the biggest faculty retirement-related issue going forward for colleges and universities, and Conley agrees that changes to retiree health benefits have the potential to significantly impact faculty decisions about when to retire.

Health Insurance

According to the 2006 study, at 82 percent of responding institutions, retired faculty members continue to be eligible for group health insurance. Among these institutions, 17 percent pay the full cost, 51 percent pay part of the cost, and 33 percent require the retiree to pay the entire cost. While faculty spouses continue to be eligible for group health insurance at 80 percent of responding institutions, more of the cost is paid by the retiree. For instance, among the 17 percent of institutions paying full medical insurance costs for retirees, only 3 percent pay the entire cost for spouses. Overall, individuals bear 100 percent responsibility for the cost of long-term care (96%), dental insurance (65%), vision coverage (62%), and survivors' benefits (54%).

"Whereas institutions are not able to reduce pensions for retirees, health insurance programs do allow for flexibility in terms of what institutions provide. Even within a collective bargaining environment, while there are some protections, there is no absolute protection," says Ehrenberg. He shortly will join the board of Emeriti Retirement Health Solutions, a nonprofit consortium established in 2003 with assistance from the Andrew W. Mellon Foundation in response to studies the foundation funded that identified retiree health insurance as a major issue for faculty members. Emeriti allows retired faculty members (and eligible staff) at member institutions to buy Medicare supplemental policies and also receive reimbursement of other out-of-pocket health care expenses on a tax-free basis through a comprehensive retiree health benefits program that includes national group purchasing of insurance. The consortium also offers a vehicle for individuals—and institutions on behalf of their employees—to contribute to tax-sheltered accounts to be used to pay for health insurance and other medical expenses once faculty and staff retire.

Overall shift. Ehrenberg asserts that this shift in concept—helping faculty think in terms of funding their future health insurance needs—in essence mirrors the overall shift taking place nationwide in moving from defined benefit to defined contribution retirement systems. Another important point, notes Ehrenberg, is this: If there is going to be a shift to these types of defined contribution health insurance programs, institutions have to spend time educating faculty on the importance of saving early not only for general retirement income but also for retiree health insurance coverage and out-of-pocket medical expenses not covered by Medicare through tax-deferred vehicles.

Karla Hignite, principal of KH Communication, Tacoma, Washington, is editor of NACUBO's HR Horizons; e-mail: karlahignite@msn.com.