Changes to UM System pension take effect amid mixed reactions

Sunday, July 5, 2009 | 12:01 a.m. CDT
In the past 10 years, the University of Missouri System’s annual rate of return on its retirement fund has fluctuated with the ebb and flow of the stock market and the performance-calculated benchmark index.

COLUMBIA — Changes to the University of Missouri System’s pension plan enacted Wednesday have generated mixed reactions among employees and raised concerns about contributions from workers with lower incomes.

Some service and maintenance employees have expressed disappointment with UM’s decision to require employees to pay a percentage of their wages into their pensions.

How the pension change works

All full-time employees with a minimum of a nine-month contract will have to contribute this year to the pension fund, which is established as a retirement, death and disability fund for eligible employees.

Full-time employees who earn up to $50,000 are to contribute 1 percent of their earnings, or up to $500. Employees with salaries of more than $50,000 are to pay 1 percent of the initial $50,000 and 2 percent on additional earnings, according to UM System documents. Employees are to contribute about 1.25 percent of the system’s total payroll to the fund.

If employees choose to leave the system before they are eligible for pension benefits, they are to be given a refund in the amount they contributed plus interest.

Employees with five years of service are eligible to be paid from the plan when they retire, though the age at which they can retire with full benefits depends on the length of their service.

UM spokeswoman Jennifer Hollingshead said the system expects employees to contribute about $12 million to the pension fund this year. Employees working in the Columbia area are expected to contribute $8.5 million.

UM is still to contribute the majority of the money going into the retirement fund. In 2009, the system is to give an amount equal to 4.88 percent of its payroll, according to UM documents.

Rodriguez said UM also is to contribute an amount equal to about 1.25 percent of its payroll to a reserve fund.

In 2008, the system contributed 5.87 percent, or $68.4 million, of its payroll to the pension.

In the future, the system expects to contribute a larger percentage of its funds to the pension fund, in addition to contributions from faculty and staff, said Mike Paden, associate vice president of benefits.

“As we realize the impact of the downturn in the market, it will require more contribution from the university,” Paden said.

UM expects the pension fund to require between 8 percent and 9 percent of its payroll in 2010, Paden said. This percentage is to include contributions from faculty and staff and from the system.

UM pays pensions out by a formula. The formula is 2.2 percent multiplied by an employee's final salary multiplied by his or her length of service.

In 2008, the system paid out $119 million in benefits, Paden said.

Tim Aitken, a power plant maintenance specialist who has been at MU for 22 years, said he was frustrated with the change and concerned for the future of the pension plan.

"I feel they're strapping a burden on employees' backs, especially for low-income families," Aitken said.

Full-time UM faculty and staff are now required to allocate a percentage of their salaries to the UM retirement fund each month. In the past, employees did not contribute to the pension plan.

The move is a result of the poor performance in the recession of the UM Board of Curators-invested retirement fund. The fund, which in October 2008 had $2.9 billion in assets, has since dropped to around $2 billion, said Mike Paden, UM associate vice president of benefits.

Betsy Rodriguez, UM vice president for human resources, said the system was conscious of the effect on lower-income employees and said she hopes employee contributions would not have to increase in the future.

"We're sensitive to that," Rodriguez said. "This relatively small amount will have a significant effect on our employees, and we recognize the hardship it creates."

Aitken said parking fees and rising medical costs have already decreased his salary enough. He wasn't sure whether contributing to the pension would affect his personal finances significantly but was concerned that UM might expand the plan and increase the hardship.

In hard times, he said, "You've got to make necessary change. One percent, will I feel it? Maybe, maybe not. But it's just another slice from your check, another avenue for them to take your money."

Allen Hahn, an MU professor emeritus of veterinary medicine and surgery as well as chairman of the Retirement, Health and Other Benefits Advisory Committee, said the committee brought up the issue of the effect on lower-income employees with UM administration in February. The committee advises the administration on issues regarding the pension.

“I think the general feeling was that people in the lower-pay ranges would be affected. A greater part of their salary would come out, and we asked that there be some mitigation of that,” Hahn said. “It came down to a 'Thanks for your comments. Here’s how it’s going to be.'”

Rodriguez said many options were discussed.

"This was the only scenario that created the amount of money needed with the least impact on lower-paid employees," she said. "We were hoping not to do anything to the lower-wage employees — that's the majority of our payroll. It just wouldn't work."

Paden said the administration took steps to ensure the new plan didn't affect lower-income employees more than necessary.

“The salary level was a consideration,” Paden said. “That’s why we selected the tiered approach.”

Under this approach, employees who make up to $50,000 a year are to see 1 percent of their salary go toward the pension. Employees who make more than $50,000 are to contribute 1 percent of $50,000, or $500, and 2 percent of their additional salary.

James T. Turner, a carpenter who has worked at MU for 17 years, isn't happy with the pension decision but said the situation could be much worse.

"They're leaving me no options. They're going to take 1 percent of it whether you want them to or not," Turner said. "It's not as bad as it could be."

The curators approved the measure during a Feb. 6 meeting, but the changes did not take effect until Wednesday. The move was met with opposition from faculty as well as staff who argued that UM already pays low salaries compared with other institutions.

MU math professor Stephen Montgomery-Smith, who is also co-vice president of the MU chapter of the American Association of University Professors, said he was disappointed that faculty and staff are required to contribute to the pension.

In February, the MU chapter sent a letter to UM administration decrying the plan.

Montgomery-Smith said the pension, which in the past didn’t require contributions from faculty, was something that attracted and kept employees at MU even though the university offers lower salaries than peer institutions.

Average MU salaries for ranked faculty were second to last among the other 34 public institutions of the Association of American Universities, according to 2009 statistics provided by the American Association of University Professors.

However, Columbia does have a lower cost of living compared with the national average, according to Regional Economic Development Inc.

Rodriguez said she understands faculty concerns that the pension is no longer as attractive.

"The change in benefits put us from the top of the peer group to the middle of the peer group," Rodriguez said.

She also said the curators wanted to improve their salary position among peers but were unable to after the recession hit the system's finances.

Two years ago, a study determined it would cost $21 million to get UM on par with its peers, Rodriguez said. The curators decided to fund that $21 million over three years but were only able to contribute one year of funding at $7 million, Rodriguez said. Then the recession hit.

"This fall, we were supposed to put another $7 million," she said. "But because we don't have any money, it (salary increases) went on hiatus."

Rodriguez said there will not be across-the-board salary increases in September, which is when faculty salaries have increased in the past.

But she said cost-saving measures being discussed could lead to future raises.

Ultimately, Paden said, the curators have invested prudently but the market primarily determines the strength of the fund.

“Here’s the deal: When you’re investing a retirement plan, you’re investing it with a long-term market horizon that will go through many cycles,” Paden said.

He said he expects the fund to recover as the market does.

Victoria Johnson, an MU associate sociology professor and vice president of the MU chapter of the university professors association, said she doesn't like the pension change but didn’t expect complete protection from the recession.

“The economy’s in hard times," Johnson said. "We’ll have to make sacrifices.”

Missourian reporter David Goldstein contributed to this report.

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