UM crafts retirement-plan objectives from faculty input

Tuesday, September 21, 2010 | 6:26 p.m. CDT; updated 7:29 p.m. CDT, Tuesday, September 21, 2010

COLUMBIA — It’s a balancing act — reducing the amount of money the university system spends on retirement benefits while keeping employees reasonably happy.

Against a backdrop of repeated budget cuts to higher education, the University of Missouri is considering changes to its employee retirement plans. Staff and faculty already have expressed concern over how their benefits would be handled under a different program.

The UM System Board of Curators will take up the matter at a meeting Thursday in Springfield. The system will provide an audio stream of the board's discussion on its website.

Any new plan would apply only to new hires, said Betsy Rodriguez, the system’s vice president of human resources.

Currently, faculty and staff participate in a defined benefit plan that guarantees a monthly amount for life after retirement. Because of fluctuations in the economy, the university assumes the market risk with this plan, not the employees. When the market falls, the plan's assets also decrease, and more money is needed to maintain retirement commitments.

“We are looking to change, because the university bears all the risk right now,” Rodriguez said. “But can it continue to do so forever?"

Seeking faculty input

At last week's MU Faculty Council meeting, Rodriguez told the group that no definite changes have been proposed. She said curators are working through the options in a series of meetings, including a special meeting in November to be dedicated to the discussion.

“We are talking about what the objectives are and how they fit into our total compensation package,” Rodriguez said.

She said the UM system is weighing cost, complexity, competitiveness and equity, which will factor into a recommendation the curators expect to hear in December.

Meanwhile, Rodriguez has met with faculty at the various university campuses to gauge employee opinion.

Stephen Montgomery-Smith, an MU professor and a vice president of the local chapter of the American Association of University Professors, said he appreciated her candor while fielding questions and comments.

“I’ve seen a lot of those meetings, and at the end of the day you feel you’ve been conned, but I didn’t feel that way with her,” he said. “She didn’t give us any final answers, and she’s pretty open and honest about that. If she didn’t know, she said so.”

Nicole Monnier, an MU professor and member of the council, also stressed the importance of faculty involvement in changes such as one in retirement plans.

“If changes are inevitable, the more that (faculty) are made to feel like we’re part of the process — it’s the only way to do it right,” she said. “I’d like to think that faculty could make some substantial suggestions.”

Defined contributions

To date, the most widely discussed retirement option is the defined contribution plan, which would move the investment risk from the university to the employees, similar to a 401(k).

Under this plan, an employer contributes a fixed amount to employee pension funds. Retirement income depends upon the accumulated amount in the fund and how much income it can generate.

The plan is more mobile, meaning people could leave UM with the money they personally invested. Some faculty have argued that defined contributions leaves little financial incentive for people to remain at the university for a long career.

In August, faculty from the University of Missouri St. Louis who sit on the system’s Retirement and Staff Benefits Committee prepared a response to a potential move to defined contributions. In the report, the faculty expressed concern over short-term costs to the university.

Within five years of implementing defined contributions, UM would pay 7.5 percent to 9 percent of its payroll for new employees in the plan, according to the report. Additionally, UM would have to pay about 7 percent of the total payroll into the existing defined benefit plan.

“This is because ... almost all of the UM ‘contributions’ for new employees that go into the [defined benefits] plan pay for the back-loaded costs of employees nearing retirement age,” the report stated. “Therefore, the total cost to UM for the first five years of a [defined contributions] plan will likely be several million dollars greater per year than with the current [defined benefits] plan.”

Without continued contributions to the defined benefit plan, it could become “systematically” underfunded, according to the report. As a result, the university likely would have to ask older, vested faculty to increase their own contributions to the plan to avoid cuts.

Faculty engagement

But asking for such employee contributions during a period when faculty have received no pay increases could harm morale. A spring survey of faculty and staff showed that only 41 percent of respondents felt the university motivated them to do their best work every day.

Monnier said her personal gratification comes from teaching, not her salary or the greater university. However, she said, "It’s very hard to see what I do in the larger context of the university" as a whole.

She added: “Internally, we do one job and then have to react externally to ever-increasing demands for numbers of students. Looking at a scenario where the university as a whole is going to ask us to make more sacrifices — I think there’s a breaking point.”

In a meeting with faculty at UMSL, Rodriguez said the system has no interest in reducing the defined benefits — a total of about $300 million — according to a transcript of the meeting.

“It would be tempting to cut the $300 million, but that would impact employee preference, competitiveness and people strategy,” she said.

UMSL professor Paul Speck said that still leaves unanswered the question of how the university could offset the short-term costs of a change to defined contributions, according to the transcript.

“You, yourself, acknowledged that you don’t have an answer,” Speck said to Rodriguez.

“Not yet,” Rodriguez said.

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