Regular Retirement Programs

Institutions offer a variety of retirement-income programs, including both defined-contribution and defined-benefit (or pension) plans. In “Endgame: The Design and Implementation of Early Retirement Incentive Programs,” published in 2003 in Retirement: Reasons, Processes, and Results, Daniel C. Feldman describes these two major types of plans and explains how they differ in terms of the financial commitment of the employer to the employee. In defined-contribution plans, employers deposit a set dollar amount (usually based on a percentage of annual salary) into a tax-deferred fund. In defined-benefit plans, the employer provides a guaranteed annual pension, basing its amount on a formula that typically includes salary and years of service. Institutions sometimes offer a combination of these two types of plans, permit faculty members to choose between the types of plans, or allow them to participate in both types.

Figure 2 (.pdf) shows the percentage of responding institutions offering different types of retirement-income programs to faculty. Forty-two percent offered defined-contribution plans (such as TIAA-CREF). An additional 41 percent of institutions allowed faculty members to choose either a defined-contribution or a defined-benefit plan (such as a state plan that calculates benefits based on a formula that might include years of service, final average salary, and age). Where faculty members were given such a choice, most institutions (72 percent) required participation in the defined-benefit system as the default.² Just 12 percent of responding institutions reported offering only a defined-benefit program, and only 5 percent offered a combined plan that includes features of both types of programs. Only one institution reported not providing any kind of retirement program at all. Most institutions required faculty to participate in some plan: 81 percent of respondents reported that they do not allow faculty to opt out of all institutional retirement plans. 
 
Public and private institutions offered different types of retirement plans. As figure 3 (.pdf) shows, most of the institutions offering defined-contribution plans were private (76 percent), while a higher percentage of public institutions than private institutions offered defined-benefit plans, combined plans, or the option to choose either or both plan types.

Most full-time faculty members at the responding institutions who were eligible to participate in retirement-income programs were doing so. As table 1 shows, among those eligible to participate in defined-contribution plans, 93 percent were doing so, as were 94 percent of those eligible to participate in combined plans. A smaller percentage (57 percent) of those eligible to participate in defined-benefit plans were doing so.

Table 1. Participation of Full-Time Faculty in Retirement Programs by
Plan Type and Number and Percentage of Faculty

Fifty-seven percent of responding institutions indicated that part-time faculty members were eligible to participate in institutional retirement-income programs, and 43 percent reported that they were ineligible to participate. According to the data collected, an estimated 59,528 part-time faculty members were eligible to participate in some type of retirement-income program at responding institutions. Fifty-three percent of those eligible were currently participating in these retirement programs (see table 2).

Table 2. Participation of Part-Time Faculty in Retirement Programs by Plan
Type and Number and Percentage of Faculty

Among part-time faculty members eligible to participate in defined-benefit plans, 57 percent were doing so, compared with 48 percent of those eligible to participate in defined-contribution plans. Forty-four percent of part-time faculty members eligible to participate in combined plans were taking advantage of them. (Combined plans were not, however, prevalent among the responding institutions.)

Figure 4 (.pdf) shows the distribution of eligible part-time faculty by plan type, and figure 5 (.pdf) shows the distribution of those actually participating. Fifty-seven percent of all eligible part-time faculty members were eligible for defined-benefit plans, while 38 percent were eligible for defined-contribution plans. Sixty-one percent of those participating were signed up for defined-benefit plans. The survey did not elicit information about whether or not part-time faculty members could choose among plan types, nor did it gather specific details related to part-time faculty participation in these plans. 
 
Tables 3 and 4 show the number of full- and part-time faculty members at public and private institutions eligible to participate and actually participating in each type of retirement plan. Part-time faculty members employed in public institutions have more access to retirement benefits. However, institutional size varies, and many of the public institutions in the sample are two-year colleges. Public two-year institutions employ large percentages of part-time faculty and may be more likely than other types of institutions to offer them retirement benefits. 

Table 3. Participation in Retirement-Income Programs at Public Institutions by Plan Type Employment Status

Table 4. Participation in Retirement-Income Programs at Private Institutions by Plan Type and Employment Status

Defined-Contribution Plans

Approximately 30 percent of responding institutions offering defined-contribution plans reported a typical contribution rate of 10 percent of a full-time faculty member’s annual salary. Yet fewer than 20 percent of responding institutions reported typical contribution rates greater that 10 percent, while 57 percent contributed less than 10 percent (see figure 6). (.pdf) In other words, it was more “typical” for institutions to contribute less than 10 percent of a faculty member’s salary to defined-contribution systems than it was for them to contribute 10 percent or more. 
 
Twenty-eight percent of responding institutions offering defined-contribution plans did not require faculty to contribute to the plan at all (that is, the minimum required contribution rate was zero). Eleven percent of institutions required faculty members to contribute a minimum of 3 percent of their annual salaries. Twenty-three percent of institutions required a 5 percent minimum contribution, and 10 percent demanded a 6 percent minimum contribution. For most institutions, the contribution rate was not affected by years of service, age, faculty rank, or date of hire. The percentage of institutions reporting that one or more of these factors affected their contribution rate ranged from a low of 2 percent for faculty rank to a high of 18 percent for years of service. Of these factors, years of service and date of hire were more likely to affect the contribution rate than faculty rank or age.

Defined-Benefit Plans

Most responding institutions offering defined-benefit plans reported using an annual benefit formula equal to two times the number of years of service. For example, if the percentage benefit rate for each year of service is two, and a faculty member has thirty years of service, then the annual benefit is 60 percent of the faculty member’s annual salary. Eighty-one percent of responding institutions reported a percentage rate of two for each year of service.

There are, however, several ways to define salary for the purpose of calculating the benefit under defined-benefit plans. Respondents were asked if salary was calculated based on career average, the final three years of salary, the highest salary, or some other method. Sixty-four percent of the responding institutions reported that the benefit was calculated using criteria other than the three options given. Of these three response options, highest salary was used to calculate the benefit most often. Twenty-one percent of institutions reported using it to calculate the benefit, 1 percent reported using a career average, and 14 percent reported using the final three years of salary.

Academic rank affected the benefit formula at only five of the responding institutions reporting defined-benefit plans. Sixty-five percent of the institutions reported that the age of a faculty member affected the formula, and 63 percent reported considering date of hire.

Fifty-six percent of responding institutions with defined-benefit plans reported no maximum on the level of the benefit that an individual could receive upon retirement. Forty-one institutions that had a maximum reported basing it on years of service, fifty based it on salary, and 64 based it on some other criteria. The most common maximum credit for years of service is forty; 51 percent of the responding institutions offered such a maximum. Most institutions that capped the level of the benefit based on a faculty member’s salary reported a maximum greater than or equal to 75 percent of the individual’s salary. Fourteen institutions reported that the maximum level of the benefit an individual could receive upon retirement was 100 percent of his or her salary.

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(2/15/07)