In 2000, the AAUP Committee on Retirement co-sponsored a survey on faculty retirement programs with the TIAA-CREF Institute, the American Council on Education, the College and University Professional Association for Human Resources and the National Association of College and University Business Officers.
The Survey of Changes in Faculty Retirement Policies
by Ronald G. Ehrenberg*
* Irving M. Ives Professor of Industrial and Labor Relations and Economics at Cornell University, Director of the Cornell Higher Education Research Institute and Chair of the American Association of University Professors Committee on Retirement. I am grateful to Michael Rizzo and Julia Epifantseva for their research assistance and to Ernie Benjamin and members of the committee for their comments on earlier drafts.
The elimination of mandatory retirement for tenured faculty members that became effective at many colleges and universities in January 1994 has led to concern that voluntary retirements of faculty may slow, decreasing opportunities for colleges and universities to make new faculty appointments and increasing their salary costs. Studies undertaken prior to the abolition of mandatory retirement concluded that the change in the law would likely affect only major research universities. Recent studies of several private and public research universities’ experiences since the end of mandatory retirement have found that the elimination of mandatory retirement has had little effect on the probability that faculty retire prior to age 70. However, those faculty members who would have been constrained by the law to retire at age 70 now appear to be postponing their retirements until later ages. Moreover a broader faculty retirement study that employed information on retirement flows for about 16,000 older faculty members at a randomly selected sample of 104 institutions nationwide, found that postponement of retirement for faculty that otherwise would have been constrained to retire at age 70 was not confined to the major research universities.
While some institutions are concerned about how they should alter their retirement policies in response to the elimination of mandatory retirement, others are more concerned about the large fraction of their faculty who are nearing retirement ages. For example, the faculty retirement study described above suggested that 14% of all faculty members at institutions in their sample were between the ages of 60 to 69 in 1996 and that this percentage was likely to rise over the next 5 to 10 years. Large flows of retirements will provide institutions with flexibility to reconstitute their faculty in the years ahead. However, institutions that anticipate replacing a large fraction of their faculty members may well worry about what the loss of so much institutional specific "human capital" in a relatively short time period will mean for their educational and research programs. Many institutions will search for ways to ameliorate these losses. Put simply, retirement of faculty provides both benefits and costs to academic institutions and each institution needs to decide how it should best to address the process.
In response to these concerns the Committee on Retirement of the American Association of University Professors decided to conduct a Survey of Changes in Faculty Retirement Policies at a large national sample of colleges and universities to obtain information on the characteristics of regular retirement programs for tenured faculty, on the existence and nature of retirement incentive programs and phased retirement programs for tenured faculty members, on institutional policies relating to retired faculty, and on institutions’ perceptions of the impact of the end of mandatory retirement on their faculty. The survey is intended to provide comparative information on retirement programs that will help institutions learn how other academic institutions are responding to retirement related issues and assist them and their faculty members in evaluating and improving their own programs.
Financial support for the survey was solicited from, and generously provided by, the TIAA-CREF Institute. To increase the probability that colleges and universities would respond to the survey, joint sponsorship of the survey was sought from a number of other higher education organizations. Ultimately, the survey became a joint effort of the AAUP, the American Council on Education (ACE), the College and University Professional Association for Human Resources (CUPA-HR), the National Association of College and University Business Officers (NACUBO) and the TIAA-CREF Institute. The survey was administered by the Computer Assisted Survey Team at Cornell University and was accompanied by a cover letter from Stanley Ikenberry, the President of the ACE that explained the purposes of the survey and encouraged the institutions to participate. A copy of the survey appears in the Appendix.
II. Characteristics of the Sample Institutions and Their Regular Retirement Programs.
The surveyed institutions consisted of all of the public and independent colleges and universities with 75 or more full-time faculty in the United States. While 1447 institutions met these criteria, after cleaning the data we wound up with a sample of 1382 institutions for which we had usable mailing addresses and telephone numbers. We aimed to obtain responses from 150 institutions in each of the AAUP doctoral (I), masters-granting (IIA) and bachelors-granting (IIB) institutional categories, as well as 75 responses each from the two-year colleges with faculty ranks (III) and the two-year colleges without faculty ranks (IV) categories. The survey and the cover letter were mailed to president of each institution in early August 2000 and follow-up telephone calls were made to non-respondents starting in early September 2000. If respondents to the follow-up calls were unable to locate their institution’s copy of the survey, they were offered a faxed version of the survey.
As table 1 indicates, ultimately 608 institutions responded to the survey, for an overall response rate of 44.3%. The response rate was highest for the doctoral institutions (60.1%) but unfortunately we did not achieve our desired number of responses in this category. Moreover, public doctoral institutions responded to the survey with greater frequency (67%) than did private doctoral institutions (43%). We also fell slightly short of our target in the two-year colleges with faculty ranks category, but did achieve our desired sample sizes for the masters’, bachelors’ and two-year college without rank categories. The smaller number of respondents in the doctoral institution category, especially the private ones, is unfortunate because the studies cited above indicate that the largest effects of the end of mandatory retirement are being felt at doctoral institutions. Thus these institutions might be expected to be the leaders in revising their retirement policies.
An initial set of survey questions asked about the characteristics of the institutions’ regular faculty retirement plans. Defined contribution plans were by far the most prevalent type of retirement programs at the private institutions. The plans at public institutions were more varied with some institutions having defined contribution plans, some having state-sponsored defined benefit plans, some offering both options and some offering combinations of the two types of plans (table 2). It is well known that it is easier to create phased retirement programs under defined contribution systems. As such, it should not be surprising that we will report later that programs to encourage phased retirement are more likely to be present at private institutions.
As table 3 indicates, among the institutions with defined contribution retirement plans, the most typical (the modal) institutional contribution rate is 10 percent of a faculty member’s salary. However, a substantial number of the institutions have contribution rates that range between 5 and 9 percent and a smaller share contribute more than 10 percent. Seventy-five of the institutions with defined contribution retirement plans have institutional contribution rates that vary either with age, years of service, or salary.
At 79 of the institutions that have defined contribution plans, faculty members are not required to make contributions to their retirement account. At those institutions at which contributions by faculty members to the plan are required, the modal contribution rate is 5%. However, the required faculty contribution rate varies widely across institutions.
Among those institutions with defined benefit retirement systems, there is considerable variation in the increment in the annual retirement benefit that a faculty member receives per year of service. The typical defined benefit plan provides retiring faculty members with an annual retirement benefit that is a multiple of their years of service times a measure of their "final" average salaries. For example, if a faculty member had worked at the institution for 30 years and the multiple was 2%, the faculty member would receive a retirement benefit equal to 60% of his or her final average salary. Often the final average salary is specified to be the average of the faculty members’ last three or five, or highest three or five, years’ salary. In some systems, if the faculty member retires prior to age 65, the annual retirement benefit is actuarially reduced and if the faculty member chooses an option that guarantees his spouse, or other survivors, continuation of some fraction of the annual benefit when he or she dies, the annual benefit paid out is similarly reduced.
Table 4 presents information on the distribution of the multiple for those institutions that have defined benefit retirement systems or that offer their faculty the option of belonging either to a defined benefit or a defined contribution system. In interpreting this distribution, readers should keep in mind that less than 30% of the institutions in this provided us with sufficient information about their defined benefit plans that permitted us ascertain these multiples. Excluded from this table are institutions that have retirement systems that have both a defined contribution and a defined benefit component. In general, the multiples found in the defined benefit components of those systems will be lower than the systems that are solely defined benefit systems.
The annual retirement benefit per year of service offered by these defined benefit systems varies between 1.0 and 2.5% of final average salary per year of service. The most frequent multiple is 2.0, followed by 2.5, 1.7 and 2.2. For about one-third of the institutions that provided us with information on the nature of their defined benefit system, the generosity of the system cannot be easily summarized in a single number. In many of these cases the multiple varies across retired faculty with their final average salaries or with the date that they were hired. For example, the generosity of the defined benefit retirement system in which State University of New York faculty may choose to enroll differs across a number of "tiers" and the tier in which a faculty member is placed depends upon his or her hire date.
Almost half of the institutions with defined benefit plans have limits on the maximum retirement benefit that a faculty member may receive. In about a third of the institutions with limits on maximum benefits, the limit is based upon the number of years of service at the institution that faculty members can get credit for in the computation of their pension amounts. The modal limit is 40 years, however, institutions report limits that vary between 25 and 50, with their responses being concentrated in the 30 to 40 year range. In slightly over half of the institutions that report limits on the maximum benefit that a faculty member can receive, the limit is specified as a cap on the percentage of a faculty member’s annual salary that may be received in the form of an annual pension benefit. In most of these cases, the limit falls in the 65 to 100 percent range.
In addition to providing a retirement benefit program, over 80 percent of the respondents to the survey indicate that their institution offers seminars, or other programs to encourage and/or assist their faculty in planning for retirement. Two-year colleges are less likely to provide such programs than their bachelors-granting, masters-granting and doctoral counterparts.
III. Retirement Incentive Programs
Slightly less than half of the respondents to the survey, 46.2%, reported that their institutions have had one or more financial incentive programs since 1995 that encouraged tenured faculty members to retire prior to age 70 (table 5). Among the 4-year institutions, private institutions were more likely to have such programs than public institutions and doctoral institutions were more likely to have such programs than masters-granting institutions, which in turn were more likely to have such programs than bachelors-granting institutions. Sixty percent of the private doctoral granting institutions reported having had a retirement incentive program. The 2-year with rank public institutional category was the category in which having had a retirement incentive program was most likely to be reported.
Slightly more than one-third of the institutions, 206 in number, reported that the financial incentive programs that they had were ones in which they had negotiated buyouts (cash payments), or other special arrangements, on a college-by-college or case-by-case basis (table 6). Buyouts were again more prevalent among private than public institutions and doctoral institutions were more likely to have such programs than masters-granting institutions, which in turn were more likely to have them than bachelors-granting institutions. At the doctoral institution level, 72% of the privates, but only 38% of the publics reported such arrangements.
In slightly over half of the cases in which buyouts occurred, all tenured faculty members were automatically eligible to take advantage of the buyout if they met the institution’s age and/or years of service and/or age plus years of service requirement for eligibility. In the remaining institutions, administrative approval was required. Similarly, in slightly over half of the cases in which buyouts occurred, they were offered on an ongoing basis, while in the remaining cases eligibility for the special buyout only took place if a faculty member made a commitment to retire with a specified time-period (window). Ongoing buyouts are most useful when an institution is trying to confront the long-run implications of the end of mandatory retirement. Offering buyouts only within a specified window of time are most useful in a situation when the institution is trying to achieve some short-run cost savings.
Interestingly among those institutions that had had more than one plan since 1995, their previous plans had tended to be window plans. A reasonable conjecture is that once a window plan is adopted and then expires, faculty believe that future window plans will be adopted and threaten to delay their retirements until a subsequent plan is adopted. This puts pressure on institutions to adopt a subsequent plan if they want to encourage their older faculty members to retire. Given this behavior, it may make sense for institutions to focus on the long-run implications of the end of mandatory retirement and adopt ongoing plans in the future.
Our survey asked respondents about the magnitudes of buyout plans. In situations in which cash payments were made to encourage retirement, the buyouts tended to be less than nine months salary. Fifty-five percent of those institutions offering lump sum payments offered less than 9 months salary. Twenty-eight percent offered 9 to 18 months salary and only 16 percent offered buyouts equivalent to more than 18 months salary. In a relatively small number of cases, the magnitude of the buyout declined with the age at which the faculty member retired. That is, in those plans larger buyouts were given to faculty who retired at younger ages. The relatively small proportion of plans in which the generosity of the buyout declines with the age of retirement may reflect the legal uncertainty associated with such plans until recent legislative amendments.
At about 90 institutions, the financial incentive to retire took the form of an increment in the faculty member’s retirement benefit rather than a cash payment. Under current tax laws, in most cases additional employer contributions to enhance defined contribution pensions are treated as cash payment and subject to the federal income tax in the year that they are made. As a result, financial incentives in the form of increments in retirement benefits will be adopted primarily when the institution’s retirement plan is of the defined benefit type. Often these increments take the form of crediting the faculty member with a specified number of months of additional service credit towards retirement for each year that he or she was actually employed at the institution. For example, in New York State, one recent retirement incentive program provided SUNY faculty members with 1 month’s additional service credit for each year they had been employed up to a maximum of 36 months (3 years) of additional service credit.
In a small number of cases, 15 in total, the financial incentive for retirement took the form of provision of a terminal leave. From the perspective of faculty members, the advantage of a terminal leave over a cash payment is that benefits often continue to accrue while a faculty member is on terminal leave. For example if the leave was a year long, under a defined benefit system, the faculty member would get credit for an additional year of service towards retirement and under a defined contribution system, the faculty member would receive an additional year’s contributions to his or her retirement annuity. In 60% of the cases when terminal leaves were present, they were 9 months or less and at only one institution was the leave more than 18 months.
IV. Phased Retirement Programs
Only 27% of the survey respondents have formal programs that permit tenured faculty members to gradually transition into retirement by working part-time for a number of years before they formally retire (table 7). In almost two-thirds of the cases where such programs exist, administrative approval is required for an individual to take advantage of the program, while in the remaining cases all faculty members who meet the eligibility criteria are automatically eligible to take advantage of it.
Institutions with defined contribution retirement systems are twice as likely as institutions with defined benefit retirement systems to have such programs. This difference is not surprising because an individual’s annual benefit level under a defined benefit pension system is typically based upon some average of his or her earnings during the individual’s years of highest earnings. Working part-time for a few years before retirement will substantially reduce the annual pension benefit of a faculty member employed under such a system because the salary increases that he or she receives during the last few years of employment will typically not raise the faculty member’s part-time salary above his or her previous full-time salary.
In contrast, annual pension benefits received under a defined contribution system are based upon the whole lifetime of contributions that the faculty member and the institution have made to the faculty member’s retirement account, as well as the rate of return on these contributions over time. Contributions made near the end of an individual’s work life, will have a relatively small effect on the individual’s annual retirement benefit. Moreover, as we shall shortly see, when phased retirement agreements exist under defined contribution retirement systems, often the institutions continues to make payments to the individual’s retirement account based upon the individual’s full-time salary. Thus, phased retirement programs that exist under defined contribution retirement systems often result in no reduction in the faculty member’s annual retirement benefit, relative to what the faculty member would have received if he or she had continued to work full-time for the same number of years.
About three quarters of the institutions that have formal phased retirement programs, have established minimum ages that faculty members must attain to be eligible to participate in the program. The most common minimum age specified is 55, followed by 60, 50, and 52. Similarly, three quarters of these programs also require that a faculty member must have been employed at the institution for a specified number of years to be eligible to participate in the program. The majority of these require at least 10 years of service, with significant numbers of the programs also requiring 15 and 20 years of service.
Almost one quarter of the institutions that have such programs, 35 in number, also specify a maximum age that a faculty member may attain and still remain eligible to participate in the program. The most common ages specified here are 65 and 70. Placing a cap on the age at which a faculty member is eligible to take participate in the phased retirement provides an incentive for faculty members who are near that age to seriously think about whether they want to take advantage of the program and begin the process leading to retirement.
Faculty members who enter into phased retirement programs often receive special financial benefits. Over 80% of the programs provide for the college or university to continue to make full employer contributions for the faculty member’s health insurance program. About 20% of the programs provide additional retirement payments or credits. For faculty working under defined contribution systems, this typically takes the form of the institutions making contributions to the individual’s retirement account based on more than his or her pro rata salary. For faculty working under defined benefit systems, this typically takes the form of receiving a full year’s service credit towards retirement even though the faculty member is working only part-time. Finally, over 35% of the institutions that have such programs, provide faculty members taking advantage of the program with additional salary payments. For example, a faculty member who reduces to half-time status might receive salary payments equal to 60% of his or her annual salary.
Faculty members who enroll in such plans typically must relinquish their tenure and formally agree to retire within a specified number of years. Nineteen institutions, representing 16.5% of the institutions with such plans, allow tenured faculty members to remain in part-time status for as long as they want. Most other institutions with phased retirement programs specify a maximum number of years that individuals can remain in this part-time status before relinquishing tenure; typically this is specified to be 3 to 5 years.
V. Treatment of Retired Faculty Members
Some faculty members approaching ages when they might consider retirement worry about "being put out to pasture" and about retirement meaning the end of their professional careers. Thus, actions that colleges and universities take to assure their faculty members that they value their retired faculty and do not view retirement as the end of the faculty members’ careers may influence their tenured faculty members’ willingness to retire. As such, the next section of our survey asked the institutions questions about their treatment of retired faculty members.
Many faculty members contemplating retirement would like to be able to continue to teach on a part-time basis after they retire. Virtually all the institutions permit their retired faculty to teach on a part-time basis, although in about half of the cases the institutions indicated that only some retired faculty were permitted to teach. In about 30% of the institutions, tenured faculty may formally negotiate continued part-time teaching as a condition for their retirement. About half of both the public and the private doctoral institutions engage in such negotiations with their faculty members. Retired faculty members teaching part-time are paid similarly to other part-time faculty in about 73% of the institutions, while in 21% they are paid more. In a small fraction of cases, they are paid less than other part-time faculty.
In almost 85% of the institutions, faculty members who retire are eligible to have the title emeritus professor conferred upon them. In about half of these institutions it is fairly routine for all retiring tenured faculty to have the title conferred upon them, while in the remaining half the title is subject to the discretion of the university administration.
About 35% of the institutions allow their retired faculty to continue to advise or supervise students honors thesis or dissertations and another 12% allow retirees to chair pertinent committees. These percentages are much higher at doctoral institutions.
Health insurance is very important to retirees. About 80% of the respondents indicated that their institution provided continued eligibility for retirees for group medical insurance. However only 58% of the institutions contributed to the cost of retiree health insurance. The failure of institutions to contribute to retiree health insurance may provide an incentive for their faculty members to delay their retirements and institutions would profit by seriously considering this issue.
The survey also requested information about a set of benefits that many faculty members may perceive to be important if they are to continue their professional involvement in retirement (table 9). Slightly less than half of institutions indicated that they provided office space to retirees, although the vast majority of doctoral institutions indicated that they did. Two-thirds of the institutions indicated that they provided retirees with access to institutional computer systems and parking, while about two-fifths indicated that they provided retirees with access to telephones. However, only 11 percent of all the institutions and over 20% of the doctoral institutions provided their retired faculty with any funds for professional travel.
Access to laboratory space is of particular concern to active research scientists who are contemplating retirement. Only 11% of the institutions indicated that they assign lab space to retired professors who are scientists using the same criteria that are used for tenured faculty members (such as volume of sponsored research grants generated over a previous number of years). In the doctoral institutions, where scientists contemplating retirement are much more likely to be concerned about their access to laboratory space, this percentage is much higher, but it is still less than half. The vast majority of doctoral institutions allow their retired faculty members to continue to submit external research grants through the institutions; other types of colleges and universities are less likely to allow their retired faculty to do so.
VI. The End of Mandatory Retirement
The federal law mandating the end of mandatory retirement was passed in 1987, even though it did not become effective for tenured faculty members at academic institutions until 1994. Only 24% of the institutions in our sample reported that mandatory retirement of tenured faculty ceased at their institution as late as 1994. Another 26% reported that it ceased between 1987 and 1994; these institutions acted to end mandatory retirement before they were required to by the change in the law. The remaining 40% of institutions in the sample ceased to have mandatory retirement for faculty prior to 1987. These are institutions in states in which state laws prohibited mandatory retirement at an earlier date, or institutions that had never had, or had decided at an earlier date, to eliminate mandatory retirement.
The survey asked each institution if the fraction of its tenured faculty members that continued in full-time employment after age 69 was greater today than it was prior to the institution’s eliminating mandatory retirement. Only 22% of the 420 institutions that responded to this question indicated that it was. Most respondents do not believe that the abolition of mandatory retirement has caused more tenured faculty members to remain in their positions at their institution beyond age 69. However, the responses to this question varied widely across institutional types. As table 8 indicates, doctoral institutions were more likely to report that a greater proportion of faculty were staying on beyond age 70 than were masters-granting institutions, which in turn were more likely to report this than bachelors-granting institutions. Within each of these categories, private institutions were more likely to report this than were public institutions. Hence, consistent with the earlier research, it is the doctoral institutions that need to worry the most about the implications of the end of mandatory retirement.
VII. For Additional Information
More complete tabulations of results from the survey, including breakdowns of the answers to each question by institutional type and form of control (public/private) will be made available on the AAUP website. Almost 40% of the institutions that responded to our survey were kind enough to provide World Wide Web addresses from which interested readers can download detailed information about their specific retirement programs. Finally approximately half of the respondents to our survey indicated that they would be willing to have their responses to our survey shared with other institutions.