Twenty years after the end of mandatory. Retirement and Benefits: One Size Does Not Fit All. By Valerie Martin Conley

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1 Retirement and Benefits: One Size Does Not Fit All By Valerie Martin Conley Valerie Martin Conley is dean of the College of Education and professor of leadership, research, and foundations at the University of Colorado, Colorado Springs. A TIAA-CREF Institute Research Fellow and an award-winning teacher, she has written extensively about faculty careers, retirement, and benefits. Conley s publications include Career Stage Differences in Pre-tenure Track Faculty Perceptions of Professional and Personal Relationships with Colleagues, Regenerating the Faculty Workforce: A Significant Leadership Challenge and a Public Policy Concern, New Ways to Phase into Retirement: Options for Faculty and Institutions, and Exploring Faculty Retirement Issues in Public Two-Year Institutions. She is writing a book about the changing landscape for faculty careers with Jack Schuster and Martin J. Finkelstein. Twenty years after the end of mandatory retirement, it is clear that one size does not fit all for creating retirement and benefits packages, especially among higher education employees. Among the reasons: labor policies encouraging longer careers, growing acceptance of encore careers, and increased life expectancies. Education level is a key determinant in life expectancy. Between 1979 and 2011, gains in life expectancy were one-third lower for men in the lowest education quartile than for those in the highest quartile. The pattern for gains for women was similar, however gains were lower for women than for men. 1 Increased life expectancies lead to debates about the productivity of older higher education faculty. We possess only mixed evidence on a hypothesized decline in productivity with age, but the debates can be contentious. Unions and management are often at odds when negotiating solutions that reconcile institutional desires for strategic renewal with individual needs for continued vitality. 2 Cost is a major consideration. Retirement and health care are the two most costly benefits. The level of these benefits varies widely among states and higher education institutions. Planning and allocation decision discussions often lump health care and retirement together. They are sometimes pitted against one another for funding, just as many state budgeting processes create a competitive environment for funding K 12 and higher education. This essay continues the tradition of past NEA Higher Education Almanacs by providing members and leaders with up-to-date information and analyses. This year, it offers updated

2 70 THE NEA 2016 ALMANAC OF HIGHER EDUCATION information about employer compensation costs for state and local government workers, by industry group; funded ratios for state and local pensions; retiree health insurance; and retirement planning and confidence. EMPLOYEE COMPENSATION: EMPLOYER COSTS The National Compensation Survey conducted by the Bureau of Labor Statistics collects detailed information about civilian employers and workers, in nonfarm private industry and in state and local government. The survey measures the average cost to employers for compensation including wages and salaries, and benefits per employee hour worked. 3 Table 1 shows employer costs per hour worked for employee compensation for September Total compensation for state and local government workers averaged $44.66 per hour worked. Separated into the two components of compensation, wages and salaries averaged $28.45 and benefits averaged $ Figure 1 shows the cost of total benefits as a percentage of total compensation for state and local government workers, by selected industry groups, over the last decade. The percentage of total compensation devoted to benefits for all state and local government workers increased from 31.7 percent in 2005, to 36.0 percent in But the rate of change has slowed considerably since 2008, and showed no change between 2014 and The cost of total benefits as a percentage of total compensation varies by industry groups. Figure 1 shows trend lines for two major groups: education and health services, and public administration. Data for education and health services are broken out for elementary and secondary schools, junior colleges, colleges and universities, and for hospitals. Employers paid a greater proportion of total compensation in the form of benefits to employees in public administration than to employees in education and health services. Employer costs for employees in education and health services averaged $46.68 per hour worked in September Wages and salaries averaged $30.93, while benefits averaged $15.75 (Table 1). Benefits accounted for 33.5 percent of total compensation (Figure 1). Table 1. Employer Costs Per Hour Worked for Employee Compensation: State and Local Government Workers, by Industry Group, September 2015 Benefit Costs Total Salaries Supple- Retirement Legally Compen- and Total Paid mental and Required sation Wages Benefits Leave Pay Insurance Savings Benefits Cost Per Hour Worked State and Local Government Workers $ $ $ $ 3.24 $ 0.37 $ 5.34 $ 4.63 $ 2.63 Industry Group Education and Health Services Educational Services Elementary and Secondary Schools Junior Colleges, Colleges, and Universities Health Care and Social Assistance Hospitals Public Administration Source: U.S. Department of Labor, Bureau of Labor Statistics, Employer Costs for Employee Compensation, September BLS News Release, USDL , Table 4.

3 RETIREMENT AND BENEFITS: ONE SIZE DOES NOT FIT ALL 71 Figure 1. State and Local Government Workers, by Industry Group: Total Benefits Costs as a Percentage of Total Compensation, Percentage of Total Compensation 50 All State and Local Government Workers Education and Health Services Elementary and Secondary Schools Junior Colleges, Colleges and Universities Hospitals Public Administration Year Source: Derived from U.S. Department of Labor, Bureau of Labor Statistics, National Compensation Survey, Tables 5 and Note: Excludes federal employees. Employer costs for compensation for state and local government workers in public administration averaged $42.91 per hour worked in September Wages and salaries averaged $25.36 while benefits averaged $17.55 (Table 1). Benefits accounted for 40.7 percent of total compensation for public administration employees (Figure 1). Within education and health services, employer compensation costs for junior colleges, colleges, and universities employees averaged $51.09 per hour worked in September Wages and salaries averaged $34.14 and benefits averaged $16.95 (Table 1). Benefits accounted for 33.1 percent (Figure 1). The portion of total employer compensation costs attributable to benefits for employees in elementary and secondary schools equaled the portion for employees in junior colleges, colleges and universities (Table 1). Again, benefits were about one-third of total compensation. By contrast, employer compensation costs for hospital employees averaged $46.79 per hour worked in September Wages and salaries averaged $29.97 and benefits averaged $16.81 (35.8 percent of compensation, Table 1 and Figure 1). Benefits account for one-third or more of total compensation for state and local government workers across industry groups. The portion of total employer compensation costs attributable to benefits for state and local government workers at junior colleges, colleges, and universities peaked at 34.5 percent in It then declined to 31.9 percent in 2010 before rising to 33.1 percent in 2015 (Figure 2). A growth in retirement and savings from 6.3 to 9.2 percent between 2005 and 2015 explains the increased portion of total employer compensation costs attributable to benefits for junior college, college, and university employees (Figure 3). Employer compensation costs

4 72 THE NEA 2016 ALMANAC OF HIGHER EDUCATION Figure 2. State and Local Government Workers in Junior Colleges, Colleges, and Universities: Wages and Salaries, and Total Benefits as a Percentage of Total Compensation, Percentage of Total Compensation 80 Wages and Salaries Total Benefits Year Source: Derived from U.S. Department of Labor, (Bureau of Labor Statistics, National Compensation Survey, Table 8. gov/ncs/ect/sp/ececqrtn.pdf. Note: Excludes federal employees. Figure 3. State and Local Government Workers in Junior Colleges, Colleges, and Universities: Benefits by Type as a Percentage of Total Compensation, Percentage of Total Compensation Paid Leave Supplemental Pay Insurance Retirement and Savings Legally Required Benefits Year Source: Derived from U.S. Department of Labor, Bureau of Labor Statistics, National Compensation Survey, Table 8. gov/ncs/ect/sp/ececqrtn.pdf. Note: Excludes federal employees.

5 RETIREMENT AND BENEFITS: ONE SIZE DOES NOT FIT ALL 73 attributable to insurance benefits increased from eight to ten percent over the decade. State and local government employer costs for retirement and savings have risen steadily across industry groups (Figure 4). In 2015, the average cost for retirement and savings benefits was $4.63 per hour worked in state and local government, $4.59 in education and health services, $4.87 in elementary and secondary education, $4.80 in junior colleges, colleges and universities, $3.48 in hospitals, and $4.93 in public administration (Table 1). STATE AND LOCAL PENSIONS A recent report on state and local pension funding from 2014 to 2018 provides the first good news since the financial crisis. 4 The funded ratio for the 150 public plans in the report s sample increased from 72 percent to 74 percent between 2013 and The surveyed plans stepped up their payments from 82 to 88 percent of the required amounts. 5 Not only was 2014 a strong year for the stock market, the researchers noted, but the terrible 2009 performance of the market was rotated out of the smoothing calculations. 6 Plan sponsors reported under new Government Accounting Standards Board rules (GASB 67) for the first time in These new standards involve two major changes: Assets are reported at market value rather than actuarially smoothed, and, In cases when assets are projected to fall short of future benefits, liabilities are valued using a blended discount rate. 7 Researchers compiled a set of funded ratios for FY 2014 based on reported and projected funded levels. In the aggregate, the actuarial value of assets amounted to $3.2 trillion and liabilities amounted to $4.3 trillion, producing the funded ratio of 74 percent. 8 Funding levels varied substantially among plans. Figure 5 shows the distribution of funded ratios for the sample. Although many of the poorly funded plans are relatively small, note Figure 4. State and Local Government Workers, by Industry Group: Retirement and Savings as a Percentage of Total Compensation, Percentage of Total Compensation 12 All State and Local Government Workers Education and 11 Health Services Elementary and 10 Secondary Schools Junior Colleges, Colleges and 9 Universities Hospitals 8 Public Administration Year Source: Derived from U.S. Department of Labor, Bureau of Labor Statistics, National Compensation Survey, Tables 5 and Note: Excludes federal employees.

6 74 THE NEA 2016 ALMANAC OF HIGHER EDUCATION Figure 5. Distribution of Funded Ratios for Public Plans, FY 2014 Percent of Faculty % % 55% % % 2.7% Funded Ratio Source: Boston College, Center for Retirement Research, The Funding of State and Local Pensions: Note: 2014 actuarial valuations; and authors calculations from the Public Plans Database. the authors, several large plans, such as those in Illinois (SERS, Teachers, and Universities) and Connecticut (SERS), had funded levels below 50 percent. 9 What were the required contributions paid under the state and local plans? Figure 6 shows the average required contribution paid for plans represented in the sample. 10 Average required contributions paid in 2014 were $941,197. Table 2 shows the minimum and maximum percent-required contributions paid for plans in the sample, by state. A few states, with one or two underfunded plans, have cause for serious concern. Plans must be analyzed independently, taking into consideration their assumptions about investment returns, contributions, and risk. In 2015, researchers analyzed the six retirement systems in the state of Connecticut, a state with a plan funded below 50 percent. The researchers recommended several alternatives to current funding methods: Shift to level-dollar amortization of unfunded liabilities, replace the 2032 full-funding date with a reasonable rolling amortization period, lower the longterm assumed investment return, and finance liabilities for members hired before pre-funding separately. 11 General strategies available to policymakers seeking to improve state and local pension plan funded ratios include: Revise investment strategies. Pay a greater percentage of required contributions. Require employees to pay more. Limit automatic or consumer price index linked cost of living adjustments. 12 The first two strategies require greater commitments from states and employers. The second two strategies require employees to shoulder more of the burden.

7 RETIREMENT AND BENEFITS: ONE SIZE DOES NOT FIT ALL 75 Figure 6. Average Required Contribution Paid, Public Pension Plans, Required Contribution Paid (in dollars) 1,000,000 $941, ,000 $671,518 $713,344 $761, , ,000 $326,269 $394,380 $430,960 $477,067 $510,608 $538,223 $597, ,000 $208,852 $217,347 $260, Year Source: Boston College, Center for Retirement Research, Public Plans Database. RETIREE HEALTH INSURANCE Increased costs and unfunded liabilities are prompting many public institutions to review their retiree health plans. Does the expectation of employer-provided health insurance in retirement encourage faculty members to retire earlier and to save less than colleagues who do not expect to receive this benefit? Figure 7 shows the percent of faculty with retiree health insurance by the percent of the premium they expect to pay. Figure 8 shows the mean expected retirement age by the percent of the premium they expect to pay. Taken together, these data reveal no significant difference in average anticipated retirement age based on the availability of retiree health insurance coverage. 13 The value of retiree health insurance, notes one study, is much greater for workers who plan to retire before reaching age 65 and receiving Medicare coverage. 14 The study identified only a small number of sampled faculty members planning to retire before reaching age 65. The average expected age of retirement for university faculty in this sample is Higher education faculty typically retire later than other American workers, including other public sector employees, so eliminating this benefit would have minimal effect on their retirement age and saving behavior. RETIREMENT PLANNING AND CONFIDENCE Retirement planning and confidence remain high for tenured and tenure-track faculty. A 2014 survey shows faculty more confident than all U.S. workers that they will have enough money to live comfortably throughout retirement. Thirty-one percent of faculty, but only 22 percent of all U.S. workers reported being very confident. About half of faculty, but only 36 percent of all U.S. workers, answered somewhat confident. By contrast, 24 percent of all U.S. workers, but only three percent of faculty said they were not at all confident they will have

8 76 THE NEA 2016 ALMANAC OF HIGHER EDUCATION Table 2. Minimum and Maximum Percent Required Contribution Paid, Public Pension Plans, by State, 2014 State Minimum Maximum Total Plans Alaska 2 Alabama 2 Arkansas 84.50% % 2 Arizona California Colorado 5 Connecticut District of Columbia Delaware 1 Florida Georgia Hawaii Iowa Idaho Illinois Indiana Kansas 1 Kentucky Louisiana Massachusetts 3 Maryland Maine 2 Michigan Minnesota Missouri Mississippi Montana 2 North Carolina 2 North Dakota 2 Nebraska New Hampshire 1 New Jersey 3 New Mexico Nevada 2 New York Ohio Oklahoma Oregon 1 Pennsylvania Rhode Island South Carolina 2 South Dakota 1 Tennessee 2 Texas Utah 2 Virginia Vermont Washington 4 Wisconsin 2 West Virginia 2 Wyoming 1 Source: Boston College, Center for Retirement Research, Public Plans Database. Note: Data not available.

9 RETIREMENT AND BENEFITS: ONE SIZE DOES NOT FIT ALL 77 Figure 7. Percent of Faculty with Retiree Health Insurance by the Percent of the Premium They Expect to Pay Percent of Faculty % 26.8% % 19.1% 10 0 Nothing 1 25% 26 50% 4.0% 51 75% 1.5% 76 99% 5.8% All of the Premium Do Not Know Percent of Premium Expected to Pay Source: TIAA-CREF Institute, Faculty Retirement Plans: The Role of Retiree Health Insurance, September Figure 8. Mean Expected Retirement Age of Faculty with Retiree Health Insurance by the Percent of the Premium They Expect to Pay Mean Expected Retirement Age in Years % % % 68.9% % 67.9% 67.5% Nothing 1 25% 26 50% 51 75% 76 99% All of the Premium Do not Know Percent of Premium Expected to Pay Source: TIAA-CREF Institute, Faculty Retirement Plans: The Role of Retiree Health Insurance, September 2015.

10 78 THE NEA 2016 ALMANAC OF HIGHER EDUCATION enough money to live comfortably throughout retirement. Faculty members attributed their confidence to saving and investing well, and to having a good pension or retirement plan. 16 Despite these high levels of confidence, living comfortably throughout retirement requires ongoing financial planning and awareness of the needed amount of wealth accumulation. About 40% of faculty, states the survey, seem to underestimate the amount of preretirement income that needs to be replaced in retirement to live comfortably. 17 Adjunct faculty members are much less optimistic. Only 19 percent reported being very confident, and almost one-third lack confidence in their retirement prospects. 18 CONCLUSION This chapter updated trends in employer costs for employee compensation, public pension plans, retiree health insurance, and retirement planning and confidence. Employer costs for insurance and for retirement and savings continue to rise as a percentage of total compensation. Stepped up payments to public pension plans led to an increase in funded ratios in 2014 for the first time since the financial crisis. Retiree health insurance does not break the bank, the beliefs of higher education administrators to the contrary. Retirement planning and confidence remain high for tenured and tenure-track faculty. By contrast, lack of retirement planning and confidence among adjunct faculty is a cause for concern. NOTES 1 Sanzenbacher, Webb, Orlova, and Cosgrove, The American Council on Education recently hosted a conference about the issue of aging faculty cohorts as part of its faculty retirement transitions project and its ACE-Sloan Awards for faculty career flexibility. See Van Ummersen, McLaughlin, and Duranleau, The study title is Employer Costs for Employee Compensation (ECEC). 4 The Boston College Center publishes Issues in Brief, based on its Public Plans Data (PPD) compilation. PPD contains detailed information on state and local pensions, and on retiree health plans. 5 Munnell and Aubrey, Ibid, 4. 7 Ibid, 3. 8 Ibid, Ibid, Under the new GASB standards, the Actuarially Determined Employer Contribution replaced the Annual Required Contribution. 11 Aubrey and Munnell, Wang and Peng, Clark, Ibid, Ibid. 16 Yakoboski 2015a. 17 Ibid, Yakoboski, 2015b. REFERENCES Aubrey, J. and A.H. Munnell. Final Report on Connecticut s State Employees Retirement System and Teachers Retirement System. Chestnut Hill, Mass.: Trustees of Boston College, Center for Retirement Research Report-on-CT-SERS-and-TRS_November-2015.pdf. Center for Retirement Research at Boston College, Center for State and Local Government Excellence, and National Association of State Retirement Administrators. Public Plans Data, bc.edu/data/public-plans-database. Clark, R.L. Faculty Retirement Plans: The Role of Retiree Health Insurance. TIAA-CREF Institute Trends and Issues, retiree_health_insurance.pdf. Conley, V.M. Retirement and Benefits: Shifting Responsibilities. The NEA 2008 Almanac of Higher Education. Washington, D.C.: National Education Association, 2008, Retirement and Benefits: Protecting Ourselves. The NEA 2009 Almanac of Higher Education. Washington, D.C.: National Education Association, 2009, Retirement and Benefits: New Realities in an Economic Downturn. The NEA 2010 Almanac of Higher Education. Washington, D.C.: National Education Association, 2010,

11 RETIREMENT AND BENEFITS: ONE SIZE DOES NOT FIT ALL 79. Retirement and Benefits for the Generations. The NEA 2011 Almanac of Higher Education. Washington, D.C.: National Education Association, 2011, Eroding Retirement and Benefits: The Wrong Response to Fiscal Crises. The NEA 2012 Almanac of Higher Education. Washington, D.C.: National Education Association, 2012, Benefits for the Public Good. The NEA 2013 Almanac of Higher Education. Washington, D.C.: National Education Association, 2013, Retirement and Benefits: The Long Road to Recovery. The NEA 2014 Almanac of Higher Education. Washington, D.C.: National Education Association, 2014, Retirement and Benefits: Repercussions of Reform. The NEA 2015 Almanac of Higher Education. Washington, D.C.: National Education Association, 2015, Munnell, A.H., and J. Aubry. The Funding of State and Local Pensions: Issues in Brief 45. Chestnut Hill, Mass.: Trustees of Boston College, Center for Retirement Research bc.edu/wp-content/uploads/2015/06/slp45.pdf. Sanzenbacher, G.T., A. Webb, N.S. Orlova, and C.M. Cosgrove. Does A Uniform Retirement Age Make Sense? Issues in Brief Chestnut Hill, Mass.: Trustees of Boston College, Center for Retirement Research, IB_16-1.pdf. Van Ummersen, C., J. McLaughlin, and L. Duranleau. Faculty Retirement: Best Practices for Navigating the Transition. Sterling, Va.: Stylus Publishing, Wang, Q., and J. Peng. An Empirical Analysis of State and Local Public Pension Plan Funded Ratio Change, The American Review of Public Administration 46 (1) (January, 2016), Yakoboski, P.J. Data Summary. Retirement Planning and Confidence Among Tenured and Tenure-Track Faculty Faculty Career and Retirement Survey. TIAA-CREF Institute, 2015a. tiaa-crefinstitute.org/public/pdf/faculty-retirementconfidence.pdf.. The Career Experience of Academics in Adjunct Faculty Positions. TIAA-CREF Institute Trends and Issues, 2015b.

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