Facing devastating financial losses related to the coronavirus pandemic, colleges and universities are cutting costs just about everywhere they can. Increasingly, that includes faculty and staff retirement benefits.
Duke, Georgetown, Northwestern and Texas Christian Universities are some of the institutions to announce cuts to retirement contributions in recent days. Some of these decisions have been more severe and more controversial than others.
One-Year Contribution Suspensions
At Duke, President Vincent Price said in a campus memo that the university is cutting contributions to the Duke Faculty and Staff Retirement 403(b) plan for a year, starting July 1. This follows a hiring freeze, suspension of salary increases, new construction holds and other measures. The goal, Price said in the announcement, is to reduce projected expenditures by between $150 and $200 million within the next fiscal year to “sustain the university’s academic programs for the near-term.”
While cutting retirement is “painful,” he said, it affects only deferred income for a year. Approximately 300 university employees who earn more than the federal 403(b) contribution threshold of $285,000 also will have their salaries reduced by 10 percent of the amount above the threshold.
Georgetown president John J. DeGioia also announced that the university will suspend all contributions to its employee retirement plan for the coming year, starting next month.
“These contributions would have required $47 million in the coming year,” he wrote in a campus message. “If we find ourselves in a stronger financial position during the coming year, we will revisit this decision.”
Same story at Northwestern. President Morton Schapiro, Interim Provost Kathleen Hagerty and Craig Johnson, senior vice president for business and finance, wrote in a financial update that they anticipate a shortfall of roughly $90 million for the 2020 fiscal year.
“Even if we resume on-campus activity in the fall, as we hope to do by phases, we are likely to see a significant shortfall in the 2021 fiscal year as well, perhaps as great as or greater than what we are experiencing this year,” they said. Restricting hiring, pausing travel and discretionary spending, and deferring most capital improvement projects -- all of which were previously announced -- will halve that deficit, they said.
But more cuts are needed. Northwestern is therefore cutting administrators’ pay, increasing the rate of withdrawals from its endowment and suspending the 5 percent automatic contribution and 5 percent matched contribution to retirement plans.
The retirement reduction is scheduled for June 11 through December, “at which point we will evaluate when we might be able to resume the contributions,” Shapiro and his colleagues wrote. “We expect this action alone will save the university tens of millions of dollars and considerably reduce the possibility of further cuts.”
As is the case elsewhere, employees may continue to contribute to their individual plans.
Permanent Cuts at Texas Christian
No one wants to see their retirement contributions cut, least of all employees closest to retirement. But these cuts have been particularly ill received at Texas Christian, where some faculty members say the university is using the crisis to wage a longer-term battle against employee retirement benefits.
The cuts at Texas Christian also appear to be permanent, unlike the temporary suspensions at Duke, Georgetown and Northwestern.
Chancellor Victor Boschini last week announced a reduction in the percentage the university contributes to employee retirement accounts, from the current 11.5 percent to 8 percent. The reduction starts in June.
The university also recently said it is reducing its contribution to health insurance for retirees. Previously, retirees received $225 per month toward purchasing health insurance. Starting in January, employees 45 or older will continue to be eligible for that benefit, but younger employees will not. Instead, they may only contribute to a defined contribution model for retiree health benefits.
“This news is difficult to deliver, but this reduction will result in significant cost savings to our overall budget and will allow TCU to still maintain competitive employee benefits for current and future employees,” Boschini said in his email to employees. “We know that some universities are wholly suspending, offering significantly lower contributions, or requiring an employee match for retirement account contributions during this time.”
Texas Christian earlier announced a set of voluntary coaching and executive salary reductions, hiring freezes, and a planned 20 percent reduction in the coming fiscal year’s operating budget.
Boschini noted that the 8 percent contribution rate is in line with the rate for new employees that was previously announced in April. But some professors say it’s also what the university was seeking for all employees long before the public health crisis.
“Although TCU has framed the cut to benefits as a response to COVID, the Board of Trustees and administration have sought to reduce employee benefits for some time,” said Andrew Ledbetter, a communications professor. He recalled that Boschini approached the University Compensation Advisory Committee, on which Ledbetter sits, last fall and told members to find a way to reduce benefits expenditures to make them sustainable.
The universitywide committee repeatedly asked for detailed financial and other data as to why this was the case, Ledbetter said, “but the administration provided us with virtually no information.” In response, the committee and the Faculty Senate gathered publicly available information to inform their own analysis. Their findings were that the university’s compensation package was not unsustainable and could even be more competitive with packages offered by peer and aspirant institutions in order to attract and retain top scholars, including those from underrepresented groups.
The faculty previously chided the administration in 2013 for making changes to retiree health care benefits without consulting the Faculty Senate. The senate reaffirmed a related resolution about shared governance with respect to benefits in 2018.
“Faculty and staff realize we must make shared sacrifices for the good of the university and particularly our students,” Ledbetter said. Yet what’s “concerning is the permanent nature of the compensation reductions,” especially after “the massive effort of transitioning courses and programs online.”
Jack Hill, professor of religion at Texas Christian, said that “shared governance requires shared information.” That includes information about the university's financial status, with which the university has not been forthcoming, he said.
From a more personal standpoint, Hill said, “Many of us, myself included, accepted modest salaries when we joined the TCU faculty because TCU's benefits package was slightly better than those of our peer institutions.” Now, while other areas of the budget remain apparently untouched, “faculty and staff pensions have been effectively reduced by 30.4 percent without any promise that any effort will be made to restore them once the pandemic is over.”
Asked about faculty concerns, Texas Christian said in a statement that “like all universities across the country, TCU is adjusting operations and budgets to accommodate changes related to the coronavirus pandemic.”
The statement said the university “has had discussions about cost reductions in the normal course of business,” and given the “material impact this pandemic is having on universities and organizations across the globe, it is necessary to align benefits with a sustainable cost structure and also maintain a competitive benefit package.”
The faculty and staff’s “primary focus is supporting students and families as we prepare for a safe return to campus in August.”
A Last Resort
Of course, retirement contributions are offered mostly to full-time professors. The majority of instructors who are part-time or create full-time work for themselves with part-time teaching gigs are excluded more often than not.
Glenn Colby, senior research officer at the American Association of University Professors, said about 97 percent of full-time faculty members earn additional compensation in the form of contributions by their institutions or state or local governments toward retirement plans, based on the group's annual faculty compensation survey. The average combined expenditure on retirement is 10.7 percent of the average salary of faculty members who are covered.
Some 38 percent of U.S. institutions surveyed contribute toward retirement plans for some or all part-time faculty members, and 37 percent of institutions contribute to premiums for medical insurance plans. Among doctoral institutions, part-time faculty are more likely to receive benefits, with 52 percent of institutions contributing to retirement plans and 60 percent contributing to medical insurance plans.
In any case, it appears that cutting retirement benefits is something of a last resort for many institutions. Announcements about faculty hiring freezes and even furloughs and layoffs preceded those about cutting retirement benefits. As recently as mid-April, a minority of U.S. institutions said they were planning to suspend retirement benefits as part of their COVID-19 response strategy, according to a survey by EAB, an education best practices firm. It was an unpopular option, followed only by delaying payments to vendors and "other."
Andy Brantley, president and CEO of the College and University Professional Association for Human Resources, said campus leaders are grappling with budget challenges as the new fiscal year starts, which in most cases happens July 1.
It’s “difficult, if not impossible, to manage these budget challenges without impacting the higher education workforce,” Brantley said. As leaders work to minimize layoffs and furloughs and continue to provide various benefits to faculty and staff members, “making temporary adjustments to retirement contributions is just one option” to close budget gaps “and keep as many employees on the payroll as possible during these very challenging times.”
Colleges and universities faced challenging times around the 2008 recession, as well, and sometimes resorted to cutting retirement contributions to manage then. That caused some faculty members to delay retirement for financial reasons.
Doug Chittenden, executive vice president and head of institutional relationships at TIAA, an investing and retirement planning firm, said while there are similarities between institutional responses to 2008 and now, “the main difference is in the severity of the impact of the current crisis across all institutions, big or small, private and public.”
He noted that after the 2008 recession, roughly 13 percent of institutions suspended contributions, while 5 percent of institutions reduced contributions. Smaller, less well-funded institutions took the brunt of that economic downturn and “it ultimately took about two years postcrisis for institutions to reinstate contribution rates to prior levels,” he said.
The current public health crisis, by contrast, is “impacting institutions across the board,” Chittenden explained.
While some large institutions have already reduced or eliminated contributions for the next fiscal year, “the numbers are increasing as the crisis continues, and the big unknown is how long the current situation will last.”