Approved by the: Faculty Senate - March 3, 2005
Administration - *See comment
Board of Regents - no action required

*Comment 1 - Thank you for your March 11, 2005, letter describing the costs involved in different options for eliminating or reducing the time associated with the waiting period for the Faculty Retirement Program. Your analysis is timely and important, as it provides us with a much clearer understanding of the financial implications of this proposal.

I would like you to take the lead in consulting the Senate proposal and the options you described with the deans and other faculty and University leaders as necessary. Please also identify and consider other reasonable alternatives, such as instituting a one-year waiting period for all new employees or implementing a graduated program in which the University contribution is increased over three years, for example. Ultimately, I would like your recommendation of the best option or range of alternatives for the University in this area. Let's meet in early July to discuss this topic in greater detail after you have had an opportunity to consult more broadly on our best option for moving forward.

*Comment 2 - The administration fully endorses the resolution for members of the University’s faculty. Enforcing a faculty retirement waiting period for incoming faculty clearly has had, and would continue to have, a negative effect on our ability to recruit top-notch faculty. It also provides an unequal retirement benefit among faculty at the University of Minnesota. The administration will seek the required approval from the Board of Regents.

With respect to waiving the waiting period for professional and administrative (P&A) employees at the University, The President has asked Carol Carrier, Vice President for Human Resources, to conduct a market analysis to compare this benefit with similar classes of employees at other universities. A working group has already begun an analysis of compensation and classification issues related to the work performed in the P&A classifications.


Resolution on the Faculty Waiting Period

The current 2 year waiting period required for eligibility for the Faculty Retirement Plan:


The Faculty Senate again requests that the central administration immediately eliminate the waiting period for all faculty and P&A staff who would otherwise qualify for the Faculty Retirement Plan.

COMMENT:

The Faculty Senate in May, 2002, approved a resolution requesting the administration to eliminate the waiting period for the Faculty Retirement Plan. (The resolution is below.) Since then, the administration has permitted colleges to decide whether to waive the waiting period for faculty (who have been in a retirement plan at another organization before coming to the University) and has made no changes in the waiting period for new P&A staff (a number of whom are contract faculty).

The Faculty Senate again requests the administration to eliminate entirely the waiting period.

[Here is the resolution from May, 2002:]

New tenure track assistant professors must be employed for two years before they can join the Faculty Retirement Plan.  The funds that would be contributed to the retirement plan have been given to their colleges by Central Administration.  Currently, however, the funds in the colleges are used for "other" purposes.  In contrast, P&A staff whose salary exceeds $55,000 join the Faculty Retirement Plan at time of hire. It also should be noted that no other Big Ten University has a waiting period for new faculty.

If new tenure track faculty received their retirement benefits for the first two years of their employment at the University, an analysis indicates their retirement income could be as much as 17% higher than under the present plan.

Because of compounding, the first two years of retirement contributions play a very significant role in the retirement benefits of a faculty member.  A simple analysis, using reasonably conservative and historical values for salary increases and growth of retirement funds from investment gains, shows the importance of these contributions. Thus, providing the first two years retirement benefits would result in an increase of 13-17% in a faculty member’s retirement plan after a thirty-year career.  Our retirement program, which many of us boast about as being among the very best in the nation, is drastically reduced by this loss.  

If there is a need for taking money from individuals’ retirement accounts, then the colleges would be better served taking money from the last years of a faculty member's service, rather than the first two years.  Thus, because of "the power of compounding," the first two years of retirement investment provides more in the final retirement balance to an individual than the last eight to ten years of retirement contributions in a thirty-year career and the last twelve to thirteen years over a 40-year career.

Not being able to provide retirement benefits for starting tenure track faculty has resulted in some programs placing new hires in P&A status, where they can start their retirement program immediately, and then moving them over to faculty status after a few years. This procedure, in our view, is not the way to handle the issue.  Rather, since the retirement funds are already available in the colleges and in many cases in departments, we believe the University should immediately grant retirement benefits to all starting tenure-track faculty.

The Senate Committee on Faculty Affairs had asked the administration to drop this two-year waiting period for new faculty.  Unfortunately this has not, as yet, been approved. SCFA believes the waiting period puts the University at a disadvantage in recruiting.  It also believes the difference between faculty and P&A appointments in terms of initiation of retirement plans is unfair and ill-advised.

SCFA recommends to the Faculty Senate that it ask the administration and the deans to reconsider their position on this issue. In view of the importance of the first two years of contributions to the retirement plan, the Committee once again urges that the waiting period for Faculty Retirement Plan be eliminated for new tenure-track faculty. 

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