The document below is the final report of the Task Force on Faculty Retirement convened by the Provost in 2000 to consider the retirement issues listed in the charge below. The document is awaiting comment and approval of the Faculty Senate and is being distributed to the community For Comment. It is anticipated that final decisions will be made by the President and Provost with a view to implementation early in fall, 2002. Comments should be directed to Dr. Barbara Lowery in the Office of the Associate Provost by October 15, 2002.

Final Report

Task Force on Faculty Retirement

University of Pennsylvania

May 2002  

Introduction

A sound retirement plan for faculty is crucial to the mission and vision of the University of Pennsylvania as a whole, the individual schools of the University, and the faculty who have dedicated many years of loyal service to the University. Prior to January 1, 1994, tenured faculty members at the University of Pennsylvania were required to retire from the University no later than the June 30th that followed their seventieth birthdays. The University's Faculty Voluntary Early Retirement (FVER) program in effect from 1975 until 1994 was designed to assist faculty members to prepare for retirement by providing financial support to permit them to defer making large withdrawals from their retirement accounts until they reached the age at which retirement would have been mandatory.

Retirement for tenured faculty members at colleges and universities is no longer mandatory at any age. At Penn, the FVER program was replaced by the Faculty Income Allowance Program (FIAP) in 1994. This latter program provides benefits, similar to those previously provided by the FVER program, to tenured faculty members who choose to retire as early as age sixty-two.

Many universities have been concerned that the continued low rate of faculty retirement and the corresponding lack of free tenure positions will both increase their financial burden and have a deleterious effect on their ability to recruit younger faculty. However, if too many key faculty retire in a short time period, it could cause harm to the University's teaching and research priorities. Thus, retirement of faculty provides both costs and benefits to Penn. To evaluate how well the University's current retirement program is meeting its objectives, the Provost appointed a Task Force to examine the current retirement plan for faculty. The Task Force was asked to consider specific areas of concern regarding the current retirement program for faculty. The charge to the Task Force by the Provost was as follows:

The Task Force is being asked to examine several aspects of retirement of concern to the faculty. They are: the numbers of the faculty remaining in full-time status past age 70 since uncapping; the adequacy of the faculty early retirement program (FIAP) for encouraging faculty to retire as well as the appropriateness of the early retirement program window (62-68); discontinuing University Tax Deferred Annuity (TDA) contributions when the faculty member's TDA has reached a certain level; the new phased retirement program; a special title for faculty who want to retire but do not want to use the emeritus title; and policies and programs for emeritus faculty.

To fulfill its charge, the Retirement Task Force met throughout the academic years 2000-2002. The Task Force considered both economic and non-economic issues involved in looking at the effectiveness of the current retirement plan and its impact on the decision of faculty to retire. The Task Force reviewed appropriate literature, evaluated retirement programs of other universities and sought input from various groups including retired faculty, faculty near retirement and the Council of Deans. Studies were also performed by Price Waterhouse/Coopers to determine the cost-effectiveness of some of the options considered by the Task Force.

The Task Force report follows this introduction with its recommendations and a discussion of the issues outlined in the charge to the Task Force.

Retirement Task Force Recommendations

After completing its evaluation of the University of Pennsylvania's faculty retirement program as outlined in the Introduction of this report, the Task Force makes the following recommendations.

1. The Office of the Associate Provost should move immediately to establish an Association of Retired Faculty. This organization would maintain contact with and develop supportive activities and services for retired faculty. 
2. The current Early Retirement Window (ages 62-68) should be maintained. A faculty member also should be eligible for an early retirement incentive under a "rule of 75." Faculty could retire as early as age 60 (minimum age) with a combination of age and service at the University of Pennsylvania equaling 75. 
3. The salary figure used in the current faculty early retirement plan is the average salary of a full professor in the retiree's school for the year prior to retirement. It is recommended that the faculty salary to be used in the Faculty Early Retirement window plan should be changed to the faculty member's own salary or a full professor's average salary in the faculty member's own school in the year prior to retirement whichever is higher, subject to a limitation of 200 percent of the faculty member's own salary as provided by law.
4. An additional option should be added to the phased retirement program allowing standing faculty and clinician educators in this program to reduce job duties to 25 percent with a prorata reduction in salary and a relinquishment of tenure. The age limit for faculty to participate in this program would be expanded to a window period from age 55-68. Salary based employee benefits would be prorated. Medical benefits would be provided on a cost-sharing basis between the faculty member and the faculty member's school.
5. A one-time financial planning award (up to $3,000) should be made available to retirement age faculty (54 and over) to pay for professional financial planning services that the faculty member obtains on his or her own behalf.
6. Retiring faculty members should have the option of using or not using the modifier "Emeritus" or maintaining their "Professor" title. The same rights and restrictions to being retired would apply.
7. A faculty member who has committed to retire and who has sabbatical leave credits should be able to take a "retirement leave" without having to return to his or her duties at the University.
8. In addition to the retirement plan information and education provided at the University level, each School in the University should periodically discuss with its faculty retirement related issues.

Background

University faculties are aging. The proportion of full-time faculty age 50 and over has increased from 23.4 percent in 1969 to 51 percent in 1999.¹ Between 1977 and 1996, the median age of faculty at four-year institutions rose from 40 to 48.² The aging of faculties has been caused by the general aging of the population, low turnover rates and low retirement rates.³ Additionally, the ending of mandatory retirement for faculty means that colleges and universities can no longer depend on all faculty retiring by age 70. In fact, many studies have shown that since 1994 retirement rates of faculty have fallen drastically.⁴ Moreover, it is forecast that "a sizeable fraction of the cohort of college and university professors entering their sixties will remain employed into their mid-seventies."⁵

Colleges and universities with an increasing number of faculty in their sixties and seventies face a number of critical issues related to salaries, benefits, tenure, hiring new faculty and many others. On the other hand, if a substantial percentage of the faculty retires in the relatively near future, colleges and universities will face many other issues related to accomplishing their educational mission. It is also essential that colleges and universities focus on possible ways to utilize the valuable resources of senior or retired faculty who have dedicated many years of service to their institution.

The remainder of this report considers how Penn's current retirement plan, special early retirement incentives, phased retirement options, and non-economic approaches are working to achieve Penn's objectives.

Retirement Plan Objectives

The starting point in any discussion of Penn's retirement plan for faculty must be a review of how well the plan meets desired objectives. Penn's faculty retirement plan appears to have the following objectives:

• Allowing for the retirement of faculty in an orderly manner that preserves the educational mission of the University
• Attraction and retention of key faculty
• Meeting competitive standards
• Keeping the plan within established cost parameters
• Compliance with legal requirements
• Efficiency of plan design
• Meeting certain income-replacement ratios
• Social obligations
• Administrative convenience

Penn's approach to meeting its objectives is through a defined contribution retirement plan, whereby employer contributions are fixed and employee retirement benefits are variable depending on their investment performance. This is in contrast to the defined benefit approach where employee retirement benefits are known and the employer's cost varies depending on investment and other actuarial assumptions. The defined contribution approach is favored by educational and other nonprofit institutions of faculty. Whether it is possible to consider a change to a defined benefit plan for future new faculty is discussed later in this report.

It appears from the Task Force's investigation that many of the objectives of the Penn faculty retirement plan are currently being met. The objectives that need review are the "Allowing for the retirement of faculty in an orderly manner that preserves the educational mission of the University" and "Keeping the plan within established cost parameters."

The remainder of this report considers how Penn's current retirement plan, special early retirement incentive, phased retirement options and non-economic measures are working to achieve Penn's objectives. When appropriate, suggestions for improving Penn's retirement plan to better meet its objectives are presented.

Organization of Retired Faculty

The Task Force strongly supports the concept of establishing a University-wide Association of Retired Faculty (ARF) within the Associate Provost's office with widespread supportive activities. The establishment of such an organization would demonstrate the importance of the service and scholarly input faculty members have contributed to the University over many years and the opportunities for ongoing service in the Emeritus phase of faculty life. The following possible activities of such an organization could include⁶:

• advocate for various senior faculty issues such as provision of office space or university-sponsored long-term care insurance.
• advocate for the University in the area of fund-raising. Many emeritus faculty, as a result of years of service to the University and to the Philadelphia region, are ideally suited for identifying and approaching individuals and institutions capable of supporting the University when properly alerted to a specific need.
• through a questionnaire to all senior faculty (active and emeritus) create a talent bank of services that they would be willing to provide pro bono.

In order to staff and support these activities of the ARF, the University Administration should:

• develop an Office of Retired Faculty within the Associate Provost's office, with a staff person who can commit at least 50 percent of his/her time to ARF activities. (One possible funding mechanism could come from the activities of senior and emeritus faculty, who teach in medical school or university-wide programs such as the "Freshman Seminar Program" without remuneration. The University receives tuition funds for these courses and could fund the office for efforts of its emeritus faculty for the University.)
• the ARF could develop Senior Faculty teaching as a marketable resource. For example, in the Medical School, certain desirable courses in medical/scientific topics could be available for undergraduates and in distance learning programs, and a negotiated portion of the revenues produced would return to the Medical School to support the Retired Faculty Program.

One-time Incentive Plans

One approach to increasing the number of faculty retiring would be to institute a one-time only incentive plan for faculty over age 70. The number of faculty over age 70 has grown substantially since the uncapping of retirement of tenured faculty in 1994. Tables 1-4 below show the demographics of the University's faculty by age and rank. These tables indicate that in 2000 there were 48 faculty over age 70.7 Also at issue is the number of faculty that potentially will enter the ranks of over age 70 in the future.

To encourage faculty over age 70 to retire, the Task Force evaluated the possibility of a one-time only financial incentive. A one-time only incentive plan for faculty over the age of 70 could take one of the following forms that are permitted under the law8:

1. a flat dollar amount (e.g. $100,000 to all who retire);
2. a service based benefit (e.g. $5,000 multiplied by years of service);
3. a percentage of salary to all employees above a certain age;
4. a flat dollar amount increase in pension benefits (e.g. $4200 per month);
5. a percentage increase in pension benefits (e.g. 25%); and
6. a plan that imputes years of service and/or age (e.g. employees over age 55 retiring during a specific window might receive credit for 5 additional years of service and/or age).

The Task Force also considered various one-time only options for improved life insurance and medical benefits as an inducement for additional faculty to retire. These options are discussed in a later section of this report. After a great deal of discussion and debate about whether the one-time only option would induce faculty to retire or would actually encourage faculty to delay retirement, the Task Force decided against recommending this option. One Task Force member summarized the views of the Task Force as follows:

I have two problems with a one-time financial incentive for faculty members over the age of 70 who now agree to retire. Those faculty members have already been given one "take-it-now-or-never" choice that they chose to reject. A second opportunity seems quite inconsistent with the assertions made to them and to the faculty members who did accept that first choice. More importantly, I doubt that it would be possible to convince anyone that such a retirement incentive is indeed "one-time." At the present time, many of those who reach the age of 68 decide to retire rather than continuing for the extra two years required to make up the FIAP allowance. I believe the possibility of a "one-time" incentive at a later date would make the prospect of continuing much more attractive. Moreover, the possibility of a "one-time" incentive would be a powerful stimulus for any future faculty member who passed the age of 70 to hang on until the next offer is made.  

Tables 1-4

Faculty Distribution

Age Distribution of Fall Standing Faculty by Rank ⁽¹⁾

Table 1: All Faculty ⁽¹⁾
Age as of July 1 for each year listed ⁽²⁾

Table 2: Full Professor
Age as of July 1 for each year listed ⁽²⁾

Table 3: Associate Professor
Age as of July 1 for each year listed ⁽²⁾