As the economy slid into recession, the value of invested faculty retirement funds plummeted alongside the stock market, and Yale is now expecting more employees to postpone retirement.
The effect of the financial crisis on delaying retirement has reopened a perennially thorny question of whether to arrange incentives to induce timely faculty retirements and maintain a steady flow of faculty turnover. While administrators said it is likely that more people will stick around, it would be more costly to try to reverse the trend with new financial incentives.
“We are looking at the problem, and if we can design something creative that allows people to feel more comfortable retiring and would avoid some of the more dysfunctional aspects of these kinds of programs, we’ll consider it quite seriously,” Provost Peter Salovey told unit managers earlier this month. “This is a very tough nut to crack.”
An additional year of work can significantly augment retirement income. Faculty salaries gradually rise over time, contributing more to retirement funds. Typically, the funds themselves grow because the money in the retirement fund is invested in assets by financial services firms TIAA-CREF and Vanguard. Outweighing such financial gain with an early retirement bonus would likely prove more costly for the University than continuing to pay the salary for a few more years.
Retirement incentives has been an ongoing issue since professors started staying at work well into their 70s, but the financial crisis could complicate the problem as employees — who presently are watching their invested savings dwindle — become more reluctant to retire.
For now, Salovey said the administration has encouraged employees to review their retirement accounts with the firms responsible for investing their retirement funds to check how much income they can expect after they stop work. Inevitably, that income has taken a major hit with the recession.
“The University may have lost 25 percent of its endowment, but all the faculty have lost more than that on their [retirement plans],” Tom Pollard, chair of the Molecular, Cellular & Developmental Biology department, said at this month’s meeting. “People’s retirement incomes have been cut by a third. How are we ever going to convince anyone to retire until the day they run out of energy?”
If a new retirement incentive were to be introduced, Salovey said, it would have to be consistent, and it may not have the desired effect on the desired people.
“If you look at where special incentive plans have been used to get people to retire, it is very hard to get the people you thought might retire to retire and in fact you get retirements in places where you which you hadn’t gotten them,” Salovey said. “It’s very hard to focus such a plan because you have to offer the plan to everyone.”
Incentives also create what Salovey called “a kind of funny behavior” where people wait to retire until another, better retirement incentive is offered.
But finances are not the only, or even the primary, reason that faculty choose to stick around. Many professors find their workload manageable — even in their older years — and genuinely enjoy their teaching and research.
The only schools with successful retirement incentives, Deputy Provost Charles Long said, are those that have high demands on their professors. That is not the case at elite research institutions where course loads are lighter and support resources are greater.
But now that retirement funds are tanking, administrators expect money to become a more pressing concern for a larger portion of Yale’s graying faculty. But if more professors decide to stay on longer, the University has other means to continue recruiting fresh talent.
The Provost’s Office often appoints younger faculty in anticipation of an older professor’s retirement. It is cheaper to pay two professors’ salaries for a few years and than to entice an older professor’s early departure with a large retirement package (and still have to pay his or her replacement), Long said.
Retirement Team Manager Laurence Cloney declined to comment.
The average tenured professor earns $174,175, according to the University’s Office of Institutional Research.