The funds that Yale has reserved to cover future pensions and retiree health benefits are estimated to be hundreds of millions of dollars short.

“[It’s] one thing that keeps me awake at night,” Provost Benjamin Polak said.

In a budget update to faculty and staff last month, University President Peter Salovey and Polak defended the administration’s decision to maintain previous cost-cutting measures. Among the reasons for the decision, the report noted, is the rising cost of health care and its impact on Yale’s health benefits as particular burdens for the University, which faces a “significant shortfall in [future pensions and retiree health] funds.” Although the administration has affirmed its commitment to upholding all promises for pension and post-retirement benefits, some faculty remain unconvinced that cost-cutting is an appropriate response.

“People who work here deserve to know that we are being responsible in filling our assets to cover their retirement,” Polak said. “That is going to be a very big hit for the budget in the next few years, but it is something that as responsible managers and responsible citizens we have to do.”

Polak said that the combination of rising health care costs, low interest rates and longer life expectancies have strained the University’s obligations to meet its employees’ pension and retiree health benefits. He said it is difficult to accurately measure the “considerable hole” between the amount Yale has allocated to those obligations and the figure necessary to meet them in the future, but estimated it was at least a half billion dollars and at most $1.2 billion.

Although Polak said the University does not intend to address that shortfall all at once, he estimated that Yale will have to put aside an additional $10 million each year towards these benefits in addition to the money already being paid. This number may rise over time, he added.

“Because people are living longer, the amount of money we have to put aside to cover people in their retirement and cover their retiree health becomes more and more,” Polak said. “Over the next few years we know that we to put fairly large amounts of money aside into our retiree health funds and pension fund to make sure that we are recognizing those future liabilities.”

Still, Polak said it is difficult to provide an exact number since the gap is very sensitive to the discount rates — the interest rate used in discounted cash flow analysis — that the University uses to determine the present value of future cash flows. Depending on the University’s expectations, the yearly payments could fluctuate from $5 million a year to $30 million a year, Polak said.

However, some faculty remain skeptical about Yale’s decision to use budget cuts as a means to address these shortages.

“[Yale] shouldn’t be claiming any concern about pension funds when their history was in the other direction,” dramaturgy and dramatic criticism professor Gordon Rogoff ’52 said. “To then use that as a device to keep austerity in various programs including our salaries … it is legalistic hocus pocus as far as I am concerned.”

Molecular, cellular and developmental biology professor Joel Rosenbaum urged Polak to provide more accounting information to faculty. He added that it was “ludicrous” to make a statement regarding pensions and retirement health benefits without numbers to back it up.

Polak responded that the reason he did not include the estimated figures in the budget update was due to limited space. He said the numbers would require a long explanation of discounting rates and how they affect the calculation.

Still, Assyriology professor Benjamin Foster GRD ’75 commended the University’s commitment to maintaining its pension obligations.

“Pensions, good health care and retirement conditions are essential compensation benefits of academic life,” Foster said. “Therefore it is very good news that the University is holding the line on its commitments in these areas.”

Local 34 President Laurie Kennington also praised Yale’s long-term commitment to its employees to “retire in dignity.”

“Not only are the University’s finances extremely sound, but the plans have been responsibly funded over many years,” she said.