Despite falling 13 percent since last year — the first downsizing since 2014 — Yale’s unfunded obligations in pension and post-retirement benefits total more than $1.1 billion as of June 30, 2017, according to the University’s latest financial report.
To cover these costs, the University puts aside tens of millions of dollars each year, on top of channeling investment returns made by pension fund managers toward covering these expenses. Chief Financial Officer Stephen Murphy ’87 said the University will contribute $91 million toward pensions and post-retirement benefits by the end of fiscal year 2018, adding that this figure will increase to over $100 million in fiscal year 2019. According to Murphy, these large contributions reflect the “generous retirement benefits Yale has for its employees,” increasing health care fees and a low interest rate environment.
“We do not need to address this issue all in one year, and it will likely take decades to address it fully,” Murphy said. “Even so, it is putting significant pressure on the University’s operating budget because of the large annual contributions we do need to make.”
Jack Callahan ’80, senior vice president for operations, said nothing can be “more complex or less logical” than pensions.
According to Callahan, the University is steadily working to meet these obligations by increasing annual contributions and evaluating other risk mitigation methods.
The cost to the University of employee benefits — including pension, post-retirement health and insurance plans, as well as social security and other statutory benefits — came to $566 million this past year, which marked 16 percent of the University’s total expenses and a 7 percent increase from 2016.
Yale School of Medicine Dean Robert Alpern noted that the University operates under a system of fixed and guaranteed obligations to some of its employees. He added that persistent unfunded obligations are a product of losses in pension fund investments.
“[The fixed obligations] have to be paid what they were told the benefits would be,” Alpern said. “If the investment doesn’t keep up with that, doesn’t generate anything, you have to add new money.”
Still, Alpern said that although managing pension and post-retirement benefits is not part of his job, he thinks the situation is “under control.”
Large unfunded obligations in pension and post-retirement benefits are not unique to Yale. Harvard University also owes close to $1.1 billion in unfunded obligations, according to its 2016–17 financial report. The total unfunded obligations for the two schools have been comparable for the last five years.
Top U.S. universities of similar size to Yale all see obligations in pension and post-retirement benefits on a scale of hundreds of millions. Stanford University and the Massachusetts Institute of Technology had obligations of about $700 and $460 million, respectively, by the end of fiscal year 2016.
Despite the apparent parity between Yale and Harvard, the financial burden seems heavier for the University than for its Cambridge rival. For the past three years, Harvard contributed less than $15 million annually to fund the obligations, while Yale paid an average of over $60 million.
Jingyi Cui | firstname.lastname@example.org