Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk? Panel Presentation: Pensions in Crisis Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk? Valerie Martin Conley, Ph.D. Associate Professor of Higher Education and Director, Center for Higher Education http://www.coe.ohiou.edu/centers-partnerships/centers/center-higher-ed.htm Ohio University conleyv@ohio.edu 2007 NCSCBHEP 34th Annual National Conference

Are Pensions in Crisis? Higher Education may be viewed as a special case. Will pensions be able to support older Americans in Retirement? Increasing number of retirees to workers Rising health care costs Public policy environment characterized by competition for scarce resources The situation needs to be tracked and monitored much more closely– particularly for higher education.

Indicator 1 - Number of Older Americans Source: OA_2006.ppt

Social Security Reform From: “Strengthening Social Security for the 21st Century” Predictions indicate: It will soon be “paying out more than it takes in,” and “every year afterward will bring a new shortfall, bigger than the year before.” Why? It was designed for a 1935 world. Lower benefits, shorter life-spans and fewer retirees http://www.whitehouse.gov/infocus/social-security/200501/strengthening-socialsecurity.html

SOURCE: www.agingstats.gov

Indicator 13 - Life Expectancy Source: OA_2006.ppt

Indicator 20 - Respondent-Assessed Health Status Source: OA_2006.ppt

Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk? Panel Presentation: Pensions in Crisis Pensions at Risk, Retiree Health Benefits at Risk: Retirement at Risk? Higher Education: A Special Case 2007 NCSCBHEP 34th Annual National Conference

http://nces.ed.gov/surveys/nsopf/

Percentage age distribution of full-time instructional faculty and staff, by year: Fall 1987, 1992, 1998, and 2003 Source: NSOPF Faculty were on average 50 years old in 2004. The average age of full-time tenured faculty members was 54.

Aging of full-time instructional faculty: Fall 1987, 1992, 1998, and 2003 Source: NSOPF %

Graying of the Faculty Source: NSOPF Average age of instructional faculty and staff by employment status: 1988, 1993, 1999, and 2004. The average age of part-time faculty has increased from 44 to 50 years old during the time period.

Graying of the Faculty Source: NSOPF Average age of instructional faculty and staff in 2-year institutions, by employment status: 1988, 1993, 1999, and 2004. In 2-year institutions the average age of part-time faculty has increased from 44 to 49 years old during the time period.

Graying of the Faculty Source: NSOPF While in 4-year institutions an “aging cross” has just occurred. In fall 2003 the average age of part-time faculty was slightly higher than for those employed full time. Average age of instructional faculty and staff in 4-year institutions, by employment status: 1988, 1993, 1999, and 2004.

http://www.tiaa-crefinstitute.org/research/trends/docs/tr103105.pdf Source: TIAA-CREF Among the report’s key findings are 35% of faculty are very confident in their retirement income prospects and an additional 51% are somewhat confident.

The Elephant in the Room… Medical Coverage The Elephant in the Room… Some evidence suggests colleges and universities are already reducing retiree health benefits. One study found 34 surveyed private institutions offered pre-65 retiree health benefits coverage to current retirees, but only 27 offered this benefit to new hires. Thirty private institutions offered post-65 retiree health care coverage to current retirees, but only 21 offered this benefit to new hires. Schieber, S. J. The future of retiree health benefits in higher education in the United States

The Elephant in the Room… Medical Coverage The Elephant in the Room… Large numbers of faculty may not be postponing retirement indefinitely now, but changes in retiree health coverage—especially the cost borne by faculty—may increase the number—particularly if they have not been able to plan adequately for it.

The Retirement Choice Costs and Benefits People are living longer– some are living longer, healthier lives Rising health care costs Quality of life Retirement Income Work longer because I want to vs. Work longer because I have to…

Retirement Decision-Making Receptive or ready to retire, but unsupported Receptive or ready to retire, and supported Unreceptive or not ready to retire, and unsupported Unreceptive or not ready to retire, but supported

Expected Retirement Age Source: NSOPF Percentage distribution of expected timing of retirement of full-time instructional faculty and staff: 2003–04. The largest proportion of faculty members (37%) expect to retire on time. However, diverse expectations about the expected timing of retirement are emerging in an uncapped environment.

Expected Retirement Age Source: NSOPF Average age of expected retirement for faculty overall and in 2-year and 4-year institutions: 1993, 1999, and 2004. The average expected retirement age is higher for faculty employed in 4-year institutions (67 years old) than for faculty employed in 2-year institutions (65 years old).

Early Retirement Incentives The availability of these programs has altered the retirement process fundamentally because although the decision about when to retire is an individual one, retirement is negotiated between the individual and the institution.

Early Retirement Incentives Getting the right number of older workers to take ERI; Getting the right older workers to take ERI; and Obtaining older workers’ commitments to retire early at the right cost to the organization. SOURCE: Feldman, D. C. (2003). Endgame: The design and implementation of early retirement incentive programs.

Phased Retirement Policies Before No particular rules… Largely discretionary and informal… A lot of individual deals… After “…instituted the phased retirement policy to stop the wheeling and dealing” (p. 31). SOURCE: Janson, N. (2006). Phased retirement policies. In D. W. Leslie and V. M. Conley (Eds.). New ways to phase into retirement: Options for faculty and institutions. NDHE, No. 132.

Early and Phased Retirement About one-half of faculty members were willing to consider early retirement. Approximately two-thirds of faculty responded that they would elect to draw on their retirement and still continue working at the institution on a part-time basis. Goals should be grounded firmly in knowledge of faculty demographics. Policies should be explicitly framed and communicated by institutional leaders. Departments should be given the flexibility to accommodate their own needs and those of individual faculty.

National Retirement Risk Index (NRRI) Retirements at Risk: A New National Retirement Risk Index Source: Center for Retirement Research at Boston College Measures percentage of working-age households at risk of being unable to maintain their pre-retirement standard of living in retirement Almost 45% of U.S. households are “at risk” “Traditional pensions are disappearing, and 401(k)s have only modest balances” (NRRI in a Nutshell) http://www.bc.edu/centers/crr/nrri.shtml

Pension Protection Act 2006 Fact Sheet “The Pension Protection Act of 2006: Ensuring Greater Retirement Security for American Workers” Strengthens the Federal Pension Insurance System Requires that companies measure obligations of their pension plans more accurately AND pay additional premiums if plans are under-funded. Workers will have more information about the performance of their accounts and greater control over how their accounts are invested. http://www.whitehouse.gov/news/releases/2006/08/20060817.html

Source: GAO http://www.gao.gov/special.pubs/longterm/

Informed Policy and Practice Requires systematically collected data Analysis of local conditions Examining the relationship between institutional characteristics and individual circumstances Asking individuals about attitudes towards retirement and expected retirement ages