Friday, September 7, 2012

Food for Thought on Retirement at UC

Inside Higher Ed today unveiled a survey of human resource executives in higher education.  The full survey can be downloaded from that source and the link is at the bottom of this post.  But start with the observation that much of higher ed operates with defined contribution pension plans such as TIAA-CREF.  Thus, there is no particular incentive for older faculty to retire built into the pension.

As can be seen below, higher ed HR execs thus worry that older faculty are not retiring, making it difficult to recruit new faculty.  UC, with its defined benefit system, does have a built-in retirement incentive.  And stock market gyrations – although they affect the funding of the plan – do not affect the basic retirement incentives as seen by participants.

The survey also shows that worries about retiree health care can adversely affect retirement incentives.  In most cases (including UC), retiree health benefits are not guaranteed in the same way that (defined benefit) pensions are guaranteed.  That’s something to think about as such benefits are manipulated for immediate budgetary reasons or even long-term cost reasons.  The basic lesson is that benefit plans are more than costs; they affect behavior.  A focus only on costs can obscure potential perverse employee incentives that changing benefits can bring about - such as excessively delaying retirement.  It's the kind of lesson everyone knows but, paradoxically, is often ignored or forgotten in practice.

A chart from the survey can be seen below.  Click on it for a clearer image.

The article with a link to the detailed survey is at:

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