Benefits Committee Issues Recommendations

The report of the Faculty Standing Committee on Benefits, released publicly yesterday, asks Dean of the Faculty Jeremy R. Knowles to recommend that the Corporation rescind a one percent reduction in pension contributions and delay the implementation date of changes to postretirement health benefits by one year.

The report asks the dean to recommend that the Corporation, the more powerful of the University's two governing boards, approve the committee's proposals. The Corporation must approve any changes to the current benefits policy.

"The Committee asks that you, on behalf of FAS, forward these recommendations about the announced changes in benefits to the Corporation, and that you urge the Corporation to implement our recommendations," the report asks Knowles.

The committee, chaired by Professor of Sociology Peter V. Marsden, also acknowledged a continuing sense among members of the Faculty of Arts and Sciences (FAS) that last year's review of fringe benefits changes was unfair.

"We must report that many faculty and staff members remain troubled by the process," the report says. "Not a few regard the changes, while within the University's legal rights to alter benefit programs as its needs and resources change, as a breach of trust between the University and its faculty and staff."

In an interview yesterday, Marsden downplayed the significance of that section of the report.

"I don't think we want to overdramatize that," Marsden said. "The report is really directed toward a couple of issues about the changes themselves. Other reports have really addressed the process."

But McKay Professor of Mechanical Engineering Frederick H. Abernathy, who co-authored a report last fall critical of the review process, said that the review, conducted by a committeewithout faculty members, is still a concern.

"Nothing has happened that has changed that,"Abernathy said. "I think that is a concern withsome faculty and I think the committeerecommendations were attempting to help that."

In an interview Monday, Knowles refused to takea stand on the report, but it seemed likely fromthe dean's comments that he will advise theCorporation to approve the recommendations.

"The committee [has written] a very thoughtfuland analytical report," Knowles said Monday.

"If I thought it were a poor argument, would Ihave said it was thoughtful and analytical?" thedean also said. "I am relatively sparing with mypraise."

Knowles said the report was sent to theCorporation immediately after he received it onMarch 21. But it is unclear if Corporation membershave discussed the proposals.

"I'd like to think they've discussed it, but Ihaven't heard anything substantive," Marsden said.

The Findings

The report details the committee's research andfindings, leading up to the two recommendations,which were originally presented at the fullFaculty meeting last month.

In addition to the limited criticism of the1994 review process, the report critiques thefindings of the original review committee.

Most of the committee's concerns center aroundfears that the reduction in pension contributionsand the changes in post-retirement health benefitscould encourage employees to postpone retirement.

"We have seen it argued that, by encouraging`estate-building' (accumulating wealth throughcontinued employment and the compounding ofpension contributions), the faculty pensionprogram actually dissuades faculty and staff fromretiring," the report says. "We are notpersuaded."

In fact, the committee says reducing pensioncontributions, rather than maintaining currentlevels, would discourage retirement.

"We cannot envision that a decline in pensionswould make it easier for faculty to make thedecision to retire," the report continues.

The committee found, according to the report,that the decision to reduce pension contributionswas made for purely financial reasons--reasons thereport refutes.

"The University's costs for faculty pensions,then, are not an appreciable source of the upwardpressure on the fringe rate that initiallyprompted the benefits review," the report says.

The committee anticipates a temporary reductionin salary increases in order to neutralize thecost of maintaining the current level of pensioncontributions, which are tax-exempt.

"We think that the change would be to thelong-run advantage of most faculty members becauseof the tax-preferred treatment accorded tocontributions to pension funds," the report says.

The committee also expresses concern thatchanges in post-retirement health benefits,including capping University contributions at the1999 levels, would lead to dramatic increases inpersonal costs during retirement to formeremployees.

"The University is better able than individualsto assume risks associated with providingpost-retirement health coverage," the reportasserts.

"Clearly, one reasonable way for prudentfaculty and staff members to adjust to thehigher-than-anticipated and uncertain future costsof post-retirement health insurance coverage wouldbe delay their retirement dates," the report says."Surely many, if not most, faculty and staff willbe sorely tempted to do this."

The report concludes by recommendingUniversity-wide deliberations on post-retirementhealth benefits and a "softening" or eliminationof the cap on contributions

"Nothing has happened that has changed that,"Abernathy said. "I think that is a concern withsome faculty and I think the committeerecommendations were attempting to help that."

In an interview Monday, Knowles refused to takea stand on the report, but it seemed likely fromthe dean's comments that he will advise theCorporation to approve the recommendations.

"The committee [has written] a very thoughtfuland analytical report," Knowles said Monday.

"If I thought it were a poor argument, would Ihave said it was thoughtful and analytical?" thedean also said. "I am relatively sparing with mypraise."

Knowles said the report was sent to theCorporation immediately after he received it onMarch 21. But it is unclear if Corporation membershave discussed the proposals.

"I'd like to think they've discussed it, but Ihaven't heard anything substantive," Marsden said.

The Findings

The report details the committee's research andfindings, leading up to the two recommendations,which were originally presented at the fullFaculty meeting last month.

In addition to the limited criticism of the1994 review process, the report critiques thefindings of the original review committee.

Most of the committee's concerns center aroundfears that the reduction in pension contributionsand the changes in post-retirement health benefitscould encourage employees to postpone retirement.

"We have seen it argued that, by encouraging`estate-building' (accumulating wealth throughcontinued employment and the compounding ofpension contributions), the faculty pensionprogram actually dissuades faculty and staff fromretiring," the report says. "We are notpersuaded."

In fact, the committee says reducing pensioncontributions, rather than maintaining currentlevels, would discourage retirement.

"We cannot envision that a decline in pensionswould make it easier for faculty to make thedecision to retire," the report continues.

The committee found, according to the report,that the decision to reduce pension contributionswas made for purely financial reasons--reasons thereport refutes.

"The University's costs for faculty pensions,then, are not an appreciable source of the upwardpressure on the fringe rate that initiallyprompted the benefits review," the report says.

The committee anticipates a temporary reductionin salary increases in order to neutralize thecost of maintaining the current level of pensioncontributions, which are tax-exempt.

"We think that the change would be to thelong-run advantage of most faculty members becauseof the tax-preferred treatment accorded tocontributions to pension funds," the report says.

The committee also expresses concern thatchanges in post-retirement health benefits,including capping University contributions at the1999 levels, would lead to dramatic increases inpersonal costs during retirement to formeremployees.

"The University is better able than individualsto assume risks associated with providingpost-retirement health coverage," the reportasserts.

"Clearly, one reasonable way for prudentfaculty and staff members to adjust to thehigher-than-anticipated and uncertain future costsof post-retirement health insurance coverage wouldbe delay their retirement dates," the report says."Surely many, if not most, faculty and staff willbe sorely tempted to do this."

The report concludes by recommendingUniversity-wide deliberations on post-retirementhealth benefits and a "softening" or eliminationof the cap on contributions