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August 29, 2001
University Failed to Save for Pensions
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iana University expects to pay $2 billion over the next 30 years to professors who no longer teach, all because it failed to put aside money for a retirement plan that had been used for decades to attract and retain faculty.

Some professors told the Associated Press that they fear the cost of the program eventually will compromise IU's future by limiting salaries, hiring, and research funding.

"I think the situation is even worse than they admit," said IU economics professor Martin Spechler. "Where's the money going to come from?"

A review by the AP found that the program's cost has forced the university to:

  • Cut the base retirement plan it offers new employees by a third.

  • Require individual departments to shoulder 20 percent of the cost of their retirees.

  • Offer incentives to retirement-eligible faculty to keep teaching and not take advantage of the benefit, which is known as the 18-20 Program.

The 18-20 Program "was started for all the right reasons," said Judith Palmer, IU vice president and chief financial officer. "It would just have been nice had somebody put a funding methodology in place at the same time."

The program allows a professor or administrator who has worked at the university for at least 20 years and contributed to the base retirement plan for at least 18 years to retire at age 64 and continue receiving a full salary for another five years. That salary is roughly the average of the person's annual pay during the five years leading up to retirement. IU also continues to pay into the person's base retirement account during the five years, boosting retirement benefits.

The AP says Indiana University is just beginning to feel the economic impact as those vested under the 18-20 Program retire. Retirement costs will build until about 2013. That year alone, according to the most recent university estimates, the school will pay out $106 million to retired professors and administrators.

As of May, 323 retirees were in the program, receiving an average annual benefit of $75,093, according to the AP. An additional 1,925 employees will be eligible for the program once they retire.

"This has definitely put a crimp in the budgets of many programs," said Mary Fisher, an associate professor of nursing and vice president of the faculty council at Indiana University-Purdue University at Indianapolis. "They're trying to get us to take on more students, but we can't hire new teachers right now because of these budget restraints."

The retirement plan was created by former IU President Herman B Wells, who oversaw the growth of the university from a pre-World War II campus of about 9,000 students to a major Midwestern institution that now enrolls more than 35,000.

Wells instituted the program 1959, in answer to IU's inability to offer competitive salaries. The program did such a good job of drawing faculty that some referred to it as the "golden handcuffs'" the reward for staying at IU was so rich, they were financially bound to the university.

IU, however, did not fund the program or put a time-limit on its availability. The program was eliminated in 1989 as officials recognized the impending costs.

"Not much thought was given in those first few decades as to how we would pay for the program," Palmer said. "It became apparent that we had a very, very significant cost facing the university."

To view the Associated Press story, click here

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