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Sept. 29, 2010 Volume 32, No. 6

Citing confusion, Forsee wants more employee input on pension changes

Pension graph

FISCAL RISKS The University of Missouri budgets 7 percent of payroll costs to fund the employees’ pension plan. The total cost of funding the current defined benefit plan is projected to double, to $120 million, by 2014.


Campus leaders say details are needed — and soon

University of Missouri President Gary Forsee is asking leaders on the system’s four campuses to continue conversations with faculty and staff about the future of the UM retirement plan.

At last week’s Board of Curators meeting in Springfield, Forsee said that, while possible changes to the plan are “a work in progress,” administrators must continue to address confusion among employees and retirees about what such changes would mean for them.

“Leaders will have to lead, the communication will have to be clear and the input will have to be taken,” Foresee said. “And it’s our commitment to do that.”

System administrators have been meeting with faculty and staff groups about the forces affecting the current pension plan for about a year, while emphasizing that no decision has been made about specific changes.  Members of the curator’s compensation committee are scheduled to hear an analysis of various alternatives by the system’s public-pension consultants Nov. 1, before the full board considers recommendations at its December meeting in St. Louis.

Some campus leaders at MU, however, said that schedule might not offer enough time for faculty and staff to absorb details of any proposed changes. Professor of Agronomy Bill Wiebold, chair of the Intercampus Faculty Council, said he understands the need for a decision sooner rather than later. But the lack of specifics is “unsettling” for employees, he said.

“One kind of wonders if they’re still working on it, can it be vetted with enough interest groups before it goes to the curators for a vote,” Wiebold said. “I’m not saying it can’t be done, but time moves fast and it’s kind of hard to see how they can get it all done.”

John David, director of Biological Sciences, is a member of the UM System Faculty and Staff Advisory Committee. David said that while the committee has been told that system consultants have been “modeling” alternatives to the existing plan, that information has yet to be shared with committee members.

“I have to assume that if the advisory committee hasn’t seen the results of the models, general faculty haven’t either,” he said. “I can say as a faculty member, I haven’t seen anything.

“So I have a concern about the timeline,” added David, who stressed that he was speaking as a UM employee and not as a representative of the advisory committee.

“It feels very much to me as an individual that we’re rushing towards making a decision without having the information available with which to make that decision,” he said.

In Springfield, Foresee sought to alleviate fears that drastic changes were in store for current employees and retirees. In comments that were audio-streamed to the system’s website, Forsee emphasized that “there is no agenda” to reduce the benefits retirees now receive or to force current employees into any new plan. Any changes for current employees, he said, would be designed to protect the university financially while minimizing unintended consequences.

“At one level, it’s pretty simple,” he said. “Can we make a change in our pension plan design to reduce the university’s risk? I would submit that were we to do that, we would reduce current employees’ and retirees’ risk as well.”

The university’s existing defined benefit plan guarantees benefits equal to 2.2 percent of a retiree’s salary for every year of employment. The university currently budgets 7 percent of payroll costs to keep the pension plan fully funded. Since 2009, employees have been paying an average of 1.3 percent of their salaries into the plan.

Betsy Rodriguez, UM vice president for Human Resources, warned curators that the university’s contributions to the defined benefit plan are projected to double, to $120 million, by 2014. In addition to the mandatory employee contributions, a stabilization fund set up a few years ago has been used to cover slight cost increases. 

That strategy, however, may no longer be sufficient to keep the current plan fully funded, given potential changes in the “assumptions” the system has relied on in the past. For instance, Rodriguez told curators UM should not continue to count on an 8 percent return on investment of retirement funds. Nor, she said, should the system plan on continued high employee turnover, which has been a “significant funder” of the current pension system. Also, retirees are living longer, increasing the benefits paid out each year.

Absent new revenue or a change in the existing pension structure, Rodriguez said, “we’re going to have to dip into the stabilization fund.

“The alternative,” she continued, “is we dip a little into the stabilization fund or we increase either the employee or employer contribution into the plan. Those are all things that will have to be considered.”

Rodriguez said system administrators must answer several important questions before deciding what features the new plan would have. How should the university and its employees share the financial risk? What kind of plan would attract prospective new hires while protecting the interests of long-term employees and retirees? How much mandatory contribution would burden lower-paid faculty and staff?

One widely discussed alternative is a defined contribution plan, such as a 401(k). Rodriguez said most of UM’s peer universities have such a plan for faculty. (In other states, rank-and-file university workers often belong to public-employee pension plans.) 

Defined contribution plans require employees to contribute a percentage of their wages into a retirement fund of their own choosing. Employers typically contribute some percentage to the plan, as well.

Both Rodriguez and Forsee acknowledged that the existing defined benefit plan has served the university well. That’s a view shared by faculty groups, who have argued it could serve as a tool to retain faculty who may otherwise choose to leave UM, where salaries are lower compared to peer institutions, for a higher-paying position elsewhere.

While Forsee urged campus leaders to continue gathering feedback from employees, some curators expressed frustration that administrators have yet to present them with an alternative they could vote on. But Warren Erdman, chair of the board’s compensation committee, said administrators needed to continue to engage “stakeholders” before reaching a consensus.

“The truth is, we don’t know what we’re talking about yet,” Erdman said, “because we’re in a process that’s going to treat with respect the feedback we get from employees.”

In other business, curators agreed to consider issuing up to $300 million in bonds for capital improvements, including renovation of the Mark Twain residence hall and construction of a chilled water plant at MU.

The board also learned that health premiums of UM employees will increase 13 percent in January and that a tuition increase is likely in 2011-12.