If the University of Missouri System creates a new retirement plan for future employees, administrators should pledge, in writing, that the existing plan for current employees will continue to meet its obligations.
That was one of the findings of a UM advisory committee charged with making recommendations for the future of the System’s pension plan. The report, presented to the Board of Curators in March, also recommends that the university maintain a stabilization fund to insure the current plan, known as a defined-benefit plan, remains fully funded.
The committee said that if the UM Board of Curators decides to create a new retirement plan for future employees, the “preferred alternative” would incorporate elements of both defined-benefit and defined-contribution plans.
Defined-benefit, or DB, plans, are employer managed. They guarantee employees some level of income upon retirement, and have been popular in the public sector for many years. But the growing cost of funding them has triggerd budget crises in several states.
Even though the UM plan has remained fully funded, those pressures prompted administrators to begin requiring employees to contribute a percentage of their pay to the plan in 2009.
The advisory committee also noted that newer generations of employees may not value a plan that provides the highest benefit after an entire career with a single employer.
Defined-contribution, or DC, plans require employees to save and invest on their own, while reducing the risk to employers. While DC plans are more popular with younger employees, who are more likely to switch jobs during the course of their careers, they raise other concerns, the committee reported.
Because defined contribution plans require employees to make investment decisions, they need to be more sophisticated about investment options. There is also some concern about whether employees will have adequate retirement income if they make poor investment decisions or choose to take out their investments if they leave the university.
Also, most DC plans require significant employee contributions, and lower-paid employees may not be able to afford the contributions.
Kelly Stuck, UM’s associate vice president of compensation, said that while the committee reached consensus on combining the current DB plan with a DC component, not all members agreed it would best serve future faculty and staff.
“We had people say, ‘I’d rather take the money. I think I can do better than the university and have more at retirement,’ ” Stuck said. “Other people felt, ‘This is the way to guarantee that everybody has a certain amount at retirement.’ ”
The UM System has been discussing possible changes to the retirement plan since 2009, when administrators expressed concern that the investment returns the plan relies on to meet its obligations had become less certain. Administrators began meeting with faculty and staff at the systems’ four campuses about the forces affecting the current plan.
Administrators had initially anticipated sought curator approval of a new plan by December 2010. But when campus leaders said many employees were unsettled about the possible changes and worried that the system was moving too fast, then-President Gary Forsee called for an advisory committee to review various options. The committee includes members of the intercampus faculty and staff councils, the standing committee on retirement and benefits and Betsy Rodriguez, the system’s vice president for Human Resources.
In addition to recommending a written pledge that the defined-benefit plan would remain intact and fully funded for current employees, the committee’s findings included:
- a recommendation that mandatory employee contributions remain low, and that contributions to any new plan for future employees should not be less than those required by employees who would remain in the current plan;
- the university should provide adequate education for employees to make informed decisions;
- the university should implement a communication plan to foster employee understanding and appreciation of the value of their benefits;
- the most important retirement plan objective is “income adequacy” at retirement;
- the type of retirement plan offered is “not typically” a primary factor in most employees’ decision to accept or leave employment.
Curators accepted the committee report, but did not discuss it or take action on it at ithe board’s March meeting in Rolla. Stuck said the board has not established a timetable to act on the committee’s recommendations.
“The findings were presented as an information-only item,” Stuck said. “The standing Retirement and Staff Benefits Committee will continue to consider the work of the Advisory Committee in any future recommendation.”
A history of the UM Retirement Project, including the advisory committee’s report, can be viewed at umsystem.edu/ums/hr/benefits/retirementplanproject.