Subcommittee Charge

The Retirement Subcommittee was charged to investigate three areas:

 a)  History of the reduction in retirement plan contribution by faculty from  8.5%
     to 6.0%

b)  Medical Benefits available after Retirement

c) Voluntary Modification of Employment (VMOE): History, Incentives and
      Impact

       The two major types of retirement programs are defined contribution and defined benefit.  A defined contribution plan pays a portion of salary to the employee’s retirement services provider (e.g., Fidelity, VALIC, TIAA-CREF).  A defined benefit plan provides a pension which is based upon salary at retirement and years of service. Prior to 1969, all faculty were enrolled in the Teachers Retirement System (TRS), a defined benefit plan. In 1969, the state established ORP, a defined contribution plan, as an additional alternative for faculty.  The state rate of contribution to ORP has varied over time:  6% from 1969-1977, 7.5% from 1978 to 1979, 8.5% from 1980-1995, and 6.0% from 1995-present.
       The 1995 reduction in ORP funding occurred because of Attorney General Dan Morales’ reinterpretation of relevant legislation.  He decided that the state could pay less than a legally mandated 8.5%, at the same time allowing employees who were hired on or before August 31, 1995 to remain at the 8.5% contribution if their institution chose to make up the difference.  (The University of Houston has chosen to do so.)  This was precipitated when the rate of contribution for the TRS system was reduced to 6.0% because of the stock market’s strong performance (higher rates of return require lower contribution levels to provide a given level of pension).  To maintain equity, the state ORP contribution was also reduced to 6.0%.   Currently, all faculty hired on or after September 1, 1995 receive a 6.0% rate of contribution to ORP or TRS which cannot be supplemented by the institution.

       At the present time, three levels of retirement funding are in place:  the currently mandated 6.0% for all new employees and employees in institutions which did not maintain the higher level, 7.31% for institutions that maintained the old TRS contribution level, and 8.5% for all institutions that maintained their ORP employees at 8.5%.  One solution for this problem which has been suggested is to put all  eligible employees (including ORP employees) into the TRS and provide a 6.0% contribution.
       Forty-four of the fifty states have implemented higher education  ORP programs.   Of these 44 states, only Georgia (4%), Massachusetts (5%), Minnesota (6%), Montana (4.956%), and South Carolina (4.25%) have a state contribution level less than or equal to the Texas rate.  Five states (Indiana, Kentucky, Nebraska, New York, and North Dakota) have rates that vary across their institutions.  Of the ten largest states, Texas ranks at most ninth in contribution level (the New York contribution rate varies).

     Three retirement services providers (Valic, TIAA-CREF, and Aetna) have formed a coalition to seek restoration of ORP funding to the 8.5% level.  To date, they have been unsuccessful.   VALIC is very willing to work with the Faculty Senate on this issue.   VALIC resource people include Director of Government Affairs Linda Lund (713/831-5401) and Senior Counsel for Government Affairs Ted Kennedy (713/831-4987).

       The Faculty Senate should endorse a return to the 8.5% state ORP rate and request that the university administration make this issue a high priority for the next legislative session.  The rationale for this is that it will enable departments to be more competitive in their efforts to recruit new faculty.  In addition, higher retirement funding enables faculty to retire at an earlier age increasing the flow of  “new blood” into the professoriate. Finally, salary costs may be reduced as high salary senior faculty are replaced by more junior people.

     At its February 23, 2000 meeting, the University of Houston Faculty Senate passed the following motion by a majority vote of 28 For and 3 Against:

The Faculty Senate should endorse a return to the 8.5% state ORP rate and request that the university administration make this issue a high priority for the next legislative session.
 
 

Voluntary Modification of Employment (VMOE)

 The guidelines for VMOE are found in the Faculty Handbook (1998 edition: pp. 51-53).  In outline, faculty who seek and/or elect to accept VMOE give up tenure and become no more than 49% FTE employees.  Work assignments, including teaching, as well as compensation are the products of negotiation on an individual basis between the faculty member and the Department Chair and/or College Dean.  Under VMOE, a faculty member can be a Principal Investigator on grants and have postdoctoral fellows, but cannot formally train graduate students (i.e., be head of a graduate student committee).

 The duration of a VMOE contract cannot exceed five years, but can then be renewed on an annual basis.  After converting to VMOE, the faculty member is eligible for medical and life insurance to the same extent as a full retiree.  A summary of the benefits available in the VMOE program are provided in Appendix B of the UH Retirement Planning Handbook (Attachment A).  In effect, VMOE appears to be a situation in which the participating faculty member “retires” and is then hired back under a new set of circumstances.

There appear to be no centralized records for VMOE contracts.  Information gathered by Barbara Fasser in the Provost’s office from Deans and supplied to the Subcommittee indicates that 51 faculty members have enrolled in VMOE during the last five years.  Participation by College is as follows:

All VMOE arrangements were for 49% over five years (although I know personally of one that was negotiated for only three years at the insistence of the Dean).   In a few cases, the contracts were renewed after five years and at least one was terminated prematurely because of health problems.

 Clearly, the use of VMOE varies widely among Colleges, although this likely reflects to a considerable extent the number of retirements over the period covered for each College.  It would be useful to collect these data.

 In the view of one Dean, a VMOE did not  constitute the best path as an incentive to full retirement.  Instead, it was suggested that a 12 month leave on full salary immediately prior to retirement might be preferable.  In his College, once a faculty member goes on VMOE, the retention of the faculty line by the department affected is at the discretion of the Dean.

This group was appointed several months ago by Provost Sheridan.  The areas being investigated include: a) additional services and their value to retirement package;  b) other retirement options; c) financial and legal implications.  Members of the Committee include Dean Alan Stutts (Chair), Dean Jerald Strickland, Dean John Bear, Dean Ray Flumerfelt, Dennis Duffy, General Counsel, Elaine Charlson, Associate Vice Provost and Randy Harris, Vice President for Administration and Fianance.  The Task Force has met and generated a draft memorandum concerning a Voluntary Early Retirement Program for Faculty.  The impact, if any, of such a program on VMOE, assuming it were instituted, is unclear.  As there are no faculty members on the Task Force, it is hoped that a member of the Faculty Affairs Committee can serve as a liaison during the remainder of its deliberations.

 1)  The section on VMOE in the Faculty Handbook should be revised
       to provide more detailed information;

 2)  Efforts should be undertaken to publicize the existence and character
      of VMOE to faculty.

It appears that the VMOE program is a popular way for faculty to make the transition to full retirement.  However, the impression of the Subcommittee is that Deans and Department Chairs zealously guard their prerogative to negotiate each contract largely in secret.  While these arrangements are in many respects quite properly private matters, there is an air of labor-management relations in these negotiations which may not always work to the advantage of the faculty member.  From the faculty perspective, the goal should be equal treatment of faculty under the VMOE policy.

Evaluation of VMOE could be extended by:  1) interviewing faculty who are on VMOE and after they have retired fully to obtain their opinion of how they fared under the program;  2) Discuss retirement incentives with other Deans and former Deans in Colleges where VMOE has been most widely used;  3)  Maintain up to date centralized records of VMOE contracts for easier access and review by appropriate personnel.

         In addition to retirement procedure, the University of Houston Retirement Planning Handbook contains information about retiree insurance benefits and pensions.

NOTE:  The UH Retirement Planning Handbook is available from Human Resources -- Benefits.
 
The main contact for retirement issues  is Nelda Davila at 743-5765.

The next Benefits seminars include:

 

SEMINARS	DATES	TIME	PLACE
Strategies for funding your child's education	April 12, 2000	2:00 p.m.	135 Heyne
Strategies for meeting your financial goals	May 10, 2000	2:00 p.m.	135 Heyne