\l N \lllllllllllll W H “W 3 1293 10491 8697 f,— ! L13: {fig 3.: :r i ; Mifihfizéugiafl gtate UfliVfl‘rsfit’v Jr This is to certify that the dissertation entitled FACULTY EARLY RETIREMENT: RECENT HISTORY, CURRENT ISSUES, INCENTIVE OPTIONS USED BY AAU INSTITUTIONS STAFF PLANNING MODELS presented by JAN I CE DUTCH ER SIMPSON has been accepted towards fulfillment of the requirements for Ph.D. degree in Administration 8:" Curriculum flwflk Major professor Date February 21, 1983 MS U is an Affirmative Action/Equal Opportunity Institution 0-12771 MSU LlBRARlES m fl ('i FT P. ! par-w ‘53.! '- F? f BEIURNING MATERIALS: Place in book drop—to remove this checkout from your record. FINES will be charged if book is returned after the date stamped below. FACULTY EARLY RETIREMENT: RECENT HISTORY, CURRENT ISSUES, INCENTIVE OPTIONS USED BY AAU INSTITUTIONS, STAFF PLANNING MODELS By Janice Dutcher Simpson A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Administration and Curriculum 1983 ABSTRACT FACULTY EARLY RETIREMENT: RECENT HISTORY, CURRENT ISSUES, INCENTIVE OPTIONS USED BY AAU INSTITUTIONS, STAFF PLANNING MODELS By Janice Dutcher Simpson Current and long range projections of enrollment decline, inflation, and decreasing governmental support combined with the need to respond to changing educational demands are causing concern among institutions of higher education. The possible effects of the Amendment to the Age Discrimination in Employment Act along with the likelihood of abolishing mandatory retirement further magnify the problems of the coming decade. Within the context of these problems, early retirement incentive plans are an attractive option that can provide benefits to both institutions and individuals. This study presents university planners with an overall view of the use of incentive early retirement plans within AAU universities, the considerations that should be investigated before initiating such retirement plans, and the types of staffing models that can be used to assess the merits of various retirement options. The history of the Age Discrimination in Employment Act is reviewed along with various studies on its probable effects at both the institutional and national levels. The current status of early retirement in AAU schools is discussed by type of plan, ranging from the widespread phased-retirement option to the concept of severance Janice Dutcher Simpson pay, as used by a single university. The changes in numbers of plans of each type that have occurred over the past ten years within the AAU institutions are noted. A number of models are available to help decision makers study faculty flow as well as the probable financial outcomes of early retirement incentive plans. Seven models were selected on the basis of the types of questions they were designed to answer and the mathematical concepts used; these models are then discussed as to the input data needed, the mathematical algorithm used, the output information produced, and the limitations of the model. These model descriptions were designed to introduce planners to the sophisticated tools that are now available and necessary for studying the complex issues surrounding the effects of early retirement. The final section of the study presents a recommended approach to the task of deciding upon an early retirement plan and concludes with several suggestions for facilitating implementation of the selected plan. For Bill and Brent ii TABLE OF CONTENTS LIST OF TABLES ................ I ........ LIST OF Chapter I. II. .III. FIGURES ........................ INTRODUCTION AND OVERVIEW Introduction .................... Statement of Problem ................ Purpose of Study .................. Terms ........................ Limitations ..................... Delimitations .................... Procedure ...................... Organization and Overview .............. HISTORICAL PERSPECTIVES Historical Development of Retirement Issues ..... Origins of Faculty Retirement Programs ....... Retirement Age ................... History of the Amendment to the Age Discrimination in Employment Act .................. Effects of the Amendment to the Age Discrimination in Employment Act .................. Retirement Plans, Decisions, Attitudes ....... Summary ...................... EARLY RETIREMENT INCENTIVE PLANS AT AAU INSTITUTIONS Early Retirement and Incentives .......... Studies on Early Retirement and Early Retirement Incentives .................... Taylor and Coolidge Study ............. Linnel Survey ................... Early Retirement Plans ............... Phased Retirement ................. Interim Allowances ................. Annuity Supplements and Augmented Benefits ..... Severance Pay ................... Disincentives to Early Retirement ......... Normal Age Interpretation . . . . . . . . . . . ; . Conclusion. . . .................. iv Page vi viii Page IV. MODELS AVAILABLE TO DECISION MAKERS Policy and Planning ................. 96 Early Retirement and Policy ............. 99 Early Retirement Policies and Models . ....... 102 General Projection Model ...... » ........ 109 Fixed Student/Faculty Ratio Model .......... 115 Constant Faculty or Constant Budget Model ...... 121 Markov Chain Model ................. 126 Simulation Model .................. 133 Behavioral Model .................. 140 Optimization Model ................. 148 Conclusion ..................... 154 V. CONCLUSIONS AND RELATED ISSUES Summary ....................... 158 Conclusions and Recommendations ........... 161 ‘Uncapping ...................... 171 Youth Versus Age .................. 173 University Hide Position Control .......... 175 Using Models to Evaluate Early Retirement Incentive Policies ..................... 177 Topics for Further Study .............. 178 APPENDIX ........................... 182 BIBLIOGRAPHY ......................... 184 IO. 11. 12. LIST OF TABLES Summary of Retirement Plans at AAU Institutions Based on Taylor-Coolidge Survey, 1972 ............. Retirement Age Policies at AAU Institutions Offering Incentive or Phased Retirement in 1972 .......... Retirement Policy Changes from 1972 to 1981 ....... Effects of Inflation on $10,000 per Year Income ..... Faculty Age Distribution by Year at Sample University with Constant Retention Rates .............. Faculty Attrition Pattern at Sample University ...... Fifteen Year Projection of Ideal Faculty Size at Sample University, from Report on Early Retirement (New York, TIAA- CREF, 1981), Table A-17 ............... Fifteen Year Comparison of Ideal Faculty Size and Actual Faculty Size Resulting from Four Retirement Ages, from Report on Early Retirement (New York, TIAA- CREF, 1981), Table B-1 ........................ Changes in New Hires Based on Assumption of Constant Compensation Budget, from "The Impact of Federal Retire- ment-Age Legislation on Higher Education," AAUP Bulletin September, 1978, Table 4 ................. Changes in New Hires Based on Assumption of Constant Compensation Budget, from "The Impact of Federal Retire- ment-Age Legislation on Higher Education," AAUP Bulletin September, 1978, Table 5 ................. Predicted Effects of Stanford Early Retirement Plan, from "Faculty Early-Retirement Programs," by David S.P. Hopkins, Operations Research, May-June 1974, Table IV . . Sample Outputs of University of Southern California Faculty Staffing Model, from The USC Facultngodel by Robert H. Linnell, Office of Institutional Studies. University of Southern California, Los Angeles, Calif. rev. September 1979, Appendix C ............. vi: Page 63 66 69 87 105 106 118 119 124 124 131 137 13. 14. 15. Simulation Results of Alternative Early Retirement Incentive Plans, from "Simulation of Institutional Incentive Plans for Faculty Early Retirement Using a Behavioral Model of Retirement Decision Making," by William C. Neiler in Research in Higher Education 15, No. 2, 1981, Table 2 ................. Summary of Input Data fro the Optimization Model, from "Resource Planning in University Management by Goal Programming," by Roger G. Schroeder in Operations Research 22, No. 4, 1974, Table 1 ........... b. Sample Goal Structures for the Optimization Model from "Resource Planning in University Management by Goal Programming," by Roger G. Schroeder in Operations Research 22, No. 4, 1974, Table 1 ............ vii Page 145 152 152 LIST OF FIGURES Page Age Distribution of Full-Time Faculty at Sample University ........................ 104 Faculty Age Configuration for Base Year, 1978. From Carl V. Patton, Academia in Transition, Cambridge, 112 Mass. Abt Books,.1979, Fig. .............. Faculty Age Configuration Summary, 1978-1983. From Carl V. Patton, Academia in Transition, Cambridge, Mass. Abt Books, 1979, Fig. ................. 113 viii CHAPTER 1 INTRODUCTION On February 5, 1905 Dr. William Osler of Johns Hopkins in a valedictory address asked"... is there change enough? Would not the loss of a professor bring stimulating benefits to a university?"1 Now over seventy-five years later, administrators are again asking themselves this question. What are the issues that have made this question pertinent today? Clearly, the current concern for staffing flexibility is of recent origin, for one need only look back to the 1950's and 60's, a period of unprecedented growth in higher education, to see that such concerns were nonexistant. The general growth in all disciplines during this era, was sufficient to accomodate any shifts in student interests, developments in established fields, or the emergence of new disciplines. Thus, within the shelter afforded by a healthy economy the demands represented by increasing enrollments were met by correspond- ing increases in financial support for higher education and a spirit of expansion. Faculty mobility and the influx of new Ph.D.'s enabled institutions to meet everchanging student interests. As institutions passed into the 1970's, the higher education enrollment growth slowed as a result of demographic factors and later a consequence of a faltering economy. The effects of the slackening enrollment were felt immediately as new Ph.D.'s began to experience trouble finding appropriate positions. As projected by Cartter the 1 2 demand for faculty declined to thirty-five percent of the graduate school output.2 These symptons increased until Bureau of Labor Statistics projections indicated that more than two Ph.D.'s would be available for every position requiring a Ph.D.3 As the end of the 1970's approached, all the influences which had interacted to encourage the affluence of higher education in the pre- ceeding decades, now acted together to accelerate a decline. The slowing economy combined with a smaller pool of college age students to further reduce enrollments in higher education. At the same time the support of higher education became an issue of lower priority. The; reduction in faculty mobility and the new hiring constraints imposed by affirmative action requirements, brought about a high degree of staffing inflexibility. By l980, most institutions were experiencing staffing problems as a result of the converging effects of demographics, inflation, recession, a heavily tenured, immobile faculty, affirmative action, and pressures to provide opportunities for young Ph.D.'s In short, the problem, as stated by William Slater, Vice President of TIAA-CREF, became one of "too many professors, too much tenure, too little money."4 Considering the situation in which most colleges and universities found themselves by the end of the l970's, it is not surprising that the passage of the Amendment to the Age Discrimination Act (AADEA) in 1978 brought about a clamorous cry from higher education. This bill, which by l982 allows faculty to postpone their retirement until age seventy, was viewed by some administrators as likely to cause a "number of adverse consequences: an older professorate, fewer openings for young Ph.D.'s, higher institutional expenditures for higher education."5 3 Now that faculty turnover has the potential to be reduced by faculty exercising their right to work longer, institutions may be forced to seek new ways to reduce their staff size or to hold salary budgets constant. At the same time, administrators may have to reallocate faculty positions within the institutions in such a way as to meet shifting student interests and establish new academic areas. Hans Jenny believes that if there is a significant aging of the faculty or a need to reduce personnel, an early retirement incentive program may be the answer.5 Is early retirement an answer? Is it "financially feasible, educationally desirable, professionally essential"?7 Before, the advent of the AADEA, retirement at age sixty-five (or earlier) could simply be mandated. Now institutions are faced with the more difficult problem of encouraging such retirements through inducements. While many faculty members may not wish to continue working, economic conditions may compel them to do otherwise, an alternative that is now guaranteed by law. Since working longer can significantly improve one's financial situation, an employee will expect an adequate income before considering retirement before seventy. "Cessation of work is not accompanied by cessation of expense."8 Early retirement incentive plans are designed by use financial inducements to close the gap between a faculty member's full time employment income and his/her early retirement income. Since what financially benefits the employee simultaneously costs the university, the institution must find a balance that is attractive to the faculty and yet economically feasible. To broaden its attractiveness a retire- ment.DOlicy should be developed as a cooperative and not an antagonistic 4 endeavor. There is, at the start, much common ground, for few institutions would deny their faculty an adequate retirement income and likewise, few faculty members would expect to have their retirement life style elevated to an undeserved and unrealistic level at the expense of a financially pressed institution. Research has shown that current institutional policies have a substantial impact on faculty retirement plans. In universities with retirement already set at seventy, the faculty is more likely to continue working past sixty-five than those in institutions that had earlier mandatory retirement ages; the implication here is that once seventy becomes the legal minimum mandatory age of retirement we can expect faculty to revise upward their dates of retirement.9 The Consortium of Financing Higher Education (COFHE) study in l980 found that all schools with early retirement incentive plans in place experienced a lower mean age of retirement than those that didn't, regardless of the institution's compulsory retirement age.10 This research implies early retirement incentive plans may be a viable option for institutions that wish to speed retirement within the structure of the AADEA. If the answer lies in the adoption of an early retirement incentive policy it is with the understanding that some additional expense may be involved if the faculty member needs to be replaced. University planners should be fully aware of such costs and be willing to pay for what they want, keeping in mind that one induced (early) retirement today means one less regular retirement tomorrow. The research to date has focused primarily on sixty-five as the retirement age and some recent assessment of the possible effects of the AADEA. Further scholarly effort needs to be expended on various 5 techniques for determining an institution's current and future staffing pattern, collecting and describing incentive early retirement plans and explaining the different models that can be uSed to forecast the effects of the possible retirement plans. This is the type of information that has the most potential value to administrators and the current study will focus on information available to help solve his/her institution's problems. 6 STATEMENT OF PROBLEM Institutions of higher education are now faced with the effects of the AADEA, which combine with declining enrollments, inflation, and reduced budgets to make the problem of faculty staffing all the more pressing. Response to the current staffing problem facing colleges and universities will vary considerably and is ultimately tied to the age distribution of each institution's faculty. Current age distribu- tion may well mean few retirements for the near future, retirements that provide a sizeable fraction of the openings in higher education. Some institutions can weather the short range effects of the new amend- ment. For these institutions, the large proportion of tenured faculty that entered academic between 1950 and l970 will provide a higher than normal retirement rate in the 1990's.11 But for many institutions the prospects of fewer retirements during the next five to ten years will cause problems of such magnitude that a staffing policy of status quo is not viable.12 One of the more promising resolutions to this complex problem is the use of a well conceived early retirement plan. Although such a plan is not to be viewed as a remedy for all the current staffing problems besetting higher education nor even the gnly_way to solve its staffing problems, nevertheless, it does seem to offer a more attractive potential than the other alternatives such as: setting tenure quotas, restricting promotions, lengthening probationary periods, and enlarging the temporary faculty group. Depending on how many open positions an institution can afford to fill, early retirement plans may permit some important staffing flexibility, possibly save money, increase the inflow 7 of new faculty, and assist faculty who wish to retire early. Fortunately many administrators sense that the development of an effective incentive early retirement plan is a serious undertaking that will require considerable study and discussion. Most realize that proceeding on a trial and error basis could end in failure. However, merely sensing that the complexities of the issue require careful analysis is quite a different matter from knowing what is to be done in a step-by-step fashion. Before establishing an early retirement incentive plan the university administration should assess their staffing needs, their current faculty age configuration, the amount they are willing to pay for turnover, and the short and long range effects that a given plan would have on the faculty age structure. In addition, care should be exercised to insure that no stigma is attached to a faculty member selecting an early retirement option. Since long range inflation rates are unknown, as are benefits from TIAA-CREF policies, possibility of changes in Social Security benefits and possible uncapping of retirement age, any plan judged appropriate now will probably not be appropriate at some later date. Clearly, an early retirement incentive plan should not only have a limited definite life span but be based upon thorough analysis of an institution's future situation as well as present needs. Thus the problem that many administrators face today is that of dealing with these many technical and subjective issues related to the development and implementation of an incentive early retirement plan. How does one assess the need for such a plan? What options are feasible? How can one predict the likely effects of a contemplated early retirement plan? What models have already been developed to study problems related to faculty staffing? 8 PURPOSE OF STUDY The purpose of the study is as follows: 1.) to outline recent federal legislation regarding retirement, the background and resulting difficulties caused by the legislation in combination with declining enrollment and escalating costs. 2.) To provide background information on early retirement incentives including phased retirement. 3.) To collect current information regarding retirement plans now in place in AAU institutions. 4.) To outline and critique the existing early retirement incentive options. 5.) To provide information for consider- ation in policy decisions concerning whether or not an institution should pursue an early retirement incentive plan and if so, what form it might take. 6.) To single out and describe specific models used to assess institutional staffing problems and the probably effects of the various early retirement options. TERMS The following terms will be used in the study and are defined to insure consistency in interpretation. Actuarially reduced--An adjustment in the payment of the accrued pension to reflect the fact that the early retirement pension will be paid over a longer period of time. Defined Benefit--A pension which is related to the employee's salary and length of service to the institution at the time of retirement. This plan is based on a percentage of salary of the last five years of employment times the number of years of service. It is not fully funded at the time of retirement. Defined Contribution--A pension plan in which income is determined by the amount contributed by the employer and employee, the length of time over which contributions have been made, and the life expectancy of the retiree upon retirement. Early Retirement--Retirement after several years of continuing service in one's basic employment, but prior to the mandatory or normal retire- ment age prevalent at a given institution or in a given employment or profession. Early Retirement Incentive Plan--Any arrangement between an employer and employee designed to provide a tangible inducement in the form of monetary or an in-kind reward for early retirement.13 Faculty_Flow--The movement of faculty, over time, through various categories such as age, rank, and tenure status or some combination thereof. Mandatory Retirement Age--The age at which an institution requires it employees to retire. 10 Normal Age Retirement--The age to which everyone in an institution is free to work, it is considered the first age at which an employee can retire- without it being considered early. Usually an extension is available for an employee to work beyond this age. Phased Retirement--An administrative arrangement whereby a faculty member moves from full-time to part—time duties with a corresponding decrease in salary. Retirement--Termination of one's primary full time career employment, not necessarily departure from the labor force. Steady:State Staffinge-A personnel policy that requires the total faculty size to be held constant. .Uncapping--The act of abolishing the mandatory retirement age. Vested Benefit--The pension belongs to the employee, it is not given after retirement by the institution. 11 LIMITATIONS Although many of the results and techniques discussed in this study may well generalize to any institution of higher education, the intent is to confine the investigation to the AAU institutions and restrict any generalizations to similar, large research-oriented institutions. The study is limited by the responses from Robert Linnell's 1981 survey of AAU institutions and subsequent responses from follow-up requests for policy information from institutions with proposed and in-place formal early retirement incentive plans. It is also limited to those models developed to analyze university staffing patterns. As the AADEA has yet to show its effects, the implications of seventy as a retirement age norm in society is unknown and can only be estimated. It is not possible to know precisely who would retire early without any incentive plan and thus the effects of a plan can only be modeled by using standard statistical techniques. 12 DELIMITATIONS The study is delimited to library research including an ERIC search, government documents, books, and periodicals available through the Michigan State University Library and interlibrary loan. The responses of the AAU schools in an unpublished 1981 survey done by Robert Linnell at the University of Southern California were used in conjunction with replies to a follow-up query sent to those institutions with early retirement options proposed and in-place, as a basis for an overview of the current situation with respect to early retirement inducements. Mimeographed internal documents were used as the basis for several models analyzed including the University of Southern California model and the Stanford model. 13 PROCEDURE The 1972 Coolidge-Taylor survey of retirement plans in AAU institu- tions will be used to provide some historical background of early retirement plans. The unpublished, 1981 survey of current early' retirement plans within the AAU institutions, as conducted by Robert Linnell, will be used as the point of departure for assessing the current situation vis-a-vis the major research universities. A follow-up letter will be sent to those instituions that have an early retirement incen- tive plan in operation or in some state of development requesting a copy of their plan and any other relevant documents. The additional documents, together with Linnell's survey responses, will be carefully categorized with respect to the type of retirement plans being used and the current stage of development they have reached. Further, the various early retirement plans will be compared and used to assemble a collection of all options and variations that have been devised. The final result of this segment of the study will be a compendium of all early retire- ment incentive options being considered or used by AAU universities. The second major component of the study will be devoted to compiling a set of the different analytical models available to assess current and future staffing problems. Before deciding upon an early retirement incentive plan administratbnsshould test the impact of such a plan upon their institution. This requires an analysis of the present staffing situation, as well as projection of various alternative policies. The staffing models analyzed have appeared in a diverse array of journals including those on higher education research, management science, operations research, and mathematics. The most difficult sources to locate and in the end, the most valuable, were the internal reports,and 14 studies conducted by AAU institutions. The exposition will be aimed at making making the models' underlying principles intuitively clear with- out excessive theoretical development. Sample outputs of the models will used to demonstrate their usefullness and the type of information that can be gained. The concluding component of the study will pull together the key points from all the foregoing, then incorporate them into a recom- mended procedure for making a decision about adopting an early retirement incentive program and developing such a program for an institution. It is anticipated that this procedure would give an administrator a document which might be used for the selection, testing, and final implementation of an early retirement plan. 15 ORGANIZATION OF THE STUDY AND OVERVIEW OF SUBSEQUENT CHAPTERS The study is in five chapters. Chapter I includes the introduction, the statement of the problem, the purpose of the study, definitions of terms, the limitations, and delimitations of the study, the procedure, and a statement of the organization of the study. Chapter II includes a brief historical development of retirement in higher education and a review of the literature related to early retirement after 1970. Emphasis is placed on the AADEA, its history and possible consequences. Chapter III includes an analysis of various early retirement incentive plans proposed and in-place at AAU institutions identified by Robert Linnell's survey conducted in 1981. Chapter IV contains the analysis of various analytical models used to assess institutional staffing problems and early retirement incentive options. Chapter V contains a summary of the study followed by conclusions, a procedure for making an early retirement policy decision, and recommendations. NOTES 1 William Graebner, A History of Retirement (New Haven: Yale University Press, 1980), p. 3. 2 Allan M. Cartter, Ph.D.'s and the Academic Labor Market (New York: McGraw Hill, 1976): p. 223. 3 Elinor W. Abramson, "The Story Ahead for Ph.D.'s," Occupational Outlook Quarterly, Winter 1975, p. 13. ‘ 4 Jack Magarell, "Colleges Weigh Early-Retirement Plans for Faculty Members," Chronicle of Higher Education, February 11, 1974, p. 9. 5 Thomas M. Corwin and Paula R. Knepper, Finance and Employment Implications of Raising the Mandatory_Retirement Age For Faculty. alWashington, D.C.: AmeriEan CbufiEil on EdUcation, 1978), p. 18} 6 Hans Jenny, Peggy Heim, Geoffrey C. Hughes, Another Challenge (New York: TIAA-CREF, 1979), p. 34. 7 Hans Jenny, Early Retirement (New York: TIAA-CREF, 1974), p. 7. 8 9 Carl Everett Ladd, Jr. and Seymour Martin Lipsett, "Many Would Postpone Retirement if Law Were Changed," Chronicle of Higher Education, November 17, 1977, p. 7. Cato the Elder, De Agri Cultura (2nd Century B.C.) n. pag. 0 Consortium of Financing Higher Education, The Report of the COFHE Study on Faculty Retirement;_(Hanover, N.H.: n.p., 1980), p. 8. 11 Report of the Faculty Ad Hoc Committee on Faculty Retirement (Princeton, N.J.: Princeton University, 1981), p. 8. 12 Carl V. Patton, Academia in Transition (Cambridge, Mass.: Abt Books, 1979), p. 158. 13 Jenny, Another Challenge, p. 34. 16 CHAPTER II HISTORICAL DEVELOPMENT OF RETIREMENT ISSUES The p0pulation of America is an aging one. Because of improved nutrition, health care, and working conditions the life expectancy at birth is now 73.8 years1 and the number of people aged sixty-five and older in the United States has already reached the 25.5 million mark.2 Today millions of people live long enough to retire from their primary occupations. Because of the central role played by one's occupation, particularly in America, the issue of retirement is rapidly becoming one of considerable concern. It has often been said that "Work is one of the most significant human activities. It gives people the opportunity to be productive and creative, brings personal and financial rewards, and provides a network of social contacts. Work equates with indepen- dence, accomplishment, prestige, and a defined position in society."3 To quote Joseph Conrad, "A man is a worker. If he is not that, he is nothing."4 It is sometimes difficult to realize that retirement is a recent phenomena. Prior to the twentieth century, when there was a much shorter life expectancy, people tended to work until they died or until they were physically unable to continue working. Social security provided one of the first thrusts toward making retirement a financial possibility. Although social security was never intended to provide enough income .on which to live, serving only as a hedge against poverty or as a supple- 17 18 ment to an employee's own resources, it stimulated thoughts about provid- ing for the aged and accelerated the creation of retirement benefit . programs instituted by business and industry, as well as government programs such as medicare. ORIGINS OF FACULTY RETIREMENT PROGRAMS Andrew Carnegie became aware of faculty members' difficult finan- cial situation during his association with Cornell University as a member of the Board of Trustees. He realized that professors were often forced to work past their productive years simply because they couldn't afford to retire. Carnegie said, "I have reached the conclusion that the least rewarded of all professions is that of the teacher in our higher educational institutions."5 Carnegie went on to say that since so few colleges provided pensions, "able men hesitate to adopt teaching as a profession and many older professors whose positions should be occupied by younger men could not afford to retire and thus younger men went looking for employment outside higher education."6 Andrew Carnegie, while fully aware of the pitfalls of retirement, believed one should retire and make room for younger men. He even applied the advice to himself, "My resolve was made in youth to retire before old age. From what I have seen around me I cannot doubt the wisdom of this course, although the change is great, even serious, and seldom brings the happiness expected."7 In 1905 Andrew Carnegie asked Henry S. Pritchett, the President of Massachusetts Institute of Technology, to develop an estimate of the funding necessary to support a pension system in major collegiate institutions that were under denominational control. State institutions Were excluded in order to avoid the expected opposition from state 19 governments. The report indicated only forty to fifty institutions, would be eligible, which seemed like a manageable financial situation, and so Carnegie set up a fund for a new foundation to provide such a pension system with Pritchett as its head.8 The Carnegie Foundation for the Advancement of Teaching (CFAT) was incorporated in 1906 by an act of Congress, with fifteen million dollars from Andrew Carnegie "to provide (free) retirement pensions for teachers of universities, colleges, and technical schools."9 Almost immediately the ideas of Carnegie and Pritchett on the purpose of the foundation diverged. Carnegie believed that since teachers were underpaid, education suffered and that little improvement could be made as long as a lack of any pension system kept older professors from retiring and talented younger people from going into the profession. He proposed the fund be called the Carnegie Professional (or Education) Pension Fund, to emphasize that it was to be first and foremost a pension fund. 0n the other hand, Pritchett and the Board of Trustees expected the fund to serve a far wider purpose than did Carnegie. In a letter Pritchett noted that he wanted the Foundation to "count for a large influence in educational problems". Pritchett was more concerned with using pensions as a recruitment device than a retirement inducement. During the next decade he tried to use CFAT as a tool to reshape higher education and pushed the Foundation toward determination of policies. The influence that CFAT tried to wield disturbed many, including C.W.Eliot of Harvard and led to the National Education Association (NEA) declaring CFAT a threat to academic freedom in 1914.10 The idea of pension benefits was greeted with gratitude by 'professors who saw Carnegie as a kind benefactor. As a result, there 20 was much-scrambling among institutions of higher education for acceptance into the pension system. Within a few years Carnegie added five million dollars to the fund in order to include public institutions and again, in 1917, he added another eleven million dollars to accomodate the increase in the number of professors eligible. Funds were still insufficient and it became apparent that the idea of a free pension system was becoming too costly for the Foundation and, as a result, Teachers Insurance and Annuity Association (TIAA) was organized in 1918 to administer a system of compulsory, contributory annuities. The Carnegie Foundation would underwrite administrative costs while employees and their colleges would join in contributing to a fully transferable individual annuity policy that would be wholly owned by staff members.11 The greatest contribution made to the pension philosophy by the Carnegie system was the concept of portability. This provided that a professor need spend no specific time in any particular institution to qualify for a pension. The concept of vesting in the individual a fully portable annuity enables free movement from one institution to another without forfeiting pension rights. Vesting has helped create an academic community unlimited by geographical area, public or private institution.12 1 By the end of the depression the financial need was such that the Carnegie Foundation had to contribute a further grant of seventeen million dollars to support TIAA. After World War II TIAA studied the historical status of common stock and bond investments and concluded that the use of variable annuity combined with fixed dollar annuity 13 So would provide better income in the changing economic conditions. in 1952 the College Retirement Equity Fund (CREF) was designed to permit 21 long term participation in common stock investments by using designated funds put aside for retirement. Upon retirement the funds accumulated in CREF are converted to a fixed number of units whose value rises and falls with the stock market. This means actual pension benefits are subject to continual change as the market value of the stocks CREF holds change. The actual level of the stock in the year of retirement does not affect the long term value of the annuity. Almost all CREF investments are in common stocks. In what follows, it is worth noting that during the past decade not even common stocks have kept pace with inflation.14 The CREF concept provides a balance for the TIAA investments in mortgages, bonds, and other fixed income securities. A CREF participant may at or after age sixty, use the value of his CREF accumulation to purchase a TIAA fixed dollar annuity. Since TIAA invests in such long term securities (fifteen to twenty years) there is little Opportunity to take advantage of increasing interest rates but such investments have the compensation of a guaranteed rate of return. The current problem is that interest rates have been increasing over the past decade, causing the rate of inflation to exceed the rate of earnings on earlier investments by increasing amounts. Pension officials have suggested a mixture of TIAA and CREF contributions as the most prudent way to avoid both the sharp fluctuation of common stocks and erosion of the dollar value through inflation.15 The TIAA-CREF retirement plans constitute the coverage of the largest number of faculty members in American colleges and universities. 22 RETIREMENT AGE "All we are dealing with is one of the shibboleths of our time. Somebody said sixty-five. They probably never should have said it."16 We must reach back to the nineteenth century and Bismark for the introduction of sixty-five as the now accepted retirement age. In the late 1880's he established a state supported old age pension plan as part of social reforms in Germany and determined sixty-five as the retirement age.17 In 1935, the adoption of social security set age sixty-five as the time when full benefits could be received from the United States government. By the time private pension plans had begun to be developed in large numbers, sixty-five was already accepted by both employers and employees as the normal retirement age. By the 1950's many organizations had declared sixty-five as the mandatory retirement age.18 As pension plans became an integral part of a worker's benefit package and a liveable wage could be counted on after retirement, the idea of early retirement began to evolve. Once an official retirement age is established, a person retires before that age only by choice or under pressure. The selection of age sixty-five is relatively arbitrary; some employees produce as well or better at sixty-five than others many years their junior. Others are marginal workers at sixty-five and may have been for many years.19 HISTORY OF THE AMENDMENT TO THE AGE DISCRIMINATION IN EMPLOYMENT ACT According to the Louis B. Harris poll of 1974, public opinion was against mandatory retirement based upon age.20 The climate that fostered ’the new Amendment to the Age Discrimination in Employment Act (AADEA) 23 saw it as an extension of the human rights movement and as an anti- discriminatory law. The history of the AADEA of 1978 goes back to Title VII of the Civil Rights Act of 1964 which required the Secretary of Labor to conduct a study of age discrimination in employment. This study ultimately led to the 1967 Age Discrimination in Employment Act (ADEA) which prohibits discrimination in employment of any person between the ages of forty and sixty-five. The 1967 Act also sought to promote the employment of older persons based upon their ability to perform; it prohibited arbi- trary wage discrimination based upon age and helped employers and employees find solutions to problems related to the age impact on employment.21 The 1978 Amendment to the ADEA then extended this protection from forty to seventy.- Laura B. Ford's comprehensive article on the Age Discrimination in Employment Act Amendment of 1978 (Public Law 95-256) describes it as an antidiscrimination law that prohibits discrimination on the basis of age with respect to compensation terms, conditions or provileges of employment, including job security, advancement, status, and benefits. Bills to eliminate mandatory retirement had been introduced as a matter of routine for years. In 1977 alone, seven different bills having one hundred sixty-seven sponsors were introduced in the House of Represen- tatives to eliminate age-based employment discrimination and mandatory retirement.22 In retrospect there seemed no new reasons for the sudden popularity of legislation for removing mandatory retirement. In fact, the law came as a surprise because there was a developing trend among employees in the opposite direction toward retiring before sixty-five. ‘General concerns came immediately to the front--on the one hand, the 24 extension of one's working career is attractive because it allows employees to spend a few extra years in the work force when one's salary is near its peak and then have fewer years to spend as a retiree. -Medical evidence indicates that mandatory retirement can have a detri- mental effect on physical, emotional, psychological health, and even upon one's life span.23 On the other hand, there was much concern about diminishing abilities and competencies with advancing age. The extension would have a negative impact on employment possibilities for younger workers and adverse effects on affirmative action programs. Higher salaries and pension contributions among senior employees would be costly to the employer. In addition, each added retiree puts demands upon the Social Security program and often on other governmental assistance programs. Although, many individuals were inclining toward early retirement, legal legislation was moving slowly in the direction of removing mandatory retirement restrictions because of the increased population of older citizens with good health and energy and a growing awareness of an individual's right of self-determination, Ford's article notes two specific items that may have triggered action: in 1977 there were highly publicized concerns that the Social Security system was going bankrupt very soon and several court decisions had made it necessary to close "pension loopholes".24 On June 29, 1977, after only one day of hearings the House sub- committee on Employment Opportunities voted unanimously on a bill that would eliminate any fixed retirement age for federal employees, raise the age limit of ADEA's protection to seventy for state, local, and .private employees, and close the "pension loophole" (section 4 (f) (2)) 25 of the ADEA. In quick progression the full House Committee on Education and Labor approved the proposal with almost no changes. "Only nine weeks has passed between the opening of the hearings by the subcommittee ...and clearance of the bill for a floor vote by the Rules Committee; probably a record for nonemergency social legislation.“25 As the new bill moved through the House Committee and on to the Senate no association or institution of higher education took a position against it, although they were aware of the proposals. On August 11, The American Council of Education's Office of Government Relations sent an informational memo to each of its one thousand three hundred seventy- five member institutions giving the status of the bill and the arguments for and against it as they would apply to higher education. As higher education geared up for the fall semester administrators sent messages to the Senate Labor subcommittee stating that this bill would cause serious problems to higher education. They also complained to higher education associations for not opposing the bill more actively. The associations had not done so because their basic political instincts made them believe it was useless to resist and would only lead to antagonism which would prove harmful to higher education in the future.26 The arguments which surfaced from various institutions included: inability to continue affirmative action efforts, additional financial pressures because of higher salaries and benefit costs for older employees, and difficulty of making frequent job evaluations. Congress noted that all of these arguments in some form had been made by represen- tatives of the business world. Ford notes that higher education was really different in only two respects. One was a direct result of the .large growth of colleges and universities in the late 1950's and 60's The group of faculty hired during this time, now tenured, would not be 26 of retirement age until the end of this century. When this fact is coupled with the decline in faculty mobility and the lack of faculty growth due to declining enrollments, the result is very little turnover until the 1990's. No other sector of the economy experiences such an acute situation. The second difference lies within the process of job evaluation. "The academic profession was unrivalled in the difficulties inherent in its job evaluation process."27 The presidents of various large research-oriented institutions looked for a committee member who would offer an amendment to exempt higher education from the bill. Even educators who did not favor a permanent exemption backed such a proposal in order to get the time they believed they needed for adjustment. At about this same time faculty members and administrators, who were against making an exemption for higher education, began to be heard.28 On September 23, the House passed HR 5383 overwhelmingly (359-4); this bill prohibited age discrimination in employment to age seventy with no exemptions. That same week the Carter administration announced its support for the bill. These two actions naturally caused much activity in the Senate Committee on Human Resources, where Senate bill (51784) was being readied for a vote.29 On September 29, Senator John Chaffee agreed to offer an amendment to the Senate Human Resources Committee to exempt tenured faculty from the bill. The committee adopted two other exemptions at its meeting; business executives, and elementary and secondary teachers. The exemp- tion of the elementary and secondary teachers was later withdrawn. When the vote came to the Senate floor almost all the arguments put forth by . the higher education community were heard. At this time Senator Cranston 27 proposed an amendment to strike the Chafee amendment; in his argument he cited fourteen states and forty institutions that had either no set retirement age or a retirement age of seventy or older. The Cranston amendment was narrowly defeated and the bill, with the Chafee amendment, was passed. This action sent the bill to conference with the House of Representatives, which had passed the bill overwhelmingly with no exemptions. Such an action by the Senate irritated faculty members who were personally opposed to the exemption and they wrote letters of protest to Congress. At this point the American Association of University Professors.(AAUP),,American Federation of Teachers, and National Education Association all voiced their objections to faculty exemption from the prOposed mandatory retirement law.30 The Senate conference committee proposed to the House committee a compromise that the faculty exemption would last only five years, while the business executive exemption would be permanent. This would allow institutions of higher education planning time, although it would not solve the demographic problem. The proposal was rejected and Congress recessed without having come to any agreement. "When Congress reconvened in late January, the retirement movement seemed to have lost its momentum." Apparently some university presidents who had actively opposed the amendment found that their action had caused a good deal of hostility among their faculty.31 The conference committee seemed likely to reach a compromise and institutions and associations began to discuss adjusting to the changes. The conference committee briefly discussed the idea of 'decoupling', a proposal that would separate the overall employment contract from tenure. .Since this proposal was outside the authority of the committee it was 28 dropped with the idea it would be introduced on the floor at the time of vote on the bill. The idea never resurfaced.32 It was not until March 2 that the joint conference committee met in the second session of the ninety-fifth Congress. The committee resolved all its differences including the permanent exemption for business executives, except the faculty exemption. As pressure was exerted to report the bill out of committee, a delay in the age increase for tenured faculty until July 1, 1982 was finally agreed upon.33 With the expected denunciatiOns of all exemptions, the House passed the conference report of March 21, by a vote of 391-6. Two days later the Senate did likewise by a vote of 62-10, and on April 6, Presi- dent Carter signed into law the Age Discrimination in Employment Act Amendment of 1978.34 A summary of the 1978 Amendment follows: l. Upper age limit for AADEA protection raised from sixty-five to seventy. 2. Tenured college and university faculty are exempt until July11,;1982. 3. Certain business executives may be mandatorily retired at sixty- five. 4. Changes were made to facilitate filling of individual age discrimination lawsuits against employers. 5. As of 6 April 1978 all mandatory retirement prior to sixty-five is prohibited except the above exemption. 6. As of 1 January 1979 mandatory retirement through age sixty-five is unlawful. 7. Mandatory retirement at any age for most federal civilian employees _ is prohibited. 8. Pension plans established by collective bargaining, in effect 29 before September 1977 and containing mandatory retirement at ages sixty-five to sixty-nine, may continue until contract expires or January 1, 1980 whichever comes first.35 Ira Michael Shephard a Washington, D.C. lawyer specializing in the practice of labor law representing management wrote a Compliance Guide to the 1978 Amendments to the Age Discrimination in Employment Act, to be used as a reference tool by college and university administrators in bringing their institutional practices into compliance. The Department of Labor was charged with issuing final regulations and enforcement until July 1, 1979 when this charge is assumed by the Equal Employment Opportunity Commission (EEOC). The role of the government in monitoring compliance and enforcing the provisions of the act is critical. The passage of a antidiscrimination law (such as the 1967 ADEA) is of little significance unless there is resolution to follow up with enforcement. Both the Department of Labor and EEOC had, by now, a decade of experience in enforcing the various affirmative action statutes and had established a reputation for strict interpretation and severe penalties for non- compliance. The inference to be drawn from the assignment of AADEA enforcement to the EEOC, was that age discrimination was to be regarded as seriously as sex or race discrimination.36 EFFECTS OF THE AMENDMENT TO THE AGE DISCRIMINATION IN EMPLOYMENT ACT Violation of the AADEA can have expensive consequences to the offending institutions, such as, compensation of lost wages and re- instatement of employees. Many years may pass before the courts establish a set of consistent guidelines. In the meantime, organizations may find it difficult to cope with all the competing demands of legislation and economics. 30 The 1978 amendments are not so disturbing in and of themselves but represent one more addition to all the laws, executive orders, regulatory agency guide- lines, consent decress, rules, regulations, and court rulings with all the ambiguity, ambivalance, and differing interpretations... The passage of the AADEA spawned many studies and surveys, that attempted to capture a feeling for both public opinion and anticipated effects. A New York Times-CBS poll found that fifty-eight percent of the labor force would work past sixty-five if they could.38 Since such surveys deal with intentions that are greatly influenced by current economic and social events there is a 'best guess' quality in these projections, no matter how scientific the methodology. As the probable passage of the AADEA was causing a hue and cry among institutions of higher education Carl Everett Ladd, Jr. and Seymour Martin Lipsett conducted a national faculty survey, the summary results of which were responsible for headlines in the Chronicle of Higher Education stating "Many Professors would Postpone Retirement if Law Were Changed". In the Ladd-Lipsett sample, fifty percent of the surveyed faculty believed they would still retire between sixty-four and sixty-six if the AADEA is passed and only fifteen percent considered it likely they would pursue full-time careers to their late sixties and seventies. The result of this and other surveys must be put in the proper perspective; they are projections based on behavior anticipated from an adult population conditioned to regard sixty-five as the proper retirement age. Although the above statistics imply that the bill would have only a modest impact it is apparent from another result of this same survey that current university policies have a large effect on how strongly the AADEA will influence retirement attitudes. Ladd and Lipsett ' broke their sample into two groups: universities with retirement at 31 sixty-five and universities with retirement at seventy. Professors at schools with retirement set at seventy were already (in advance of the AADEA) much more likely to plan on continuing their full time careers into their late sixties and seventies and were therefore little concerned with the AADEA; in all other aspects, except retirement age, these two groups were similar. 39 The Ladd-Lipsett study also found that when professors are actually confronting retirement rather than viewing it as an abstract issue they are likely to decide upon a later date for retiring; they found quite a substantial increase in the number of faculty choosing to stay on as the date of their proposed retirement becomes imminent. From this they concluded that the AADEA could have a greater impact than that suggested by the survey data.40 In 1978, the AAUP projected that the AADEA could cause the hiring of new faculty to decline by more than thirty percent and possibly even cause layoffs. Within the current environment of declining enrollment projections and rising costs, colleges and universities can employ one of two basic approaches to offset the effects of the AADEA. They can hold the number of faculty steady, causing up to one-third less faculty hires when the mandatory retirement legislation takes effect or they can limit budget growth, the outcome of which would’ result in no new positions and possibly layoffs in the short run. The AAUP believes that long term effects would not prove to be as severe as these immediate effects. They too suggest that early retirement could possibly neutralize the impact of the AADEA.41 The American Council of Education's (ACE) Policy Analysis Service undertook a study in 1978 to assess the impact of the AADEA on higher education as based upon policies and practices in place in 1978. The 32 ACE study looked in particular at what changes in retirement patterns may occur with the AADEA in effect and what will be the implications for institutions in terms fo finances and possibility of employment in education for young Ph.D.'s. The sample in their study included ten percent of the junior colleges, four year colleges, and universities; the median age of the sample group was forty-two. To determine the maximum impact of the AADEA the ACE study made the following assumptions: all faculty who have remained employed until sixty-five will henceforth continue until age seventy. The proportion of faculty, who in the past have retired before sixty-five, will continue to do so. This later assumption is based upon TIAA-CREF statistics that show an increasing trend toward early retirement since the 1960's. While the suppositions are not expected to hold true, ACE called them 'worst case' projections and believed they would emphasize the maximum impact of the law. These projections indicated that the impact of the AADEA will be heaviest in the youngest and oldest age catagories. The over sixty-five faculty will increase from 7,600 in 1982 to 26,111 in 1987 and then level off. The under thirty catagory will decline to a low in 1988 of zero under thirty-one age faculty members. By 1990 young Ph.D.'s will be hired again, with the under thirty year olds better represented than current projections under the mandatory retirement amendment. Corwin also notes in the ACE study that even a small proportion of professors extending retirement to seventy can exceed the instructional needs of all institu- tions by over two percent or 9,900 faculty members. This points up that a small percentage of faculty altering their retirement dates can have a significant negative impact on an institution's hiring policies.42 33 The ACE study substantiated the obvious conclusions that the AADEA will cost institutions more money because the older faculty have higher salaries and benefit costs. Even without the AADEA few openings for young Ph.D.'s were expected in higher education in the near future. Any increase in employment of those over sixty-five will be at the expense of those under thirty; even a small change will have a large impact on the academic labor market. Since the output of Ph.D.'s is expected to decrease but slightly and total faculty employment is expected to drop in the 1980's the outlook which was grim before the AADEA was passed may become devastating.43 Robert Linnell believes that the impending bankruptcy of the Social Security System forced Congress not only to raise the Social Security tax but to extend the mandatory retirement age to seventy. He sees the law as turning age discrimination against the old to age discrimination against the young. Using a reasonable age range of a mock faculty he demonstrates the impact of the AADEA; in his example, the hiring of new faculty would decrease fifty-one percent and in ten years the institution would still have eighty percent of its original faculty. He sees lack of new employment Opportunities as decreasing the overall vitality of a university and believes that this may increase the enrollment decline so that we have a downward spiraling trend. Linnell discusses the idea of increased hiring outside the tenure track as a way of keeping quality in education. He agrees with the AAUP on this hiring procedure being unjust and inequitable; however, unlike the AAUP Linnell sees this as a necessity in reacting to the AADEA.44 Hans Jenny, Peggy Heim, and Geoffrey Highes wrote a monograph in » 1979 as a direct outgrowth of a study on age seventy retirement in 34 higher education. The monograph expresses a variation on the often heard theme, that "standing alone, the AADEA does not seem to impose a particularly onerous burden on highed education. Unfortunately it does not stand alone." As Jenny says, “the new law is but a minor contributor to institutional difficulties whose primary cause originates elsewhere." The monograph concludes that personnel planning in many institutions is inadequate for coping with the outcome of the AADEA and the many other circumstances impacting on our institutions of higher education.45 "Professors Plan to Delay Retirement When New Law is Applied to Them", according to the headline of an article in the Chronicle of Higher Education on 15 September 1980. This information was the result of a Consortium of Financing Higher Education (COFHE) study on the impact of the AADEA on the arts and science faculties of the thirty member association of selective private institutions. They projected that the faculty will postpone retirement an average of two years. The adjustment to the law for this group of institutions will take eight to thirteen years since over half of their tenured faculty is currently between forty-five and fifty-five years of age. The retirement plans of the COFHE faculty were found to be closely tied to inflation. About half would probably work longer if inflation were between nine and eleven percent with the proportion growing to three-quarters if inflation _ climbed to between fifteen and seventeen percent.46 In 1978 the COFHE group formed a small planning group to consider the issues raised by the AADEA. The group examined the possible finan- cial and employment impact of the AADEA using such data from the thirty ,member institutions as age, salaries, and length of service of faculty. 35 They also tested the effects of sample incentive plans. Finally the group gathered information on faculty attitudes toward retirement and tested the attractiveness of various hypothetical plans for both full and partial early retirement. The study projected that their institu- tions will be facing significant increases in payroll costs even with- out the new age seventy law because their institutions have uneven age distributions and small numbers of projected retirements. If the same percentage of faculty, who would be retired mandatorily at sixty—five, were to stay until seventy they will be occupying positions that young faculty could hold at about one-half the salary. However, not all will choose to remain; the study shows fifty percent will have retired before seventy at an average age of sixty-eight and one-half.47 The analysis of the aggregate COFHE faculties are not applicable to individual institutions but a profile of an institution's own faculty can help estimate how many might remain until seventy and provide a basis for planning a response to the AADEA. The COFHE study suggests monitoring each institution's own present and future faculty situation by collecting and updating a small amount of data on each faculty member while monitoring payroll costs, quality of faculty and quality of research and education.48 The USDA was requested by Congress to study the effects of the college faculty waiver from the AADEA. The report predicts the average retirement age for professors will increase by about one and a half years from sixty-five and a half to sixty-seven. A survey of faculty over fifty years of age revealed that seventy percent are opposed to continuing the AADEA exemption held for the past three years, sixty percent of this sample also favors having no mandatory retirement age 36 whatsoever. Because a large number of older faculty with higher salaries will continue to teach, institutions of higher education will experience an increase in their budgets of three percent between 1982 and 1987 and in some cases the increase will be as high as eight percent. During this same period the number of new faculty being hired would decrease by twenty-five percent.49 This concludes a broad selected review of the literature on the projected impact of the AADEA. The consensus is that each institution will face a set of slightly different problems based upon its own characteristics such as age structure, current average retirement age, and staffing needs. Each institution will also have differing enrollment projection and budget situations that will possibly intensify the impact of the age discrimination amendment. Although there are no specific problems that are certain to apply to all institutions, there are some general trends that are predicted for higher education in the aggregate. The most important ones being a tendency to postpone retire- ment fer a few additional years, an increase in faculty payrolls due to the shift to a more senior faculty, and a decrease in ability to hire young faculty. Clearly these effects are all closely connected. RETIREMENT PLANS, DECISIONS, ATTITUDES In reaction to the impending AADEA and the studies (outlined in the last section) on its likely effects, there have been numerous studies and surveys conducted on issues closely related to retirement programs. This brief, selective review of the literature will cover the issues of retirement decisions, preparation, and inflation. James Mulanaphy stated, PEvidence from public opinion surveys suggest that a thirty year trend of retiring early (before age sixty- 37 five) might be ending, perhaps reversing." If an employee has not made very definite plans for retirement he is likely to be unsure of when to retire because of inflation and the economic outlook. Mulanaphy believes it is possible that, once the opportunity to work until age seventy has been established both in law and custom, a new employment pattern will emerge. However, he quickly qualified that statement by going on to say that it is also possible that early retirement will continue because retirement has become accepted as a normal part of the life cycle and there are still a number of disincentives to work in the labor market. Obviously trying to predict what will become the normal work-retirement pattern in the coming years is practically impossible. There will always be variation among individuals as each perceives his individual needs and desires. What is troublesome about this uncertainty is that even a small change in the retirement patterns at institutions of higher education can have significant consequences.50 In late summer of 1979 TIAA-CREF surveyed 2,260 randomly selected premium-paying participants between the ages of fifty-nine and sixty- nine. The respondents were asked to respond to questions about their attitudes toward work and retirement. A summary of TIAA-CREF findings showed that those looking forward to retiring were most likely to have made definite plans and have a positive attitude toward life after retirement. About seventy percent had a specific age in mind at which they expected to retire. When asked why they expected to retire at that age their reasons were related to work, personal situations, and finances. The group thought finances, health, inflation and job satis- faction to be important issues that had to be considered before making a retirement decision.51 38 Almost half expected their standard of living to be comparable to their present standard during the first five years of retirement but that number dropped to one quarter when projecting to more than five years hence. As the respondents considered retirement issues the list of concerns was dominated by questions of finances and inflation. Problems of health were the next most common concerns. Other worries were how to use extra free time, losing one's independence, sense of selfWorth, living arrangements, and missing work. The primary attrac- tions of retirement were leisure from the pursuits and pressures of work, hobbies, travel, family time, time for independent research and professional endeavors. Obviously making a decision to retire involves a number of complex and intertwining issues all with a very individualized perspectives. 52 t The group of TIAA-CREF respondents were sub-divided as to their views on retirement; the following characteristics were observed. The first subgroup consisted of those faculty who were looking forward to retirement. Within this group only a small proportion were satisfied with their jobs and had an interest in pursuing non-work or leisure activities. A larger number had made retirement plans and had a specific retirement age in mind. A significantly larger percent had prospects for adequate retirement income and maintaining their current standard of living. Eighty percent had not altered their personal retirement plans in connection with the new legislation. A second subgroup, those who were neutral about retiring, were characterized as having given less thought to retirement, were more likely to be very satisfied with their work and felt their standard of living would not decline after retirement. The third subgroup, consisting of those who disliked the 39 idea of retiring, were distinctive in a number of ways. They were above the overall mean age; smaller percent of them had made plans for, given thought to, or had a specific age in mind for retirement. This group had a significantly smaller percent who felt their standard of living and retirement income would be adequate.53 Only two factors were rated as being very important in influencing the decision to retire by over half of the respondents: assurance of a satisfactory retirement income and the state of one's health. Two other issues considered important by nearly half of the respondents were satisfactipnu with one's job and prospects of future inflation. Four issues that had little or no influence on the decision to retire by over half the participants were wishes of family and friends, concerns about making room for younger colleagues, prospects for promotion, and salary increases, and the status society places on retired peOple.54 One must remember that asdg”comprehensive as it was, this survey was taken in 1979, three years before the effective dats of AADEA legislation. Thus, a number of the faculty interviewed would be retired before the law went into effect and would have their retirement decisions governed entirely by their institution's policies. Their attitudes would most likely by atypical. A 1972 survey of TIAA-CREF annuitants on their observations about retired life resulted in the book my Purpose Holds by Mark Ingraham. The survey gathered two kinds of information: specifics of age, sex, health, housing, and finances, plus an open-ended section where respon- dents could comment on problems and experiences and any suggestions for people about to retire. Just over half of the faculty surveyed, had retired after age sixty-five, and forty-seven percent retired at or 40 before age sixty—five. More than half retired because they had reached a mandatory retirement. age. As a group, their finances compared very favorably to the national population of retired persons; more than half reported that their income allowed them to live very well or well, and less than one-quarter said their present standard of living was lower than before their reitrement.55 At the time of the survey (1972) fiftypercent of those receiving income from annuities were older than sixty-five, seventeen percent younger than sixty-five, and twenty-six percent were sixty-five. There was a sizeable vocal group of respondents who believed that there should be no mandatory retirement ageand believed that age discrimination is as unethical as sex and race discrimination. Even among retirees there is no consensus on the best age to retire; some believed one should retire early and indulge in their new status and another group felt that one should continue to work as long as one can be productive.56 For the majority of respondents, annuities and Social Security comprised over half their income; however, a very large number i would have had to lower their standard of living to live on these alone. There was strong feeling of the need to save beyond TIAA and Social Security. There was also a fear of inflation and increasing medical expenses. Many were disappointed in the size of their annuity and few knew how much one would need to save in thirty years to take care of fifteen years of retirement.5‘7 In 1977 James N. Mulanaphy conducted a study of the counseling and information programs available for retirement preparation in higher education. He found just four percent of the 2,210 respon- ding institutions had a formal program of retirement preparation. 41 He concluded that both employers and staff members gain from a well organized retirement preparation program and that, although it had been traditional for an individual to plan his/her own retirement, they do not have the resources needed to do if effectively. He sees a good program as one encompassing the following: l. Sufficient time for participants to make and implement plans. (authorities recommend a minimum of ten years) 2. Voluntary participation. 3. Open eligibility for all employees. 4. Content tailored for participants' needs. 5. Flexibility of program. 6. Attention to the human element. (future hapiness of the participant as the primary objective) 7. Continuity. (follow-up information)58 Although a director of a national retirement organization observed that people devote more time and effort to planning a two- week vacation than preparing for retired life, there is evidence that interest in retirement preparation is growing. In summarizing his research findings, Mulanaphy found that most employees approach retirement with little forethought, they receive little or no assistance from their employer and if their employer provides information it comes too close to retirement age to carry out much planning. He also found that good pre-retirement programs Were becoming more available.59 Vincent Manion says that retirement is viewed by some as the first insult of aging. Retirement has great implications for changing a person's social and economic status, interpersonal relationships, self perception and morale. The evidence indicates that planning for retirement improves one's changES of ma ing a positive adjustment.60 In an article on pre-retirement planning programs, Brenner and Linnell stress the need to use planning as a means to change employee 42 attitudes, from viewing retirement as a threat to seeing it as an Opportunity. They note that the earlier one plans and more one prepares the more successful is the transition and retirement.61 A number of association and institutional studies note the need for better distribution of retirement information to allow faculty the Opportunity for advance planning. A planning program can help people develop positive attitudes on aging and retirement. Information and counseling can be made available on aspects of finances, insurance and medical benefits; housing, and changes in life style. An employer must refrain from giving professional advice without proper expertise and not indulge in over-enthusiastic planning. One of the most critical concerns noted in the literature on retirement is the effect Of continuing inflation. It not only has serious impact on those already living on a fixed income but its threat will be a determing factor for others considering retirement. An inflation rate of only five percent compounded annually will reduce the purchasing power of $10,000 at age sixty-five to $3,585 at eighty-five years of age. The single most important factor in making a retirement decision at sixty-five or seventy or any other age is finances. Can a person afford to retire? The question of finances is a complex and very personal one. At sixty-five a retired person can receive full Social Security benefits, which are tax free; (s)he will not pay Social Security taxes and will receive a double tax exemption from the Federal government. But (s)he may also have a sizeable number of outside commitments, dependents, and a mortgage. The very real 43 possibility of continued high inflation rates and increased longevity bring the fear of possible poverty level existence to many. Social Security benefits have some inflation adjustments; this is also true of many state retirement plans under which a number of state college and university employees are covered. But the majority of faculty are covered under TIAA-CREF plans, which lack such adjustments, and these employees are falling behind. The outlook for fixed-income retirees is not encouraging; retiring early seems to impose an additional penalty on the retiree. Hopkins in an article on early retirement in 1974, before the AADEA was conceived, shows how an individual retiring early is penalized three ways: 1. He must substitute pension income for salary income from retirement age to 65. 2. When a person reaches 65, income from a pension will be considerably less than it would have been had he continued to teach until mandatory retirement age. 3. No social security benefits can be received until age 62 at which point there is a 20% 62 reduction from age 65's lifetime income level. The TIAA-CREF plans are of the type called 'defined contribution' plan with the retirement income determined by the dollars contributed by the employer and employee, the length of time over which contri- butions have been made and the actuarial life expectancy at retirement. A defined contribution plan, by its very nature, is a disincentive to retiring. Since an individual's retirement payments are based upon actual contributions, the fund will increase with each year of . service and the longer one works the longer the fund will remain in- tact and earning interest. Thus, any action, such as early retirement, that shortens the contribution and interest earning period will have a significant diminishing effect on the pension. 44 The current disadvantage for TIAA-CREF investors is that the rate of inflation has exceeded the rate of earnings on investments made in TIAA annuities in previous years by increasing amounts. A retired person's income from TIAA-CREF varies according to three factors: 1. Total contributions made up to the time of retirement. 2. Annual rate of income earned in the past. 3. Future rate of earnings on one's investments.63 The Washington State Legislature Joint Committee on Higher Education felt that TIAA-CREF, while attractive because of its being 'portable', was not keeping pace with the state's public employees retirement system program which covered other faculty in the state. In response, they made provisions to adjust benefits for inflation for TIAA-CREF annuity holders.64 As people get nearer to retirement age they are more likely to extend the age to which they expect work. The biggest questions are, will my retirement income be adequate? What will my situation be if I postpone my retirement? Inflation discourages retirement. A 1979 Wall Street Journal article stated, "The pressures Of inflation are boosting retirement income needs and expectations."65 While economists differ about the cause and cure for inflation, it has become a fact Of life, like death and taxes. When planning retirement, one must pay careful attention to its effects. Economist James Shulz in an 1980 article in Bgsiness Week says that employees regard pension plans as being a promise to provide relatively stable level of purchasing power during retirement and this is just not true, especially for defined contribution pension 45 systems where an employee's benefits are determined by the value of the contributions accumulated during his working career. The perform- ance of these plans has lagged behind the cost Of living during the 1970's.66 Because there is now a greater probability of living longer, the eroding effect of inflation on purchasing power poses an increasingly serious problem to retirees. Even after tax breaks for those over sixty-five the effects can be severe. The COFHE study Of 1980 found "the most powerful predictor for remaining on the job among those 61 and over was the expectation Of inadequate retirement income immediately after retirement." Eighty percent of those who think their income will in inadequate, plan to remain working until seventy.67 Although several studies have shown that retired faculty are economically comfortable in retirement, Hans Jenny believes that there is more to the situation than has been stated and that many Older employees face serious financial problems. Although retirement income remains adequate for a while, after several years of continued ' inflation, retirement income can prove inadequate. Jenny states that several colleges have found it necessary to contribute supplementary retirement income to already retired persons as a result of declining CREF payments.68 A retired TIAA participant notes that: the retirement pay dangled before him... corresponded to an entirely unrealistic option that, for reasons of family and Obligations, he cannot accept, and that the pension he will receive will be much smaller than he thought. He also discovers...the dollar has fallen to less than One-fifth of the value it had when he contributed to the bulk of his contributions, 46 and he may come to the paradoxical conclusion that the ggnger he has paid in, the less he will get. This is an overstatement of a very critical issue--one should be able to afford to retire. SUMMARY There is much literature on retirement that is based upon a large variety of institutional policies and varying retirement ages. Now federal legislation has introduced a common minimum retirement age. This law had nothing to do with growing inflation or declining enrollments but it has been the impetus for widespread interest in early retirement and incentive Options. Carl Patton reminds us that universities have had arrangements for voluntary early retirement for decades, usually with a reduced annuity for the retiree; now there is growing evidence in the literature of increased use of inducements to retire early.70 The concept of early retirement incentive plans is not being over- enthusiastically endorsed within higher education but it is being widely considered. Opinion is not overwhelmingly in favor of early retirement incentive options as an answer to the situation institu- tions face today. There is no consensus that such a policy will 'help contain costs, open positions, reach affirmative action goals, or reduce faculty size but it is an idea that seems to be worth considering because research indicates that many faculty do not wish to work until seventy and may only do so out of necessity. Hans Jenny tells us that universities experiences/severe declines in 71 enrollment need help from any policy Options that are available. Because incentive retirement is a relatively new idea, institutions 47 may lack the expertise of designing policies that are equitable and attractive to both faculty and university. Chapter three consists of an examination Of some of these agreements between employee and employer that provide a tangible inducement for retiring before the mandatory retirement age. NOTES 1 1982 Information Please Almanac (New York: A & W Publishers, 1982). p. 796. 2 U.S. Department Of Commerce, Statistical Abstract Of United States (Washington, D.C.: GPO, 1981), p. 27. 3 James M. Mulanaphy, Retirement Preparation in Higher Education (New York: TIAA, 1978), p. 42. 4 Joseph Conrad quoted in "When Retirement Doesn't Happen," Business Week, June 19, 1978, p. 72. 5 Alan Pifer, "Fifty Years Of TIAA: It's Past and Present," Educational Record, Fall 1968, p. 408. 5 Graebner, History, p. 108. 7 William Graebner, "The Origins of Retirement in Higher Education," Academe, March 1979, p. 97. 8 Graebner, History, p. 109. 9 William C. Greenough, "Retirement Benefits in Higher Education," School and Society, November 1969, p. 444. 10 Graebner, History, pp. 109-114. 11 Graebner, History, pp. 114-116. 12 13 Robert C. Beethan, "Inflation, Common Stocks, and Retirement Income," AAUP Bulletin, September 1970, p. 306. Greenough, p. 445. 14 Jack Magarell, "More Faculty Members Wary of Stocks When Investing Their Pension Funds," Chronicle of Higher Education, October 10, 1978, p. 11. '7 15 Magarell, "More Faculty", p. 11. 16 Senator Jacob Javits testifying before a committee on the AADEA quoted in Graebner, History, pp. 252-253. 49 17 "Age, It's Just a Number Baby,‘I American School Board Journal, May 1976, p. 25. 18 Robert Huttar and Donald Spies, "Retirement Plans,“ Journal of College and University Personnel Association, Summer 1978, p. 63. 19 Mitchell Meyer and Harland Fox, Early Retirement Programs (New York: Conference Board, 1971) 20 Louis B. Harris et al., The Myth and Reality of Aging in America, (Washington, D.C.: National Council on Aging, 1975), p. 214. 21 Ira Michael Shepherd, A Compliance Guide to the 1978 Amendments to the Age Discimination in Employment Act (Washington, D.C.: College and University Personnel AssociatiOn, 1978), p. 8. 22 Laura B. Ford, "The Battle Over Mandatory Retirement," Educational Record, Summer 1978, pp. 225, 209. 23 Julia E. Stone, "Age Discrimination in Employment Act," Monthly Labor Review, March 1980, p. 32. 24 Ford, p. 211. The "pension loophole" 0f the ADEA resulted in a Supreme Court holding in the McMann vs. United Airline Case that Congress wanted to reverse. The decision allowed United Airlines to retire McMann at age sixty because it had been the practice that employees retired at this age even though there was no written arrangement. The 1967 law allowed the retirement of McMann because the pension plan set 'normal retirement age' at sixty years of age prior to enactment of the law. The ADEA amendment does not require abandoning 'normal retirement age' as long as the plan does not contain a provision that requires retirement before age seventy. 25 Ford, pp. 209-211. 26 27 Ford, pp. 212-213. Ford, PP. 213-214. 28 Ford, pp. 214-216. 29 Ford, p. 216. 30 Ford, pp. 216—219. 31 Ford, pp. 219-220. 32 Ford, pp. 221-222. 33 Ford, p. 222. 34 Ford, p. 222. 35 Shepherd, pp. 8-10 50 36 Shephard, pp. 8-14. 37 Mitchell S. Novit, "The Retirement Amendments: Why They Concern?" Business Horizons, February 1979, p. 32. 38 Betsy D. Gelb and David M. Hunt, "Staying on the Job After Sixty-five,".Business Horizons, February 1979, p. 17. 39 Ladd and Lipsett, p. 7. 40 Ladd and Lipsett, p. 7. 41 Ellen K. Coughlin, "AAUP Finds Change in Retirement Age Could Lead to Layoffs, Reduced Hiring," Chronicle of Higher Education, July 24, 1978, p. 1. 42 Corwin and Knepper, pp. 1-23. 43 Cartter, p. 21. 44 Robert H. Linnell, "Age, Sex, and Ethnic Trade-Offs in Faculty Employment," Current Issues in Higher Education (Washington,D.C.: American Association for Higher EducatiOn,T1979):'pp.'3-7. 45 Jenny, Another Challenge, p. 1. 46 Beverly T. Watkins, "Professors Plan to Delay Retirement When the Law is Applied to Them," Chronicle of Higher Education September 15, 1980, p. 12. 47 COFHE, pp. 4-6. 4? COFHE, pp. 11-12. 49 Beverly T. Watkins, "Colleges' Retirement-law Waiver Ends July 1," Chronicle of Higher Education, February 24, 1982, p. 11. 50 James M. Mulanaphy, Plans and Ex ectations for Retirement of TIAA-CREF Participants (New York: IIAA-CREF, 1931), PP. 7-8. 51 Mulanaphy, Plans and Expectations, pp. 8-11. 52 Mulanaphy, Plans and Expectations, pp. 11-12. 53 Mulanaphy, Plans and Expectations, pp. 13-17. 54 . Mulanaphy, Plans and Expectations, p. 23. 1:55gark H' Ingraham, My Purpose Holds (New York:TIAA, 1974), PP- - . 56 Ingraham, p. 127. 57 Ingraham, pp. 140-141. 51 58 Mulanaphy, Retirement Preparation, pp. 61-63. 59 Mulanaphy, Retirement Preparation, pp. 43, 68. 60 U. Vincent Manion, "Pre-retirement Counseling," Personnel and Guidance Journal, November 1976, p. 119. 61 Herbert T. Brenner and Robert H. Linnell, "Pre-retirement Planning Programs,“ Journal of the C0llege_and University Personnel Association, July—August 1976, pp.77-78. 62 David S. Hopkins, "Research: Making Early Retirement Feasible,“ Change, July 1974, p. 46. 63 Nancy S. Dorfman, "Inflation's Impact on Faculty Retirement Annuities," Industrial Gerontology, September 1975, p. 202. 64 Washington State Legislature. Joint Committee on Higher Education, Faculty Retirement Systems (Seattle, 1973), p. 6. 65 "Harris Survey Finds Inflation Won't Quit When People Retire," Wall Street Journal, March 1, 1979, p. 26. 55 "Inflation is Wrecking the Private Pension System," Business Week, May 12, 1980, p. 95. 57 COFHE, p. 7. 68 Jenny, Another Challenge, pp. 22-23. He refers the reader to My Purpose Holds by MarkTIngraham and Academia in Transition by Carl V. Patton for "an essentially rosy picture of the economic status of persons retired from higher education." 69 Erwin Chargoff, Heraclitean Fire: Sketches from a Life Before. Nature (New York: Rockefeller UhiVersity Press, 1978):'pp. 195-196. 70 Patton, p. 47. 71 Jenny, Another Challenge, p. 35. CHAPTER III EARLY RETIREMENT AND INCENTIVES In recent years, early retirement has been a recurrent theme; it has surfaced as an answer to budgetary constraints, large proportions of tenured faculty, and the need to make Openings for new faculty. A growing university has no problem maintaining a good balance of faculty and responding to shifts in student demands. However, once enrollment growth has slowed and reversed, administrators become concerned about the proportion of tenured faculty. The concern is heightened by the additional factors of increased salary costs of older faculty, which combine to cause a loss of ability to hire young Ph.D.'s. When these already worrisome events, were topped with the possible impact Of the AADEA, institutions of higher education began searching for an answer. Early retirement programs immediately surfaced as the most feasible solution to the myriad of events that seemed to be closing in on administrators. Lately, research has somewhat dulled this earlier enthusiasm; the current consensus is that early retirement is but a marginal (or temporary) solution to the much larger problem of long range staff planning. However, a possible temporary solution is better than no solution and so the interest in and the studies on how to best manage early retirement programs, continues. 52 53 Patton says that most institutions have had voluntary early retirement plans as part of their retirement policy. Such plans generally allow employees to retire early with an annuity reduced from what it would have been had they worked until mandatory retire- ment age. Even these minimal plans usually have certain age and years of service eligibility before an annuity can be drawn. For obvious reasons, few early retirements occurred under such arrange- 1 In addition, universities have, over the years, made ad hoc ments. early retirement arrangements for individual employees with low productivity, health problems, or other individual needs. Although the above examples fall under the generic category of 'early retirement' plans, they have never attracted large numbers of individuals--n0r were they intended to appeal to the faculty at large. However, the long-standing existence Of such rudimentary plans continues to confuse the scene when one attempts to survey institutions with regard to early retirement plans. The focus of this chapter is on the more recent policies and plans enacted by institutions to broaden the base for early retirement by increasing the level of benefits to the point where early retirement becomes a feasible Option for many rather than a necessity for a few. STUDIES ON EARLY RETIREMENT AND EARLY RETIREMENT INCENTIVES During the past decade a number of studies have been done on the concept of early retirement. Some of the more recent ones were done in conjunction with the impact of the AADEA, whereas, earlier studies evolved out Of budgetary constraints and high tenure ratios; however, the focus has remained the same--retire some faculty early to save money or to Open new positions. 54 In 1972, David Hopkins made a report and recommendations on an early retirement program for the Stanford University Faculty. Stanford was inquiring into the possibility of increasing the retire— ment rate through an early retirement program because budget contraints were going to require a fixed faculty size, which in turn would limit the hiring of new faculty-~a matter of high concern in that Stanford already had a large proportion Of tenured faculty. Stanford hoped that such a plan would result in more vacancies, an increase in the proportion Of non-tenured positions and constant faculty costs. The recommendations Of the study were that early retirement should be available to all faculty, it should be a mutual agreement between faculty and the university, and it should be reviewed and revised after three or four years. The study identified the group of faculty that the university would like to see retire; this group had salaries below the mean for their age group and had ten or more years of employment. The program would Offer a minimum early retirement income that would be dependent on age and length of service rather than salary level. The early retirement income would be adjusted toward the average retirement salary by rank, so that the supplement Offered low salaried faculty would be sizeable while faculty making well above the average salary would be advantaged by postponing retirement until the more usual, mandatory age.2 In 1973, the University of Southern California performed a self study on faculty retirement. The legislated retirement age was sixty-five with possible reappointment until seventy. While most faculty expected to retire from full time employment at sixty-five, researchers found that the expectation and desire for working until 55 age seventy increased with the age Of the respondent. The study concluded that it would be beneficial for USC to Offer alternative retirement plans because a significant percentage of faculty perferred early retirement if it were made attractive enough. Conditions cited as a necessity for early retirement included a need for supplementary income (two-thirds of the respondents), income equal to what would be available at sixty-five, and supplemental income by part time employment (sixteen percent of the respondents).3 Alton Taylor and Herbert Coolidge of the University of Virginia, in response to Virginia's need to grow at a reduced rate, surveyed the AAU institutions in 1972 regarding early retirement policies. They found two types Of plans predominated. Fifteen schools had a fixed age plan--a mandatory retirement age with no extensions. Thirty- three institutions had a normal age plan--an institutionally defined 'normal' retirement age (ranging from sixty-five to sixty-eight) with extensions available. In the growth years prior to 1970, institutions were eager for most faculty members to extend their employment but by the time this study was conducted, steady-state enrollment projec- tions began to appear and universities were becoming aware Of a decrease in availability of new positions and the need to hold finances in check. Thus, the policy of granting extensions auto- matically beyond the normal age of retirement had already begun to move towards a more considered, ad hoc policy where extensions were based on institutional need. The implications of this shift being that an institution could lower its average retirement age several years by just not extending any faculty member past the normal age.4 Taylor and Coolidge found that the basic difference between the 56 plans varied as to how they were administered. If times were good, - under a normal age plan everyone was extended to the maximan age and the two types of plans were distinctly different. However, if times were bad and no one was extended, the normal age became the mandatory retirement age and the two types of plans were indistin- guishable. Obviously, an institution under a normal age policy has the flexibility to drop the entire institution's retirement age back to sixty-five by an administrative decision without requiring any approval.5 The study found that the attractiveness of early retirement was related to how well the faculty liked their work and colleagues, the sufficiency of the income, the loss of major benefits upon retire- ment, and outside interests. Taylor and Coolidge concluded that an early retirement policy can improve faculty turnover rate, result in moderate financial savings, and help develop a staffing policy that is cognizant of the changing needs of senior faculty. In the little or no growth situation of the seventies the flexibility of the normal age plan was an advantage. Institutions with fixed retirement age plans had no recourse except to undergo the complex process of lowering the mandatory retirement age. Taylor and Coolidge noted that about one-half of the AAU institutions had plans for reducing the mandatory retirement age to sixty-five while most of the others had begun or were intending to begin incentive early retirement plans.6 In a study done at the University of Southern California in 1975 as a follow-up to the Taylor-Coolidge survey, it was found that three additional institutions had lowered their retirement ages and others were still considering changes.7 57 A 1977 report, prepared for the National Science Foundation, was aimed at providing information to universities seeking short-run solutions to staffing problems due to slowing growth, desire to hire young Ph.D.'s, reallocation of positions among disciplines, and reduction of expenditures. The study also gathered information useful to individuals considering early retirement or career change. While finding that academic institutions have relatively little experience with early retirement incentive programs the study noted that an early retirement plan can have a sizeable qualitative impact on selected institutions and departments by permitting a few new, significant appointments, as a result of the early retirement of a few senior faculty. The study did not support the belief that there was a large bulge in the age distribution of faculty in the fifty to sixty age range, but that faculty age tends toward normal distribution with greater numbers in the younger ages. Such a disclosure implies that early retirement will not create any sizeable changes in available positions in the near future at the national level; however, the study did note that early retirement incentive programs can have different outcomes at the institutional level based upon the age distribution of the faculty.8 The Sgryey,.. showed that sixty-one percent of the faculty chose early retirement because it was financially feasible, forty- nine percent wanted to pursue other interests, and forty-three percent retired because they had lost interest in their work or were worn out by it. The Sgryey... fOund that half of the early retirees interviewed were sixty-five or older, that ninety-nine percent of those interviewed were satisfied with their early 58 retirement decisions, and that most felt they were financially well off.9 The Sgryey... concluded that an early retirement plan can be advantageous to an institution; even when such a plan will not greatly change the composition of the faculty or save much money, it can provide an institution with some critically needed appointments. If an institution is considering an early retirement program, planners should determine if it is cost effective; look at the current faculty age composition by field, the tenure granting rates, and the resignation rates; and calculate the impact of such options.10 The Ladd-Lipsett study in 1977 showed that ninety percent of the current faculty will be covered by the amended age discrimination law. They found that the planned retirement age varies greatly over institutions depending on whether their current mandatory retirement age is seventy or younger. The institutions with later mandatory retirement ages have a later average planned retirement age. The Ladd-Lipsett survey concludes that the small proportion of faculty over sixty-five in higher education is just a reflection of society's long standing acceptance of sixty-five as the expected retirement age.11 The 1977 Survey Of the American Professoriate conducted by Ladd and Lipsett tested three levels of economic incentives for early retirement. One-third of those surveyed would consider early retirement is assured Of an income equal to one-half of their annual salary. Forty percent would be interested in early retirement if they could receive full pension benefits equal to those available to them at the mandatory retirement age (this amount is normally greater 59 than oneehalf-the final annual salary). Surprisingly, only about sixty percent would elect early retirement even if their retirement income was equal to their current annual salary; although this alternative is not economically feasible it effectively establishes the maximum number of faculty who would choose early retirement voluntarily under any reasonable plan. The authors concluded that more faculty may reconsider early retirement as job pressures in academia mount because of the reduction in faculty size and the resulting increase in responsibilities for those remaining.12 The Consortium of Financing Higher Education views early retirement plans as a means by which an institution can respond to attitudes and expectations about inadequate retirement incomes. Their study showed that all schools having early retirement incentive plans experienced lower mean ages of retirement than those without such a plan. When faculty were surveyed about several hypothetical early retirement incentive plans fifty percent rejected them. One-third liked a plan which guaranteed sixty percent of their current gross salary., The study substantiated the conjecture that faculty respond much better to actual working plans than to hypothetical plans. One university reported that thirty to forty percent of the faculty could be induced to retire as much as one and one-half years early by annual payments equal to one-third Of their salary paid until normal retirement age. Since this same analysis predicted the retirement age would increase approximately two years as a result of the AADEA, the proposed plan could reduce that increase to possibly one-half 13 year. A Princeton University committee study on faculty retirement 60 recommended that a modest early retirement incentive plan be offered for a limited period of time and then followed by an evaluation. Princeton is not an overtenured institution and could allow faculty retirements to run their normal course, with the consequence of higher than normal retirement rates in the 1990's. However, the committee foresaw few retirements over the next five to ten years in some departments and, in order to ease this problem, recommended increasing the retirement rate slightly through an early retirement incentive plan. The committee suggested giving the faculty the option of several retirement plans, so that a faculty member could find one that would suit his/her particular circumstances. The committee also recommended enhancing post retirement relationships with university and providing retirement counseling, a step which would include projections of each individual's retirement income.14 In a 1981 TIAA report on early retirement it was recommended that the following items be integrated into retirement policies: preretirement counseling, the possibility of keeping certain group insurance benefits, allowing employees to retain association with the university, promoting the concept of retirement, and making employees aware of retirement patterns to be expected. A plan proposed by TIAA would offer faculty at sixty-two a retirement income equal to what they would receive at sixty-five from TIAA-CREF income plus primary Social Security benefits.15 The current trend toward offering additional incentives is aimed at making early retirement feasible for the employee and thus opening up new hiring opportunities or reducing budgets for the institution. In his monograph, Early Retirement, Hans Jenny describes 61 the typical phases in the development of early retirement incentive policies in higher education. Stage one is the ad hoc stage, which he describes as an informal policy by which each case is handled individually and is not always initiated by the employee. It is Often handled in the manner of a private arrangement between the employee and employer and, until recently, seems to have been the most prevalent situation.16 Stage two moves an institution toward a formulated plan and a broadening of eligibility requirements. If the initiative is taken by the university it is usually connected with a need to reduce staff. A key difference between this and the first stage is that early retirement becomes public policy at this point. As institutions begin to offer formal early retirement plans, some form of additional financial arrangement is likely to be a part of the plan. Jenny states that it is appropriate to assume that formal, early retirement plans will offer either severance pay or retirement income adjustments or both.17 Stage three is reached when one or more early retirement options are part of a basic retirement program of an institution. They are available to all employees who have met the eligibility requirements; actual planning is done jointly by the employee and the institution.18 The remainder of this chapter is devoted to providing an overview of stage two and three type early retirement plans that are in operation in AAU institutions and which offer varying kinds of incentives to faculty members. It also describes the shift in policies that took place between the time of the 1972 AAU surVey 62 done by Taylor and Coolidge and a similar study done by Robert Linnell in 1981. TAYLOR AND COOLIDGE STUDY In 1972 Herbert Coolidge and Alton Taylor surveyed the AAU institutions on the subject of early retirement. Their definition' of an early retirement plan was "...a plan by which the individual chooses the age at which he will retire before the fixed or normal age and may include a period of reduced duties.“19 Responses to the following questions were requested: l. Does your institution have a policy which allows faculty to retire before the normal retirement age or age at which most of your faculty normally retire? I 2. Are provisions made to provide faculty a retirement income which is not seriously depleted by early retirement? 3. For faculty who choose to adOpt your early retirement plan are there considerations for a reduction in teaching load? Reduction in pay?20 In 1972, there was a trend in the forty-eight AAU institutions toward lowering the age for retirement and away from the practice of allowing all faculty to work until the established age of retirement.21 This survey reported one hundred percent participation by the AAU institutions.22 As shown in Table 1, just over half of the schools (twenty-six) had plans for early retirement. Twenty-three of these had specific age requirements for eligibility in their plan. Only seven reported that a minimum number of years of service to the institution constituted a requirement of the plan. Responses 63 e N o mo4m420 mkzutmuaazH hszmmthm ommo4azm mhh >Azo mhzmzmoaozm 44¢m>¢=m maougooutmoa><fi zo oummh~mmm>uz= m4mzh4=u< was me eN HN a Neg 88¢“ "a” an as NN H He“ “so" me” mm as NN N mm” 85mm ass on NH me c an” Read owe a~ . as as a cNH cum“ acupumpp< mpzuzummewm o~,- me me - om swan awzeumma ¢ sh~mmm>nza mgazh4=um$£=m zofissguzcu m¢< >533... "m 258.... .0 34:13 .2. .00 .0 .. .0 .0,- .00 01-01103 0:00:00: .3 .2. .0 .0 .5 .0. .0: 1:00:00“ .01 ..n .0 .0 .00 .0. .80 011333: 0:41:03: .01 .9 .0. .n .0 .0 .00. 01:33:41 350% .001 .0 .0. .0 .0 .0 .00— 11:31:: «13423303 .01 .0 .0 .3 .0 .0 .80 031113343 01411143131 . . . . . . . 001 a 0 00 0 0 0: j .31 .0 .0 .00 .0 .0 .8 « .0 .0 .0 .0 .0 .0 .0 0 .0 .0 .0 .0 .0 .0 .0 a a a in... 5%.. g 302 an an; ngsia'uh issgagsga 1 1 1 1 1 1 1 3338:03flfi “i 114 The Survey... population showed that when retirement rates were increased the number of faculty in those age groups and their proximity to mandatory retirement age was close, that the increased retirement rates had relatively small impact on the number of new positions that became open. MODEL LIMITATIONS Having determined the desired faculty distribution via the model, the question becomes how this distribution can be obtained realistically. The model offers no help on this question; the researcher must determine the appropriate rates by means of trial and error. Once the correct retirement, career change, and tenure denial rates are found, the problem is only half solved, for then the planner must develop a personnel policy that will enable adminis- trators to control the flow of faculty and ensure that desired rates are effected. This model is not developed to compare incentive plans or to give an answer to the question of who might retire. It is Simply a faculty distribution model. FIXED STUDENT/FACULTY RATIO MODEL The TIAA Report on Early Retirement is appreciative of the fact that most studies and predictions of the effects of the AADEA and declining enrollments have been made in the aggregate and that an institution must have more specific information upon which to base a decision on early retirement incentive plans for its faculty.20 Towards this end, a general model was constructed that can be used in conjunction with an institution's own data. As a service, TIAA will run the model and provide output to any institution providing the necessary input data. In order to give potential users an idea of how the model works and what results can be expected, TIAA has worked through a hypo— thetical example in the referenced document. The model looks at a representative institution with declining enrollment and an aging faculty. The example assumes that any faculty member who resigns or dies will be replaced so the only attrition will be through retirement. The first model calculation is to determine an ideal faculty size over a certain number of years; this is chosen to be proportional to the overall student enrollment. This ideal faculty population is then used to calculate a target retirement age, such that if the faculty selects this age to retire the resulting faculty size will closely approximate the ideal faculty size over the years. The example model shows no retiring faculty member being replaced. The TIAA RepOrt...recognized that the example they used was somewhat simplistic but they believed it was reasonable enough to enable an 115 116 institution to establish a retirement policy objective and assess its financial implications. For every year retirement is postponed, a faculty member costs the university his salary plus benefit costs, so for every year that a person retires before the mandatory age the university can offer him/her an inducement up to that amount and break even. Any incentive less than the total salary and benefit costs would be a savings to the university if the faculty member does not need to be replaced--a crucial and somewhat unrealistic assumption. INPUT DATA 1. Name, age, date of employment, current salary, and TIAA contract number for all the institution's faculty. 2. Student to faculty ratio desired. 3. Enrollment gain/loss predicted for the projection period. 4. Annual salary increases to be awarded. HOW THE MODEL WORKS This model uses the fixed student/faculty ratio to determine the ideal faculty population needed each year as enrollment changes. The model then compares this ideal faculty Size with the faculty that will result from several retirement patterns-—namely, retirement at 62, 65, 68, and 70. In the process of making these calculations, the model operates under the assumption that every faculty member retires at the specified age being used in the projection and that there is no attrition at any younger age--that is, if resignations or deaths occur, those positions are immediately filled. In addition to making projections of an institution's faculty based on retirement ages of 62, 65, 68, and 70 another projection is made using a more 117 complex retirement patterns: one-third of the faculty retiring at sixty-five, one-third at sixty-eight, and one-third at age seventy. All these projections are made in order to show whether the retire- ment pattern produces an excess or Shortage of faculty over the next fifteen years. As the next step, the model determines the retirement age that results in a faculty size that most closely approximates the ideal faculty. To determine the financial consequences of an early retirement incentive plan aimed at this particular retirement age the cost of the incentive is shown for eeep_faculty member as (s)he reaches the target retirement age. The incentive used is an annuity purchased by the university which guarantees that each faculty member, at the targeted retirement age, will receive the' same benefits (TIAA single life annuity) that (s)he would have received if employment was continued to age seventy. Since this model uses specific data for each faculty member, it can list the actual early retirement date for each faculty member, the normal benefit derived, the early benefit, the excess annuity needed and the cost to the university. An early retirement cash flow analysis can be projected by year showing the cumulative salary costs saved minus the cost of the annuities purchased. INFORMATION THE MODEL SUPPLIES The model output consists of a series of tables. Table 7 shows the projected enrollment and the ideal faculty size needed to handle these enrollments at a sample institution. The model then produces both a table (Table 8) and a graphical plot that compares the ideal faculty size with the faculty that will result from retirement at 62, 65, 68, and 70. 118 no can mean on. ~m~ voou he so. no." so mug mood as ~.. 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