Retirement plan balanced, officials say

Bloomington Faculty Council President Robert Eno and College of Arts and Sciences Dean Kumble R. Subbaswamy discussed the economic impact of the 18-20 Program, saying the lucrative pension benefits for retiring IU faculty are easily offset by existing hiring practices.\nEno and Subbaswamy responded to an Associated Press story which said IU's financial future might be compromised because of a large pension plan implemented in the late 1950s for retiring IU professors and administrators.\n"In terms of budgeting, it's not an overwhelming concern," said Subbaswamy, who oversees the largest number of effected faculty positions. "It's the cost of doing business. It's like the cost of electricity going up next year. You plan ahead for it."\nAnd that's exactly what a group of IU professors and administrators did, Eno said.\nSeeing the potential cost of payouts to retiring faculty -- $2 billion over the next 30 years -- IU devised a plan three years ago to offset pension payments. In the plan, colleges would have to cover 20 percent of the cost of their retirees, among other money saving items.\nThat extra cost won't largely affect college and departmental budgets, Eno said. The program, instituted by former University Chancellor Herman B Wells, helped IU compete for the nation's best professors despite lower annual salaries, Eno said.\n"We brought (faculty) in with some very attractive benefits," Eno said. "It worked. When I came around in the early 1980s, the benefits were so remarkable that it caught my attention."\nWells' program also helps retain faculty, who forfeit their benefits if they leave IU.\n"We have retained untold number of folks over the years that I doubt we would have retained without 18-20," Kelley School of Business Dean Dan Dalton told The Associated Press. "At the end of the day, I'd say 18-20 has far more advantages than it does downsides."\nThe 18-20 Program allows a professor or administrator who has worked at the University for at least 20 years -- and contributed to the base retirement plan for at least 18 years -- to retire at age 64 and continue receiving a full salary for five more years. That salary is roughly the average of the person's annual pay during the five years leading up to retirement.\nThe University also continues to pay into the person's base retirement account during the five years.\nThe program will pay out more money each year peaking around 2011, Eno said, then subsiding until the last professors under the agreement -- those who started in 1988 -- retire in 2030.\n"It's a short-term problem, but the magnitude is very large," Eno said.\nOne way in which colleges will be absorbing 20 percent of retiring professors salaries is through the hiring of "junior" faculty members.\nNew faculty members are hired at a lower salary than exiting professors -- roughly balancing the college's payments to those leaving. This hiring practice is standard policy, Subbaswamy said.\n"You want to hire as many junior people as you can," Subbaswamy said. "You always want to be adding new blood, and unless you feel you it's very important to hire a senior professor, you'll try to get a younger person."\nPreviously, colleges would inherit a cost savings by hiring junior-level faculty to replace tenured professors. But under the provisions of the 18-20 Program, those cost savings will be erased.\n"Paying out will take away any gains from a junior-level position," Eno said. "The impact on departments is a short term budget strain."\nThe Associated Press contributed to this report.