Inside Iowa State: Iowa State University

INSIDE IOWA STATE
February 1, 2002

Officials ponder how to keep
incentive in early retirement plan

by Linda Charles
What are the ramifications of allowing a 57-year-old and a 77-year-old employee the same opportunity to participate in an early retirement incentive program? That's the question Iowa State officials are wrestling with as they try to develop a new early retirement incentive plan for the university.

Iowa State's current early retirement incentive plan, which ends on June 30, requires employees to be at least age 57, to have worked for the university at least 15 years and to receive departmental and university approval. Those who qualify receive financial help with medical insurance premiums until they qualify for Medicare and pension contributions for five years or until they qualify for Social Security.

Last fall, the Board of Regents, State of Iowa, voted not to renew the current early retirement plan and asked their institutions to review developments in the more than 10 years since the plan was adopted. The regents said they would consider proposals from each university for new plans, but that any new plan couldn't terminate benefits based on eligibility for Medicare or Social Security (that is, tied to a person's age), unless specifically allowed by law.

Mark Power, chair of the University Benefits Committee, was asked to chair the Early Retirement Incentive Study Group that has developed some options for a new plan.

77-year-old 'early retiree'
The university could devise, for example, an early retirement incentive plan that would provide medical insurance benefits to employees who are at least 57 years old and have 10 years of service to the university. However, the plan also would have to provide the same three years of benefits to an "early retiree" who is 77 years old and meets the other requirements to participate, Power said.

That could reduce the effectiveness of an "early retirement incentive" for Iowa State, Power said, by allowing employees to apply for an incentive when they intended to retire anyway.

One reason the administration favors early retirement incentive plans is that such plans provide an opportunity for officials to reallocate resources to achieve strategic goals, Power said. However, a plan that is offered to all employees, regardless of age, tends to stop being an incentive and becomes a supplemental retirement program that looks like an entitlement.

Under these circumstances, it is difficult to create a program that avoids a financial drain on the university's resources, Power said.

Of course, a new plan could require administrative approval before an employee would qualify for the incentive plan, Power said. But administrators could not deny the benefit based solely on age.

'Safe harbor'
A "safe harbor" provision created by the U.S. Congress in 1998 allows universities to offer plans that have age caps, but only for tenured faculty. And before those plans can go into effect, universities first must allow all tenured faculty who meet the plan's guidelines, regardless of age, an opportunity to enroll in the program. This provision of the law could make it very costly to implement such a "safe harbor" plan for tenured faculty, Power said.

The study group also has had difficulty deciding whether tenured faculty should be offered a different plan than the one offered to non-tenured employees, Power added.

Possible plans
The study group has identified five possible plans for the university community to comment on. Those plans are:

A retirement incentive plan available to faculty and staff who are at least age 57 and have at least 10 years of service. Participation in the program would require administrative approval and those who qualified would receive health insurance premiums above the required active employee monthly contribution for three years.
A retirement incentive plan available only to tenured faculty who are at least age 57 and have 15 years of service. Participation would require administrative approval. ISU would pay the employer share of retirement contributions for three years or until age 65, and health insurance premiums above the required active employee monthly contribution for five years or until age 65.
A plan that targets specific faculty and staff in order to meet administrative or programmatic needs and has a limited enrollment period.
A plan that allows early retirement to be negotiated on an individual basis when deemed administratively or programmatically useful.
A planned retirement in which an employee is provided certain benefits in exchange for a promise to retire at an agreed-upon date.

The regents want to take action on proposed early retirement incentive plans at their March meeting, said Warren Madden, vice president for business and finance. Madden is asking for comments and suggestions on possible plans to be sent to his office by Feb. 12. Comments will be forwarded to the University Benefits Committee and President Gregory Geoffroy to be considered in preparing a final plan to present to the regents.

Officials ponder how to keep incentive in early retirement plan

Officials ponder how to keep
incentive in early retirement plan