Indiana University is digging deep to pay for its generous faculty pension plan.
Hoosier faculty members enrolled in the pension plan are now retiring, forcing IU to pay a $2 billion tab over the next 30 years.
Indiana, however, is not worried that it will not be able to pay for the pension benefits.
“The university has a commitment and there is no threat (that the pension plan will not be paid for),” said Robert Eno, Bloomington faculty council president.
The now defunct program that is costing IU so much money is the 18-20 Program. Under this plan, a professor or administrator who has worked at the university for at least 20 years, and has contributed to the base retirement plan for at least 18 years, can 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. The university also continues to pay into the person’s base retirement account during the five years.
“It is an unfunded program and is paid while we go,” Eno said.
IU has enacted several strategies to pay for the plan.
“The university has changed its benefits plan twice, and offers incentives to postpone retirement,” Eno said. In addition, individual departments will pay 20 percent of the cost to the retirees.
“The university will pay out more money each year, peaking in 2011, and paying off the program in 2031, when the last faculty retires,” Eno said.
At OSU, faculty members do not have to worry about a similar situation happening to them.
“Retirement is part of a state system, responsible for pay out,” Bill Shkurti, senior vice president for business and finance, said.
If a situation does arise at OSU where additional funds are needed, there are available resources.
“OSU has a $10 million rainy day fund for one-time adjustments,” said Lee Walker, director of budget planning. The rainy day fund is like a savings account for short-term adjustment, she added.
The 18-20 Program, which was not financed for 30 years, was terminated in 1989 when the university realized the enormous cost.
It is difficult for universities to plan successful long-term programs because the student population and money available are unknown variables.
“We don’t know what individual programs are growing and shrinking,” Walker said.
She added that 30 years ago professional fields such as physical therapy and computers would not have been thought of as popular career choices as they are today.
The consequences from the 18-20 program that IU is facing have not all been negative. Former IU president Herman B. Wells created the plan in the late 1950s to attract and secure topnotch faculty despite offering lower salaries. The plan was successful in recruiting top faculty. This, in turn, benefits students, Eno said.
The benefit package is what attracted Eno to IU.
“I had other options but the retirement package caught my eye.”
The Associated Press contributed to this article
