Thursday, September 8, 2016

Economic Determinism and the University--Considering Voluntary "Early Retirement Packages" to Tenured Faculty

(Pix LarryCatá Backer 2016)

It is something of a national trend among American universities to offer variations of a standard form of "early retirement program," loosely modeled on those quite common in industry. A recent article in University Business nicely lays out the context and the economic politics of the tactic:
It’s an increasingly common move by campus officials during challenging economic times: voluntary retirement. Offering these incentives to faculty and staff provides a ready means of reducing personnel costs while not being seen as severe and traumatic as layoffs, salary reductions, and furloughs tend to be.

Although the details of such plans vary from one college to the next, they all rest on the potential for shrinking the workforce during times of static or declining budgets.

Even where employees will be replaced, costs may be lowered by using part-timers or hiring less experienced full-time personnel. New employees may also come with less expensive benefit packages than those negotiated in earlier eras. (Mark Rowh, Retiring Minds Want to Know How institutions are making voluntary retirement programs work  University Business (July/August 2012))
 This post considers the trend from the perspective of its collateral effects--first on the way this tactic is used increasingly to systematize fundamental changes in institutional character and operation, and and second on the faculty tempted to take the university up on its offer (academic freedom, and political rights). The "bottom line" is simple enough to state and implicit in the University Business article: the voluntary retirement device is an excellent way for administrators to avoid responsibility for significant change (furthering the "blame the system" mentality that has become standardized in university administrative cultures), but in a way that presents significant traps for the faculty tempted to take the university up on its usually much less valuable than advertised benefit. Faculty should be wary about accepting such "benefits", university faculty senate's should take a more aggressive position in examining the institutional effects of these programs, and university administrators should be held to a higher degree of account for using this indirect lever to remake the institution in a manner to their liking.

It appears to be a natural condition, both within and outside of academia, for administrators to gravitate toward operational systems that permit them to avoid direct responsibility for their actions. These systems are meant to avoid both responsibility and to protect themselves form blame or assessment for the consequences of actions  that appear to occur "naturally" or as an inevitable consequence of the operation of a system they themselves built to operate in just that way

In public law, the rise of the regulatory states permitted the political branches of the American government to shift responsibility for failures of law and policy from them (as representatives  of the people) to the "faceless administrators to which they had delegated authority.  These administrators, in turn, had developed systems that appeared to eliminate discretion but which were designed to serve as a veil behind which administrative discretion could be exercised under cover of rules or as an inevitable consequence of "things" beyond their control. In private economic sectors, administrators tend to manage and then blame "the market" and refer back to the "rules" of efficient behavior that they themselves use instrumentally to make "market choices" inevitable. 

In the university administrators increasingly use the power delegated to them downward from the Board of Trustees and upward from the faculty  to develop systems with a "mind of their own."   The object is to ensure that "the system" can be blamed.  To that end, systems must be constructed in which administrator appear to have no choice--that is administrators may create systems  that are deliberately designed, by its very logic, to produce the desired outcomes but without the need to appear to make decisions that would (inconveniently) subject the decision and the decision makers to the complexities (and irritations)  of shared governance and possible alteration.  The more passive an administrator can appear to be, the more inevitable decisions appear to confine administrative discretion, the more power administrative discretion can be exercised, if only indirectly. And, indeed, it is to the construction of systems that can always be blamed and with respect to which  the administrator assumes a passive role (and even better when "choice" appears to be shifted to faculty or staff) that university institutional reform has been bent.

What is the result? Administrators may act with impunity because they are not acting at all, they are responding to the consequences of the system, or the market, or the conditions to which either has given rise. More importantly, because they now appear passive before the majesty  effects beyond their control, there is no need to engage shared governance mechanisms, and no need to suggest that positive policy is being effectuated. The "system" thus provides a useful means of undermining shared governance as well as a veil to administrative discretion that can be undertaken risk and blame free. This is the face of the new bureaucratism that now marks all large institutional actors--from the state, to business, to the contemporary research university.  In each the object is to so embed the administrator within the logic of the systems within which these institutions operate that they become passive tools of that system.  That appears to make administrators makes them fungible--anyone can do that job once trained to their role in tending the institutional machine (and should raise questions about the value of their services if labor markets work efficiently). But that it does not suggests that systems are now used instrumentally to manage situations that then make it possible to take the desired action.  The system itself becomes both sword and shield--and the power to manage as well as to be managed by the system marks the extent of administrative power in the modern institution.   

1. Institutional ramifications. An excellent example of that tendency, and its effectiveness, are the voluntary buy outs and retirement packages more and more often available as a "benefit" to senior faculty in times of tight budgets (which never appear to be so tight that they require reducing the size of administration or the re-purposing of the extensive space they appear to consume in in university buildings perhaps better deployed for the teaching mission of the enterprise). These voluntary retirement programs appear focused on one (perhaps even laudable) purpose, but actually invokes the logic of the system in which it is embedded to advance another.

On its surface the voluntary retirement programs are aimed to induce people  to retire early.  There is no slow walk into the sunset.  Once a decision is made the employee is separated at the end of the last year before the benefits kick in. The formal aim is not hidden--to reduce operating costs by getting rid of the highest paid employees.  More hidden--by getting rid of the highest paid employees of longest service the university also changes its benefits profile, and with any kind of luck will redce its benefits payouts exposure by getting rid of those employees most likely to take advantage of the highest cost reimbursements of the benefits system. Of course many system have post retirement benefits--but payouts tend to be subsidized by Medicare, so the net benefit to the university is in excess of the salaries they no longer have to pay.

And cost reductions can only happen in the long term if the university uses the opportunity of exiting high salaried tenured faculty with lower salaried fixed term faculty.  This is not a suggestion that there is a qualitative difference in the abilities of engagement of faculty based on status.  Quite the reverse.  It is instead to suggest that by shifting to fixed term faculty the university is better able to control its costs--by avoiding the need for voluntary retirement programs, and to limit the engagement of fixed term faculty by contract.  Faculty dependent on administrators for contract renewal are much more vulnerable than faculty who are not. Administrators are quite capable of applying pressure of the sort that is not actionable to shade fixed term faculty participation in shared governance. Not enough, of course to be actionable under current legal standards, but more than enough to be effective.

There is an arrogance to this type of planning that emphasizes the extent to which faculty de-professionalization has proceeded.  It is grounded on the assumption that faculty (unlike administrators) are fungible.  It follows that anyone can be quickly trained to provide the tuition rich services of knowledge dissemination at the heart of teaching.  More importantly it adds impetus to the idea that there is nothing special about teaching.  But it also suggests that the three part responsibilities of faculty--teaching, research and service--that is knowledge dissemination, knowledge creation, and active engagement in the operation of the institution the objectives of which are to maximize the value of both knowledge production and dissemination is rejected.  It is rejected in favor of a formula that increasingly is anti-intellectual at bottom, that views research as a luxury best subsidized by others (and thus perversely built into the faculty review system in a way that emphasizes its mercantile character).  And in doing so it also denigrates the teaching function to something that is detachable from research and service.   So detached, institutional professionalization moves to favor administrators, as a class, who know appear to be the only expertise available at the university--knowledge production and service (shared governance is marginalized) and ultimately teaching is reduced in value--it is merely the process of ensuring the production of degrees for paying customers. 

But there is an additional benefit--with the loss of these senior employees, the institution also loses institutional memory.  From the perspective of the administrators that is a good thing.  The loss of faculty institutional memory pushes that memory and memory keeping from faculty to administration.  They are now more likely to write and rewrite history--to choose what to emphasize and how to present the trajectory of history and its implications for the institution going forward.  Neat trick! But one which states and enterprises have  taken advantage of over the course of the last century.  The result, of course, is that from an institutional perspective, these voluntary retirement programs are also a means of shifting power, including the power over the university's narrative, form faculty to administration.  It also deepens the premise that more senior faculty have little value added--and certainly not enough value added-- to be worth capturing as they are let go. . . . voluntarily.

All of this contributes to the logic of the system that then produces something of a result like this: substantial faculty are voluntarily retired.  That happens in the face of  budget "challenges" which are blamed on the "cost" of faculty (without of course any effort to make faculty cost against contribution to income--and without comparative figures on the cost burden of a larger administrative apparatus).  Tenured faculty are then explained to be a long term burden on threatened budgets, fixed term faculty with limited engagement are not.  The need to ensure appropriate budget decisions and sound fiscal management then requires a "painful" decision that, say, results in the replacement of 3 tenured faculty with one tenure line replacement and 2 fixed term faculty.  Administrators did not do this--the system compelled this decision.  And, of course, everyone is sorry for the result. Over the course of a short period, the character of the university continues to change.  Market entrants are socialized into accepting that their best hope in academic labor markets are fixed term positions, the effective change in composition changes the engagement relationships among administrators and faculty, and shared governance withers.

None of this happens in an instant.  The university is not transformed because a few hundred faculty are induced to disappear--and with them their collective knowledge and engagement.  But in setting the pattern the institutional character of the university is changed, and the direction of its development set. The ramifications become painfully obvious long after the administrators who set the course are themselves long one.

And thus the brilliance of the process as a means for enhancing administrative impunity and control.   That is usually underlined by the process used to develop and roll out these voluntary retirement programs.  First, the programs are usually developed within the human resources department.  Sometimes they may be presented to joint faculty administration benefits committees on the eve of their roll out, and sometimes not.  In any case, there is no effective engagement by faculty in the determination of a need for a voluntary retirement plan, no effective mechanism for participating in its development, and no consultation on its roll out. Certainly there is usually no effort to consider the collateral effects.  In some university it is possible to that efforts to intervene would be rejected as violating the privacy of those who might take up the offer--a perverse application of the doctrine of freedom of contract that had been decisively rejected by the U.S. Supreme Court with the advent of the Great Depression.  And that is the icing on this cake--the administrators thus create a system in which the consequences can be anticipated--including the administrative consequences. The character of this systemic intervention can be used to avoid any effective shared governance, and then once done, the administrators may blame the system for the consequences that follow as the institution changes within the logic of markets, budget and the system itself.

And this last is perhaps the most pernicious effects of the "system," it leaves individual employees almost completely on their own.  Faculty have no input into the terms or conditions of the voluntary retirement program.  Faculty are not invited to negotiate its general terms.  Faculty have no say in the decision to use the program in the first place or to consider reasonable alternatives.  All of these decisions are taken within the officers of administrators working behind those closed doors with no transparency, no engagement, and no sense of the value of shared responsibility and engagement that might--might--actually serve the university's long term best interests.  The ethics of this behavior might be questioned.  The betrayal of a century's shared governance might be considered.  But what clearly emerges is an administrator class no better protected against assessment for its decisions and much more powerfully in control of a more bureaucratized institution in which faculty are pushed further into the role of a means of production of income. 

2. Traps for the Unwary

The resulting voluntary retirement program does not merely present potentially large risks to shared governance and the character fo the university.  It also has potentially significant effects on individuals who might consider such programs. The resulting programs usually share a common set of traps for the unwary.  This section highlights some of the most dangerous traps and offers a suggestion for employees that might seek the reasonable equivalent of these voluntary buy outs .

First the typical voluntary buy out program usually offers some sort of gross benefit, usually in the form of a lump sum payment at the end of the last year of employment, in return for employment retirement at the end of that contract period.  The lump sum payment ranges from some substantial percentage of an annual salary to some percentage in excess of an annual salary.  This formula presents several problems.  First, of course, are the tax implications.  All of the lump sum payment may be taxable in the year in which it is received.  And the resulting taxable income on both the annual salary and the additional lump sum payout will substantially increase the tax burden in the year of payout. For some this may mean additional payments by bumping them to a higher tax bracket and the potential liability under tax supplemental provisions like the Alternative Minimum Tax.  Careful tax planning is necessary to determine the actual value of the payout, but the tax consequences can be significantly detrimental. University rarely  offer to increase the payout by the amount of anticipated tax so that the net benefit equals the lump sum promised. Thus a faculty member may think she is getting "x"--say a year's salary, when in fact she would net "x-n" with n=tax payouts.

Second, most efforts to ameliorate the negative tax effects may incur risks and may also be subject to substantial limitation. So, let's say an employ understands the tax effects. She then decides that she will  contribute effectively all of her salary equal to the amount of the lump sum payout to her retirement plans.  Those funds would then incur no tax until drawn.  The problem, of course, is that there are substantial limitations on income deferrals, depending on an individual's age, the amount and the instrument into which such tax deferred withdrawals are made. Almost none of this is typically explained.  Usually some vague  and innocuous statement is included in the payout documentation--"It may be a good idea to seek professional advice" or something like that.  This is regrettable and may induce well meaning people to think they can figure this out for themselves.  But of course the consequences of mistakes can be substantial.

Third, many of these programs are designed as what I might characterize as "pig in a poke" arrangements. For example, under the typical arrangements, the voluntary program is generally announced and targeted faculty are sent a variety of papers.  They are given a relatively short period to decide--in the usual course about 30 days--before the offer is "withdrawn." That gives the employment a short but perhaps adequate time to seek counsel or decide for herself.  But the difficulty comes when the decision is to be made not with respect to the actual terms of the arrangement but only in the basis of some generic "deal terms." Sometimes a blank generic agreement is included.   Most include substantially all of the terms, one has a good idea about what the nature of the agreement, but not all of them.   In other words, many programs effectively require employees to accede to retirement on the basis of a blank form agreements whose terms are not those that will eventually bind the faculty member.  rather, employees agree to be bound by this "deal memo." The actual agreement will not be made available until a short time before payout and retirement--usually within 60 to 30 days of retirement. It is then, and only then, that the acceding employee actually gets to see the binding terms of the agreement.  To avoid difficulties of contract enforcement--though one might wonder about the ethics of the practice--most such programs then offer the employee a very short period of time (usually about 1 to 2 weeks)  to reject the terms of the lump sum payout.  But they are still locked into retirement at the end of the term.  That effectively makes it economically impossible to negotiate or complain when the final versions of the agreement are delivered.  Legal, but is it ethical, or right?  Because faculty have had no say in the construction of the program, it is hard to say.

Fourth, the university, like vitally all private employers offering programs of this kind, is also purchasing something else with the lump sum payment.  It is purchasing the silence of the departing employee.  It is now quite common--in both the business and academic fields--to see non-disclosure and confidentiality clauses.  In many one also sees "non disparagement" clauses as well.  The university, like other employers, does not want to pay out a lump sum and then be "bad mouthed" by the departing employee.  Yet the way some of these clauses are written they might effectively bar the departing employee from effective participation in society, and more importantly in shared governance as part of the emeritus constituency of many faculty organizations. And courts have sometimes held that an employee in a private setting (that is where the state is not involved) waive their first amendment rights for consideration (the acceptance of the payout in this case).  Many are also required to sign waivers of liability, releasing the university from any claims that the retiring employee might otherwise be able to assert--whether known at the time of retirement or thereafter coming to light. These are serious considerations for employees contemplating participation.


Taken together, what emerges is something of a contradiction.  Voluntary retirement programs, standing alone, are neither bad nor good.  They serve as a sometimes useful instrument for managing the character and qualities of a workforce.  But Voluntary retirement programs can hardly ever be evaluated in a vacuum.  And that is the problem.  In the case of universities, in particular, voluntary retirement programs must be understood within a context of shifting power between administration and faculty, in changes in the governing cultures of universities, and in the way in which administrators exercise power.  Both the characteristics of faculty composition and faculty rights and responsibilities are empathized.  Shared governance ought to come into play as well.  Yet is it unlikely that voluntary retirement plans are ever developed with these issues in mind.  Indeed, it is unlikely that administrators think the issues through with sufficient sophistication to consider the value of deeper faculty engagement in the process of determining the use of the device and structuring  its terms.  And it is regrettable that the trajectory of emerging administrative cultures might have an effect on the way in which these plans are managed. 

For individuals, the conventional voluntary retirement plan offers a number of traps for the unwary.  It is lamentable that plans are designed without appearing to think these trough and ameliorating their effects. And, indeed, for individuals contemplating retirement, it might be as effective to plan for retirement through a multi year program of increasing withholding and savings than to take advantage of these lump sum or serial payments.

To get a sense of the way that administrators and those who provide services to them approach the issues, and to orient those thinking about early retirement, the following general sources are provided.  The most important advice is this--if one is thinking about accepting it is wisest to consult legal and other professionals beforehand.  But remember that the price of this advice--well worth it--will reduce the net value of the benefits offered.

1. Heidi S. Hayden and Diane M. Pfadenhauer, Implementing Early Retirement Incentive Programs: A Step-By-Step Guide, HR Advisor (Sept/Oct 2005).

2. Neil H. Abramson, Early Retirement Incentives under the ADEA, 11 Berkeley J. Emp. & Lab. L. 323 (1989).

3. Emily Brandon, 10 Tips for Evaluating an Early Retirement Offer, U.S. News (March 2, 2009).

4.  Evaluating an Early Retirement Offer, AXA Equitable Financial Services, LLC
5. Early Retirement Incentive Program (ERIP) at the University of Virginia (2015).

6. Jeffrey Brown, The Long Term Consequences of the University Early Retirement Program,  Center for Business and Public Policy (Aug 30, 2010).

7.  Ann H. Franke, Supporting the Culminating Stages of Faculty Careers: Legal Issues (© 2011 American Council on Education) (the author assists colleges and universities nationwide with legal and risk management issues).

8. To Retire Or Not?: Retirement Policy and Practice in Higher Education (Robert L. Clark, P. Brett Hammond, eds., University of Pennsylvania Press, 2001)

9. John Pencavel, Faculty Retirement Incentives by Colleges and Universities, SIEPR Discussion Paper No. 03-28(May 2004)

10. New directions to retirement; Meeting emerging needs through alternative retirement pathways
TIAA-CREEF (Nov. 2012).

11. David Farren,  What is a "Non-Disparagement" Clause and Why You May Not Want to Sign One,

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