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Formal Incentive Plans, a.k.a. retirement bonuses
Formal incentive plans, the most fiscally aggressive of all legal plans, are block bonus payments--often a multiple of a professor's salary--dispersed at retirement. There is a minimum eligibility age, and the bonus decreases as the faculty member ages.
The logic behind the plan is that older faculty members, seeing that they will have to retire eventually, will see an incentive to leave early: Taking a block of money with them. The saved salary pays for the bonus if the chair is kept open for a time or if a junior faculty member is hired in place of the senior professor.
Opponents of the plan argue that preliminary data does not indicate that such incentives have an effect, leading a university to waste money on faculty already planning to retire. Supporters respond by saying a downturn in the economy is all that's necessary to make a difference apparent.
Gradual Retirement, a.k.a. phased retirement
Under this plan, faculty members shed some of their duties, carrying a lesser teaching load for a limited number of years before retiring. Payment and benefits under the plan vary. For instance, MIT's plan allows faculty to teach full-time while receiving 60 percent of their salary. In the FAS, faculty on half-time status receive half their salary, whereas at the Law School salary arrangements are negotiated with the dean.
Cost of Living Adjustment, a.k.a. COLA
At retirement, all funds in faculty members' pensions are released to them and may be invested at their discretion--outside of the University's control. Professors must choose their own plans, usually combinations of stocks, bonds or annuities, to combat inflation or dips in the stock market.
As of Jan. 1, 1997, federal law no longer requires those over 70 to begin withdrawing funds from their plans. The principal may now remain untouched as long as the professor continues to teach. By maximizing the principal, professors hope to account for any increases in the cost of living--but there are no guarantees.
An automatic cost of living adjustment (COLA) would guarantee a yearly adjustment for market dips, but opponents compare it to writing a blank check, and supporters admit that the actual cost of living could rise more than the fixed COLA adjustment.
Life insurance for the living, some faculty members use their pension funds to purchase annuities, plans that guarantee them a certain regular income until death. Annuities often vary in how they account for the cost of living. Some plans disburse a fixed amount, irrespective of inflation, while others are designed to account for a devalued dollar. The cost of an annuity with a COLA is usually a lower fixed income: Security has its price.
Retiree Health Benefits
The University pays 100 percent of the medical costs for faculty who retired before 1996. Now, faculty bear up to 50 percent of the cost, and the University has placed a "soft cap" on benefits, reducing the extent to which Harvard guarantees it will keep up with rising medical costs. After 1999, Harvard will increase its contribution by 1 percent less than the increase in premium costs.
In the eyes of the Administration, the emotional impact of retiring is the first-order concern of faculty who want to continue contributing to the community. While various faculty members contend that point, there is consensus that retiring can be, in the words of one professor, like "falling off a cliff." With that in mind, the FAS has focussed on making retirement more attractive from a non-financial standpoint: Based in part on departmental discretion, emeriti faculty can teach and serve on various committees. They also have offices and, if they have grants, labs in which to research. They are also eligible for research funds.
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