UM presses on in pension review

The UM System’s evaluation of its pension plan has entered the next step. UM President Gary Forsee held a town-hall style meeting with faculty today after an all-day meeting with the Board of Curators Monday to discuss the plan’s status and a possible alternative.
The university, like many public institutions, is looking at possibly changing its defined benefit retirement plan to a 401(k)-style defined contribution plan. The current system guarantees a regular check for the remainder of a retiree’s life. A 401(k) plan would require that employee to save a portion of his or her income in a personal account that the university would contribute to as well. Any change would likely only affect new hires.
The switch would basically shift the risk from the university, which must pay promised benefits, to the employee, who would be responsible for stashing enough away for retirement.
Changing demographics and the market shocks in the last several years have prompted a review by the university. At the Monday meeting, Forsee said the plan is fully funded. But a report by the university’s actuary, Howard Rog, said the market value of the fund’s assets was about $450 million less than its actuarial liability of $2.958 billion. The actuarial asset value, though, is higher than the market value: $2.845 billion.
In the short term, those at the meeting stressed the fund is in a good position and has been managed very well relative to some of its peers. But the question is, can the university continue to add people to the plan when they’re living longer and market uncertainty is the current norm?
Whatever the change, the impact on Boone County could be significant. The University is the largest employer, with more than 12,000 workers including University Hospital.
Forsee plans to form a special committee to communicate with staff and faculty as well as incorporate their input as the process moves forward. In addition, he plans to continue the town hall meetings on the other campuses through next week. He also scrapped a December date for a decision, which had long been the indicated deadline.
At the Monday curator’s meeting, it was unclear what direction the university will take. One curator, David Wasinger, said the “private sector has adapted” and that the university’s future liabilities and contribution increases will ultimately be made up for through tuition increases.
“I almost see it as a fiduciary obligation on our part to take some kind of action,” he said.
Two other curators, though seemed to lean against swapping the defined benfeit plan for a defined contribution plan.
Curator Don Downing said he was not convinced the university has to move to a defined contribution plan.
“One of the options I’d like us to keep on the table is our defined benefit plan,” he said. “If we have to tinker around the edges, fine.”
Curator Wayne Goode worried about putting investment decisions entirely in the hands of individuals.
“At least part of the money should be professionally managed similar to how our plan has been managed,” he said. “If you give an employee total flexibility, some of them are going to really screw it up.”