Retirement Funds Cut Due to the COVID-19 Crisis

The impact of the COVID-19 pandemic has been felt throughout the nation, and higher education has not been spared.  In the last nine months, St. Lawrence University’s administrative staff made a number of strategic decisions to address the public health and financial ramifications of the pandemic.  These decisions have included dedensifying the campus and implementing a hiring freeze but also reducing employee retirement benefits.

On June 1, 2020 President William Fox addressed an email to St. Lawrence Employees that explained that “the University will temporarily reduce its contribution to all faculty, exempt, and non-union staff 403(b) [retirement] plans from 10 percent to 6 percent of eligible compensation.”  This amounts to a four percent cut to employee retirement benefits.

Employees expressed concern over the long term impacts on employee retirement plans.  “The effect of changing retirement contributions are significant because of compound interest,” one employee said.  “These effects are especially significant to younger faculty. Any cuts to retirement today are very likely to cost faculty significant money over the long term, especially when compared to any short-term monetary gains the University would realize through those cuts.”

According to the administration, retirement benefits are only one of many areas that are facing cuts, a symptom of the COVID-19 crisis.  St. Lawrence University expects a five million dollar budget deficit this year, and this deficit would have been higher if not for reductions which include the cut to retirement benefits.  “Absolutely, this pandemic has affected St. Lawrence financially,” Vice President of Finance Stephen Hietsch said.  “But these are industry-wide; this is nothing unique to St. Lawrence.  In fact, thus far I think we’re probably faring better than other institutions are.”

Hietsch also pointed out that the four percent cut in retirement benefits affected the administration as well.  “It was actually faculty and administrators, it wasn’t just faculty,” he said.  “At a time when we were announcing to employees that their retirement benefits were going to be reduced this year and that their salaries were going to be frozen we wanted them to know that we as the leadership of the institution were not only experiencing a reduction to our retirement as well and a freeze to our salaries,

but instead we went beyond that and reduced our salaries.  It was fifteen percent [salary decrease] for President Fox and eight percent [salary decrease] for every member of senior staff.”

While the solidarity is commendable, it doesn’t take away the fact that employees are left with less money at retirement, and some employees looked for alternatives.  “One individual suggested that we could have just taken the money out of the endowment,” Hietsch described, noting that many view the endowment as a sort of emergency fund that could be used to offset the costs of the pandemic.  Unfortunately, state law prevents the endowment from being used as an emergency fund.  “There is a provision in the law that if you spend more than seven percent of the five-year average market value of the endowment in any one year there is a rebuttable assumption of imprudence,” Hietsch said.

Many employees seemed to understand the need for the reduction but took issue with the way it was implemented.  The Faculty Salary Policy currently in effect mandates that the administration may not make changes to salaries or benefits without first consulting the tripartite committee on budget and finance, as well as the salary and benefits committee.  The administration met with both committees and the faculty council, but some felt that the meetings were only to let employees know of the decision and not to involve them in the decision-making process.  “There was some discussion about whether we had truly consulted with them as opposed to having just informed them,” Hietsch admitted.  “We had every intention of complying with the requirements, and we were well aware of what they were and frankly, thought we were complying.  If I had to do it all again, knowing how that was perceived, versus how it was intended, I would have taken steps differently to do that, but the intent was there to comply with the faculty salary policy.”

Other employees suggested that instead of retirement benefits the administration should have cut salaries, which were frozen for the 2021 financial year, or even better, given employees the choice between a salary cut or a retirement benefit cut.  “Not having a choice of taking the compensation reduction through reduced salary or retirement contribution is frustrating,” another St. Lawrence employee said.  “I’m not sure how I would’ve chosen, but I would’ve liked to have had the choice in the first place. The alternative presented after the fact to take the cut effectively through salary reduction requires financial planning work that we don’t have time to do in the current situation.”

According to Hietsch, the administration considered a salary cut instead of a retirement cut.  “The big reason why we didn’t cut salaries instead of retirement budgets is that there are people who live paycheck to paycheck,” Hietsch said.  “If we went and we cut people’s salary by three or four percent, instead of cutting the retirement, there are people who would have had to make choices about basic needs that they could not meet with their salary.”  The administration may have been able to let employees choose between a salary cut or a retirement cut, but this could have raised logistics problems as well.

Director of Finance and E-Sports Coach Eric Shinnick recognized that not everyone would be happy with the way the administration managed its finances during the pandemic.  “We know that a university-wide approach isn’t going to solve everything the same or hit everything the same,” Shinnick said.

Hietsch echoed the sentiment, and admitted that there might have been better ways to implement these changes.  “We’re not perfect, despite our best intentions there are sometimes better ways to do things.  People can always second-guess decisions,” Hietsch said.  “But I can tell you that the intention is always there.”