DATE: October 20, 2006
TO: Governor Sonny Perdue
Chancellor Erroll B.
Davis, Jr.
Board of Regents,
University System of Georgia
Presidents,
Colleges and Universities of the University System of Georgia
FROM: The Ad Hoc Council of Academic Councils
The University System of
Georgia
SUBJECT: ORP Employer Rate Reduction for 2006-2007
Many USG faculty who participate in the Optional Retirement Plan (ORP)
have expressed deep concern and disappointment regarding the recently
announced reduction in the employer contribution to the ORP for plan
year 2006-2007. The rate cut of 1.53% is an immediate reduction in the
gross compensation paid to faculty and represents a reduction of 15.84%
from last year's rate. Moreover, this cut unfairly affects one class of
USG employees, namely those in the ORP but not those who are members of
the Teachers Retirement System (TRS) of Georgia.
The University System of Georgia has recently made great strides in
recruiting high caliber faculty in many of its units. Its strategic
plan emphasizes the "recruitment, hiring, and retention of the best
possible faculty, staff, and administration" and recommends making
"salaries competitive in the South and nationally." Yet faculty and
staff have in recent years experienced either minimal or no pay raises
and have seen the costs of many of their fringe benefits rise. To meet
USG's stated goal of recruiting and retaining the best possible faculty
and raising its standing as a leading university system in the nation,
the system must provide a total compensation package, including
benefits, that remains nationally competitive and attractive. For
comparison: Indiana University pays up to 15% of salary (100% employer
paid) to its retirement plan; Virginia, 10.4% (100% employer paid);
Florida, 11.81% (100% employer paid); Tennessee, 11% (10% if wages below
social security maximum; 100% employer paid), and Arkansas, 10%. The
four southern states of Virginia, Florida, Tennessee, and Arkansas
contribute on average 10.80%.
Serious under funding of ORP will adversely impact a member's
accumulations and therefore the potential benefit available upon
retirement. The Chronicle of Higher Education reported on September 25,
2006 that a greater percentage of faculty may choose to work past age 65
because of concerns about inadequate health benefits. Inadequate
pension benefits in ORP could join the list of their concerns. It is
important for the USG to fund the ORP at levels that will raise the
likelihood of generating benefits to make it attractive for higher-paid
senior faculty in ORP to welcome retiring at age 65. Else many will opt
to continue working past age 65, thus limiting the system's ability to
recruit new and younger faculty and also to lower its overall salary
costs.
Faculty representatives of the Colleges and Universities comprising the
University System of Georgia therefore wish to make the following
recommendations:
* The USG contribution to the ORP should be fixed
at 10.80% of salary each year, or the total employer contribution to
TRSGA whichever is greater. (10.80% is the current average employer rate
of Virginia, Florida, Tennessee, and Arkansas.) The employer
contribution percentage to the ORP should be reviewed and when necessary
increased to normalize for any future enhancements made to the TRS
benefits package;
* Set the plan year for the ORP to be the state's
fiscal year and make rate changes effective the fiscal year;
* To provide the necessary funds to change the rate
to 10.80% effective FY07 and for each year thereafter until legislation
is passed to effect the rate change permanently, the state should make a
special ORP appropriation in the state budget each year;
* In the event the required employee contribution
to the ORP might be reduced in the future, allow ORP members the option
to contribute at a rate up to the previously higher employee rate on a
voluntary and tax deferred basis;
* Grant a one-time window for those members who
currently participate in the ORP to transfer their accumulations to the
TRS and be entitled to receive a defined benefit pension in TRS without
any reduction and as would otherwise be determined by their years of
service in the University System of Georgia;
* Grant a one-time window for those members who
currently participate in the TRS to transfer all their accumulations
with interest, both employer and employee share, to the ORP;
* Decrease the vesting time in TRS to five years;
* For new faculty, grant option to switch between
ORP and TRS upon grant of tenure in the system;
* Grant credit to ORP members for their accumulated
sick time similar to the sick leave benefit available to TRS members
either as a lump sum dollar amount paid to the ORP, or as an actuarially
equivalent defined-benefit pension credit paid by TRS upon retirement;
* For those members who elected to transfer from
TRS to the ORP when ORP was first offered by the BOR in 1990, return
with accumulated interest all employer contributions for their prior
years of service in the TRS (up to nine years) that were withheld at the
time of their transfer. Alternately, grant ORP members an actuarially
equivalent benefit-defined pension credit paid by TRS upon an ORP
member's retirement.
o Precedent: HB/SB 253 passed in 2004 regarding
Assistant Coaches that allowed assistant coaches to transfer 100% of
their contributions, both employer and employee with accumulated
interest, to the ORP;
o Forfeiture clause: Termination of employment was
the only provision of the TRS code in effect in 1990 that would allow
forfeiture of employer contributions. Transfer to ORP did not require or
constitute termination;
* Offer more choice of carriers in the ORP (e.g.,
low cost firms such as Vanguard if they participate in the ORP);
* Establish definitive and clear lines of
communication to advise both ORP and TRS members in a timely manner of
legislation that has the potential to affect their retirement benefits.
To this end, and also to provide fair representation, appoint at least
one USG faculty member who is an ORP participant to the Board of
Trustees of the TRS.
Please address responses to:
The Ad Hoc Council of Academic Councils
The University System of Georgia
P.O. Box 31380
Augusta, GA
30903-1380
Thank you for your consideration of this matter.
Sincerely,
The Ad Hoc Council of Academic Councils