Lunatic fringe rates – sins of the past

Lunatic fringe rates and the sins of the past

Among the many challenges facing our university, perhaps the most formidable is the fringe rate. For many months, our AAUP chapter has been working with other unions and with our friends in the General Assembly to find a solution. While nothing has been solved yet, there is at least progress to report.

Here’s the fringe problem in a nutshell. Fringe rates determine the amount UConn pays for benefits in addition to salary: your retirement plan, health insurance, group life insurance, and so on. These rates are determined by the State Comptroller, and in the last decade they have gone through the roof. In 2003, the fringe rate for employees participating in the State Employee Retirement Systems (SERS), which includes almost all professional staff and a good chunk of the faculty, was set at 46% of salary. Today, it’s 96% and climbing. As a result, UConn’s total expenditures on fringe have doubled since 2010.

Why the run-up? The name for what ails us is “accrued unfunded retirement liability”, i.e., pension debt. The State began promising SERS benefits in 1939 but never saved a dime to pay for them until the 1970s. Even then, it never saved enough, chronically underfunding SERS and the other pension plans, relying on unrealistic investment returns, and refinancing the debt whenever the budget got a little tight. By 2014, the State had amassed roughly $100 billion in unfunded retirement liabilities; SERS alone has more than $20 billion (nearly all from Tier I, which has been closed to new employees since 1984).

In short, the bill for all this borrowing is now due, and to account for it, the Comptroller builds it into the fringe rate as a surcharge. Currently, the surcharge for SERS unfunded liability is about 34% of salary, plus another 21% for unfunded liability in the retiree health insurance plan. By comparison, the so-called normal cost of retirement – what it costs to prefund one’s retirement benefits, including pension and healthcare – is around 10%. So, of that 96% fringe rate, more than half (55% of salary) has nothing whatsoever to do with the employee’s own benefits – a good point to remember the next time someone tells you that state employee benefits are too generous.

For most state agencies, these inflated fringe rates make little difference, because the State itself covers the fringe. And yes, the State does reimburse UConn for fringe costs associated with the 47% of employees who are paid off the State appropriation (the “block grant”). But 53% of UConn (and 62% of UConn Health) employees are paid from other sources (tuition, grants, clinical revenue, etc), which are then tapped for the bloated fringe.

Effectively, this means that the State is levying a hidden tax of about $40 million per year on research programs, on patients, and ultimately on students. Since today’s students aren’t responsible for the sins of the past, foisting this bill on them seems particularly unjust. The effect on researchers is even more insidious. Thanks to the unfunded liability, UConn’s sponsored project fringe rates run about 25 percentage points higher than at competing institutions. Not only does that leave our PIs with less money to spend on actual research, harming their careers; it also puts them a competitive disadvantage for future grant funding, harming UConn’s bottom line and the Connecticut economy.

Plainly, then, the University has a big problem, which means our members do as well. For many months, UConn-AAUP has been meeting with our elected representatives, searching for a legislative solution. In February, Representative Gregg Haddad of Mansfield, Co-Chair of the Higher Education and Employment Advancement Committee, introduced HB 7118, “An Act Funding the Unfunded Pension Liability Portion of the Fringe Benefit Cost for Certain Employees of the Constituent Units of the State System of Higher Education”. Members of both UConn-AAUP and UCHC-AAUP provided supporting testimony, as did UConn administration. The bill’s fate is now in the hands of the Appropriations Committee, where its fate is uncertain.

We grateful to the many AAUP members who prepared legislative testimony and turned up in Hartford to support HB 7118, and especially to Representative Haddad, Senator Flexer, and the rest of the Higher Ed committee for their tireless efforts on behalf of high quality higher education in Connecticut.

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