Thursday, February 22, 2007

 

Ask the Administrator: Money, Retirement, and HR

An occasional correspondent writes:

After landing a full time tenure track job, I was eager to begin managing my income in the most savvy way possible. However, after six months on the job I’m somewhat perplexed by the lack of information and/or confusing information I’ve been given by various staff at my college and my colleagues. When I went to my initial HR orientation meeting, the parameters of our excellent retirement fund were not really touched on so I made it a point to visit the relevant website, talk to folks through the retirement fund and learn what I needed to know. First problem solved. When I asked folks in HR and payroll regarding the feasibility of beginning an additional retirement savings plan such as a 403 (b) I was given some extremely sketchy information which was included on a one paged list of plans that I could contact on my own to find out more information. However both HR and payroll implied that I should “get my finance person” to do the research for me and that this was not the sort of task to be approached by the autonomous faculty person. As I don’t “have a finance person” I began researching the plans on my own. I did contact our payroll department a few times to ask follow up questions and been more or less rebuffed. Is this lack of information common or have I just landed at a somewhat oblique and unhelpful school? I have no doubt that I’ll eventually finalize my 403b selection and make a good decision, but I’m just wondering if it’s supposed to be this hard to try to be a responsible person and save as much of my salary as I can. Shouldn't the college be shoving this sort of information down our throats?

I’ve also tried to discretely and politely ask some of my new colleagues about their saving strategies and I’ve basically encountered divergent responses. Either it seems like people can’t afford to put any additional money away so they can’t provide any advice or experience or they look at me as though I must be some crazed capitalist captain of industry in the making who is only asking these questions because I have a break between meeting with contacts at my conflict diamond mine in South Africa and my sweatshop in Mexico. I guess this leads me to my second question. Without engaging in hugely problematic stereotypes do you think, based on the responses I’ve encountered, these are the most common attitudes towards cc faculty regarding retirement savings? It seems like a problem to me to think that our great retirement plan, however great it is, will do *all* the work we need it to do to retire happily someday. What gives with faculty attitudes towards saving?



It's a neat question, since it directly contradicts what I've seen. As regular readers know, the f-t faculty at my cc is quite senior, with most within a few years of retirement. TIAA-CREF balances are very popular topics of conversation.

At both my current college and my previous one, HR does/did a good job of organizing workshops for financial planning for retirement. (I don't think either college assumed that anybody had a finance person. I kind of like that, though. "We have people for that sort of thing...") In fact, the HR department here actually puts together an oversize grid detailing the various investment options for retirement accounts, including fees for each.

I'm neither an economist nor a financial advisor. That said, I don't think you need to be either to make basically sound decisions about retirement. (Sometimes I think the best fifteen bucks I ever spent was on Personal Finance for Dummies.) If you accept a few premises from the outset -- free money is good, fees are bad, and the market is both unpredictable and merciless -- several clear decisions follow. (My theory is go with low-fee index funds, put in at least enough to get the employer match, and hope for the best. I offer no guarantees.)

At Proprietary U, we had 401(k)'s instead of 403(b)'s, but the concept was similar. I recall sitting down at lunch with one of my favorite colleagues there and explaining to him why it made sense to at least contribute enough to get the full employer match. "Free money," I think, was the key phrase. At my cc, enrollment in a retirement savings account is actually mandatory, though you get to choose which account.

Certainly there are larger issues here as well. For example, at my cc, as at many colleges and companies, 'defined benefit' pension plans are not available to anybody hired after a certain date. (I didn't have the option, for example.) The idea is to shift the risk from the employer to the employee. Rumor has it that the market crash of 2000/2001 delayed several pending retirements, since folks who were planning on a big payout suddenly couldn't get it. Andrew Hacker's recent book details what he calls 'the great risk shift,' but it's nothing that anybody observant wouldn't have spotted by now. The upside of the great risk shift is that it enhances employee mobility. Under the old defined benefit system, if my job search took me to, say, California, I'd lose the years towards a pension here. Under the new system, my money moves with me. Tenured faculty, as a group, aren't the most mobile people in the world, but it's worth keeping in mind.

(There's also the ever-present adjunct issue, since they don't typically accrue retirement benefits. As risk shifts go, the trend towards increasing adjunct percentages is a doozy.)

All of that said, there is a weird culture around money-talk in academe. It's a funny blend of moral indignation, bad conscience, shock at the gap between length of training and actual salaries, and a vague sense that, as a 'called' profession, we aren't supposed to focus on such things.

I reject those assumptions wholeheartedly.

If my blog has an underlying theme, it's that academics are employees and colleges are employers. The sooner we can move away from moralistic posturing, denial of basic economic reality, a sense that we're too pure for this world, and guilt over the fact that we're economic actors just like everybody else, the healthier we'll be. One of the real contributions of the proprietary schools to the discourse around higher ed has been to strip away much of the romanticism and to call attention, unapologetically, to the economic foundations of what we're doing.

Are you unsatisfied with the paltry pay from adjuncting? Stop adjuncting. Walk away. There are other jobs. Are you unsatisfied with the pay and/or benefits at your current college? Look for another employer. It's okay. It's not 'disloyal,' or 'corporate,' or 'mercenary' -- it's basic self-preservation, which is everybody's right. Is it fair? Sometimes not, but just getting indignant about it won't change anything.

Part of the burden of being a progressive in today's America is that you have to be able to think along multiple tracks at once. At the systemic level, it's absolutely fine to advocate for national health care, a daycare system worthy of our kids, fully-funded public education, etc. But you also have to take care of yourself and your family. If your HR department is doing a crappy job of apprising you of your options, then by all means do a little background research for yourself. (If they think that you shouldn't worry your pretty little head about money, then you have a terrible HR department.) I've found, too, that most mutual fund companies are more than happy to shower you with information for the asking. You need to know how to filter it, but the basics are fairly simple.

Why is your college being so obtuse? I have no idea. It may be fear that anything that could be construed as 'advice' could come back to haunt them if it doesn't work. It may be that some key administrators simply aren't very bright. It may be that key people were trained under the old 'defined benefit' system, and just never learned the new way. Whatever it is, though, don't make their problem yours.

Loyal readers in blogland -- does your college/employer do a decent job helping you decipher retirement benefits? And what's your read of the weird academic reticence around money matters?

Have a question? Ask the administrator at ccdean (at) myway (dot) com.


Comments:
This doesn't answer your reader's question, but it is at least in part a response to your question about why academics are so weird about money:

Most of the 30-something academics that I know--at least those from families who can afford it--are still, or have until very recently, been getting some kind of financial help from their parents.

The down payment for a house? Mom & Dad. The car? (which may be used, or may have been purchased while in grad school)? Mom & Dad. I've even noted this with clothes: on one or two occasions, to deflect a compliment about a nice suit, I said, "oh, Christmas present from Mom." And the response from my female colleagues is always a slightly embarrassed, "Oh! I get most of my nice clothes from my Mom, too."

I'm sure this will lessen once we've all been employed longer, but I think academics just spend so many years near the poverty level that many of aren't used to having money TO save or invest, and so still regard that as "the grown-up"'s responsibility.
 
At my university, I believe every faculty member (if not every t-t faculty member) is enrolled in the state retirement system. The state matches my monthly contributions, dollar for dollar, to the system, and I get reports (either quarterly or semiannually, I forget which) as to how much money is in the account, and how much I'll be making if I retire at (IIRC) 60, 65, or 70. The questions that I had about the system when I came here were answered quite nicely by HR.

On top of that, I'm also, within the next few months, going to start putting about $100/month into an IRA of some sort. I don't know if I can get the state or the university to match those funds, but even if I can't, it'll be a nice little extra source of cash when the time comes.
 
The HR people can help you understand your school's plan and probably help you see where your salary is likely to be based on historical changes. That's it. It's not their job to tell you what to invest in.

Your colleagues: younger ones are probably paying off loans, and, as Flavia suggested, so used to living lean that they haven't made a real transition yet. If you find one who SEEMS savvy, then you have to realize that seeming isn't necessarily so. If Joe in department X really is so good at investment stuff that he's a millionaire several times over, he wouldn't be working, right?

You, like everyone lucky enough to have a middle class income, basically have a choice: either hire someone who's an expert to help you plan, or educate yourself. And even with an expert, you need to educate yourself.

Except you have an advantage because you're probably really well-trained at learning and sorting through information.

You can start with something like the Motley Fool site, work through the planning stuff at investment sites run by the various companies you might want to invest with. Read books or magazines on planning.

Dean Dad gave some great basic advice: free money is good. Do your 403b or whatever to at least get a match, if that happens where you are.

Figure out your goals: want to own a house? travel every summer? put your kid through college?

If you figure your timeline and costs, you can do a good job predicting how much you need to put away in what kinds of accounts to get started. I got a paper form a couple years ago that had multipliers for different returns over the years, and put it on a computer, but it's not actually that hard to do that math from the start.

Two final things: If something sounds too good to be true, it is.

With VERY few exceptions, even the experts managing mutual funds don't consistently get stellar returns. That's why low fee index funds are a reasonable place to start (as Dean Dad suggests.)
 
I would advise talking to your banker or credit union and see if they can put you in touch with with a Certified Financial Planner who can help set up your 403(b). (Note: CFPs usually charge a fee though that might be waived if they're working for your bank or CU).

The list you recieved is called a vendor list and it's what your employer is obligated to give you so that you can start up your 403(b). That's pretty standard, sad to say. This site's actually pretty good at explaining your options with starting a 403(b):
http://www.403bwise.com/wisemoves/start403b.html

(Note: ironically, I live in Canada and so am entirely outside the US financial systems for higher ed but my father's a retired prof and my sister's a research scientist at a state U so I still keep on top of these things.)
 
I'm sorry to harp on a now familiar theme, but daddy, how can you say there are jobs a plenty for adjuncts? Have you tried to get one of these jobs? Tried to explain how, at 40, you are thriled to take this entry level corporate job -- a job they won't off to you anyhow becasue you're over qualified? And even if they did offer it to you, at 40 can you really live on $32K?

Seriously daddy, get a grip. The world ain;t no oyster.
 
The primary purpose of a human resource department is to make sure that the treatment of employees is legal. In other words, they exist to keep the place from getting sued. Anything beyond that is just icing on the cake.
 
Your correspondent would probably benefit from doing some reading:

http://www.403bwise.com/

http://users.aol.com/gmaclaren/forbes298.html

It's a bit dated now, but Grant MacLaren has a collection of articles that provide some background:

http://www.grantmaclaren.com/403b/
 
We're a TIAA-CREF institution, with some strange aspects to the University's contribution (don't ask). 403(b)s are also offered. And out benefits people do a generally good job explaining what you can do and why you should. What amazes me is what a small percentage of my colleagues have opted to save using a 403(b).
 
Excellent topic. Our system has a one-time choice between defined benefit and defined contribution, which is nice because the choice does depend on age and expected mobility. Our HR does not give any advice, but the State funds some private firms that give very informative seminars.

I'll have to pick up that book you mentioned. We are fans of the Suze Orman show on CNBC cable, particularly her advice to use Roth as a backup to other plans (such as 403(b)) where the income might end up being taxed at a fairly high rate to pay off the loans we are making to ourselves right now.

My advice is to carry no balance on your credit cards and put a car (or house) payment in the bank every month even if you don't have a loan. I can't believe what a difference that made. My parents have what they have because they lived on less than they made, even when it was not very much.
 
As the person who originally posted this question I just wanted to clarify an aspect of my question and respond, in particular, to Bardic's post. I completely understand that it's not HR or, in my institution's case, payroll's responsibility to provide us with financial advice. That's not what I was asking them for. However, I can't help but wonder why they did not include that skimpy little vendor list in our initial HR orientation packet? Or why not have a session for faculty reminding us that there are 403(b) options out there to help enhance our excellent state retirement program and recommending just the sort of websites and books that my query has precipitated here?
Another issue that everyone in academia should be thinking about is the way that the term 403(b) is being deployed. Frequently, 403(b)s or (Tax Sheltered Annuities) are seeing as being synonymous with corporate America's 401(k)s. In fact, it is the sub category 403(b)(7) which allows for more aggressive investing in mutual funds etc. I'm really surprised that this distinction isn't made more when I've been researching different investment options by comparing options on my vendor list. Based on what I've learned on my retirement savings journey many folks sign up for a 403(b)(meaning a TSA) thinking okay, this is probably going to be very similar to the 401(k) I had through Fidelity Mutual or wherever you may have had a 401(k) plan before you began the grad school/faculty job search quest years and years ago. It's actually significantly different. And, at least at my school, the vendor list includes many more vendor who offer 403(b)s rather than 403(b)(7) options. This irks me a bit because since we have this great, stable state retirement fund I think it'd be helpful for our college to emphasize vendors that may be able to help faculty members diversify their options and be somewhat more aggressive in their investment strategies. But I'm just venting now at this point!
 
Great topic. My institution has a 403b DCRP with an 8% contribution and allows for three providers (including TIAA-CREF). HR is very upfront and informative about employee options.

Flavia's noting that most 30-something academics he/she knows are getting help from their parents is WAY off the mark in my 30-something cohort. In fact, most of my cohort pride themselves on being independent of their parents' meddling/help. Talk about prolonged adolescence! -TL
 
Anonymous,

I'm sorry if I came off meanly; you're right that they should give you a list of vendors, and also right that they should probably remind faculty about retirement planning.

But NO non-academic job I ever had did the second thing, and two of my three academic jobs have done both, so I'm not a good sample.

I don't know very much about differences between 403b and 401k plans, nor am I a sophisticate about 403b plans even. You sound already MUCH more educated than I am, and I bet WAY more educated than your HR folks are, unless they're good investors themselves.
 
I know nothing about HR in Higher Ed, but I do know that my corporate labor and employment lawyer has warned all of HR not to answer any financial questions other than "this is how you set up your 401k" and "here's where you get your pension estimate" because advising on how to carry those out are illegal.

I don't know whether that's a federal law or a state law, but nevertheless, I keep my mouth shut even when I know someone could benefit financially by doing X instead of Y. I might mention they should talk to their financial planner, though...
 
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