MIT May Cut Employee Pension Plans, Saving $200M

CORRECTION TO THIS ARTICLE: This article misstated the fundamental relationship between MIT's defined benefit and defined contribution plans. MIT employees need not choose one or the other, they receive both.

MIT may cut employee pension plans as part of a plan to save $27–$199 million over the next 2–10 years, according to the preliminary report of the Institute-Wide Planning Task Force released in August. The retirement plan cuts constitute much of the proposed cuts in workforce policies and practices recommended by the report.

The final report is expected to come out on Oct. 30, but these cuts will not become final before further discussions with service worker’s union SEIU Local 615 and possibly a faculty resolution. The final decisions, which are expected to be made in the spring, still rest in the hands of MIT’s top executives.

The report argues that pensions should be cut because the current system offers a strange incentive to retire: employees may sometimes get more money per year from retirement benefits than they do in salary the year before they retire.

Employees can choose between a “defined benefit” and a “defined contribution” plan. Retirees under the current defined benefit plan get an annual check for 1.65 percent (1/60th) of the total amount they made at MIT.

Under the current defined contribution plan, MIT matches employees’ contributions to a separate retirement account (such as a 401(k)) for up to five percent of their paycheck. Their retirement earnings then depend entirely on that account.

Among the proposed cuts, one would reduce the defined benefit so that it only pays 1.65 percent of the total amount employees make over their first 30 years at MIT, rather than their entire time. Under a second proposal, employees contributing five percent of their paycheck to a 401(k) would receive only a four percent matching contribution from MIT.

The Proposals

The proposed changes would not affect people who have already retired.

As proposed, the package is “more attractive to younger employees and employees who work for MIT for less than 10 years,” said Professor Thomas A. Kochan, co-director of the Institute for Work and Employment Research. Kochan agreed with the Task Force’s suggestion that current retirees be grandfathered.

Kochan, who is chair of MIT’s faculty, is also one of the five faculty members on the Human Resources and Benefits Committee of the Task Force.

For some employees, the proposal’s timing is apt: The Institute’s contract with service workers’ union SEIU Local 615 is up for renewal in the spring. Employees have growing concerns about pension plans and retirement, said Wayne Langley, the union representative for the Boston area.

Many MIT employees who live on a fixed income don’t get the opportunity to contribute to their 401(k) because of the lack of disposable income, Langley said. Instead, they rely heavily on Social Security and the Institute’s defined benefit plan.

Langley said the union was disappointed at not being consulted as part of the Task Force process. “There is a lot of talk about transparency,” said Langley, “but we were not included in the process. If [the union] can give our input, eventually [MIT] can find something that benefits both the university and the people.”

“In retrospect, it would have been good to communicate with the union earlier in the process,” Kochan said. “However, we are working with the union representatives now; we are still in the idea stage.”

Many SEIU members came to the Sept. 21 community forum held by the Task Force. Kochan called the forum — which sought suggestions from faculty, staff, and students — a kind of community engagement unique to MIT.

“We are setting a model for how to change in a university environment,” he said. “But that means we have to deliver.”