UConn’s research growth subverted by huge pension costs

A new research lab at the UConn Health center in Farmington

CtMirror.org

A new research lab at the UConn Health center in Farmington

Second part of a three-part series. Read part one here.

Kevin Claffey’s outdated lab at the UConn Health Center was recently gutted, renovated and fitted with state-of-the art equipment.

If his lab were being used to its full potential, he would have four graduate students, two post-doctorates and one technician on his team to research the recurrence of breast cancer.

His team has only two graduate students.

“We don’t have enough funds to support the number of people to do the work. That’s really the crux of the matter,” Claffey, a professor in the department of cell biology, said during an interview in his new lab in Farmington, which was renovated with state funds made available through the Bioscience Connecticut initiative. “If we can’t hire people to fill the lab, then guess what? All of this Bioscience Connecticut goes to crap. It’s not a good situation here.”

Faculty say there is one main obstacle preventing research from taking off as envisioned when the state poured hundreds of millions of dollars into expanding lab space and classrooms at the public university’s main campus in Storrs and health center in Farmington: In recent years, it’s gotten much more expensive to hire faculty, postdocs and other employees to staff their labs.

That, they say, hurts their research and ability to compete for grant dollars at a time when federal funding for research has not kept pace with inflation.

And it’s not because postdocs and other employees have suddenly become much better compensated, faculty say. Instead, the driving force is the cost of employees’ health, retirement and other fringe benefits, which largely reflect the state’s years of failing to adequately save for pensions and other retiree benefits.

And another fiscal tsunami is expected to hit UConn, and all other research universities, as the Obama Administration overhauls rules on which employees must be paid overtime to include postdocs and other research staff at universities across the country.

UConn officials are well aware of the situation.

“I get chewed on the fringe-cost issue more by faculty than any other single issue. The fringe costs are just eating us alive,” said Jeff Seemann, UConn’s vice president for research.

Growing costs for staff

Providing the health and retirement benefits to a professor with a $100,000 salary used to cost UConn $31,300 in 2004. Today, the cost is $53,600.

“It’s one of the biggest worries of our researchers because they’ve got a limited budget, and they want to hire as many scientists as they can to work with them. And then the fringe is out of their control. So they complain to us and say, ‘Why are you doing this to me? I can’t fill my lab,'” UConn President Susan Herbst told state legislators in February.

The state comptroller each year sets a fringe rate that state agencies and public universities must pay to cover their employees’ non-salary benefits. In 2004, that fringe rate was 31.3 percent for employees who signed up for the state’s pension system (rather than a 401(k) plan), meaning an employee earning $100,000 would actually cost UConn $131,300.

By 2011, the fringe rate was 40 percent. It now stands at 53.6 percent, and there are signs that the rapid increases will continue.

Much of the growth is the result of Connecticut’s pension bill finally coming due after decades during which state lawmakers neglected to set aside enough funds to cover future benefits promised to employees. Connecticut has just under half of what it needs to pay future retirement benefits for its workers, which makes it the third-worst state in the U.S. in funding its pension obligations, according to the National Association of State Retirement Administrators.

If the state’s pension system were fully funded, UConn’s fringe rate would be 23.4 percent for the research personnel that work in Storrs or Farmington.

“The rates, they’ve gone from high to ridiculously high,” said Seemann. “What’s the optimum cost? A whole lot less.”

Experts say the high personnel costs can hurt a researcher’s chances of winning a grant.

“It stands to reason that if the fringe rate is shifting from the 40s to the 50s, that it’s going to force funding to stretch further. That means the money that I have doesn’t go as far. That means I am deferring the work on ongoing research. It is of concern,” said Charles Dunlap, the program director for the research competitiveness program at the American Association for the Advancement of Science. His organization has been consulting for Bioscience Connecticut to help faculty at UConn Health submit federal grants, but he was not speaking specifically about UConn when interviewed.

UConn and UConn Health together employ 772 research faculty, 3,733 other research staff, such as graduate students or lab technicians, and 296 postdocs.

The increased fringe rates from the past school year meant the grants that UConn and UConn Health already had received would be charged an additional $3 million. Calling  it a “band-aid approach,” Seeman’s office took $300,000 from elsewhere in the institutions’ budgets and helped pay for some of the increased costs for projects at risk of having to let staff go.

Other cost drivers

When Bruce Mayer hired a researcher with a doctoral degree for his lab in 2003 at a salary of $50,000, his lab had to pay an additional $4,900 to cover the researcher’s retirement and health benefits.

Professors Bruce Mayer, left, and Kazuya Machida in Mayer's lab

Photo Credit: UConn Health

Professors Bruce Mayer, left, and Kazuya Machida in Mayer’s lab

By 2011, the additional cost for an employee with the same salary was $19,700.

Now it is $26,800.

“They are so expensive now,” said Mayer, a geneticist at UConn Health’s Center for Cellular Analysis and Modeling. “The only solution is to have fewer bodies doing the research if bodies are so expensive. It makes any grant that I apply for that much less competitive.”

The added costs aren’t likely to benefit the 119 postdocs who work at UConn Health, however. Instead, they’re going to support the state employees’ pension system, from which hardly any postdocs will ever benefit.

When postdocs and other research staff start their jobs at the health center, they are offered a chance to join one of three retirement plans.

  • Option 1: The State Employment Retirement System. This is the state’s traditional pension system. Employees must contribute 2 percent of their annual salary. After 10 years of working for UConn Health or the state they will earn health care coverage and a monthly pension check upon retirement. This is not an attractive plan for many postdocs because their employment at UConn Health cannot exceed five years, meaning they would be putting money away in a retirement system from which they might never qualify for benefits. Although they would benefit if they later got a job with the state, intense competition almost guarantees most postdocs will not land a faculty position at UConn. This is the most attractive plan for faculty and others who have permanent employment at UConn Health.
  • Option 2: The Alternate Retirement Program. This is the state’s 401(k)-type retirement plan. Employees must contribute 5 percent of their annual salary, and the university contributes 8 percent of an employee’s earnings. This plan is attractive to postdocs at UConn Health since they get to keep their retirement savings after their postdoc work concludes.
  • Option 3: The Hybrid Plan. This option provides the best of both plans. Employees who land a job with UConn Health or the state after their postdoc work earn retirement pension and health benefits after 10 years, just as the traditional pension plan provides. The difference is that if employees don’t stick around long enough to become vested, the money taken out of their paychecks for retirement is not lost. Instead, they can cash out and take their retirement savings in a 401(k). Employees must contribute 5 percent of their annual salary to join this plan and, for those who leave before 10 years, the university retrospectively matches their contributions, plus 4 percent annual interest.

While the 401(k) plan and the hybrid plan have identical costs to the employee and nearly identical contributions to their retirement fund from UConn Health, postdocs have every reason to sign up for the hybrid plan in case they are able to land another job with the state.

But the difference in cost between the plans for UConn is huge.

Students at UConn share their concerns about research investments at UConn with the executive vice president for research after a recent Board of Trustees meeting

CtMirror.org

Students at UConn share their concerns after a recent Board of Trustees meeting about research investments at UConn with Jeff Seemann, the executive vice president for research.

When an employee signs up for either of the plans that include a possible pension, UConn has to pay a fringe rate of 53.6 percent compared to 11.9 percent for those on the 401(k) plan.

It wasn’t always this way.

Before 2011, postdocs were only offered two options: join the full pension system and take a chance on finding future employment with the state, or sign up for the 401(k) plan and keep the money set aside.

The hybrid plan sprang out of negotiations in 2011 between unionized employees of the state’s public college system and the administration of Gov. Dannel P. Malloy. The idea was to increase the amount employees must contribute to get a lifelong pension in return for allowing college employees to cash out if they leave early.

The executive branch is responsible for negotiating health and retirement benefits with state employees, not UConn.

Creation of the hybrid plan spiked personnel costs for other college employees, as well. That’s because hundreds of them switched from the less expensive 401(k) plan to the state’s pension system through the hybrid plan.

Determining benefits for postdocs

Is a postdoc a trainee or an employee?

At UConn Health, postdocs unionized in the fall of 2003 amid opposition from university leadership. The door was then opened to the retirement and health benefits that every other state employee is provided. With those added benefits came huge increases in the cost to employ a postdoc.

“We take care of the postdocs, but we charge the high rate so we are cutting into the buying power of the grant,” Seemann explained during an interview.

Donna Maronde, the president of the union that represents the postdocs and other staff at the health center, said they deserve the same benefits other staff receive and blames the high cost now associated with postdocs on the huge unfunded pension costs.

“All of us are having to deal with that mess,” said Maronde of the University Health Professionals Local 3837 union.

But the benefits provided to the 119 postdocs that currently work at UConn Health are not typical. In fact, the 177 postdocs at UConn in Storrs have not unionized, are classified as trainees and are not able to sign up for the state’s pension plan or offered any retirement benefits. As a result, UConn Storrs pays a fringe rate that is almost half of that at UConn Health.

“Retirement is an emerging area in terms of benefits. A few years ago we were fighting for health benefits. This is the new frontier, I think,” said Belinda Huang, the executive director of the National Postdoctoral Association. “Right now, they are, by and large, not getting anything for matched contributions. The level of coverage looks very different across institutions.”

At institutions where postdocs are considered employees, 95 percent offer health insurance, according to a 2014 survey of 92 post doctoral associations around the country. Where postdocs are considered trainees, 85 percent offer health insurance.

For retirement benefits, at institutions that consider postdocs employees, 67 percent match the retirement contributions of the worker. Where they are considered trainees, 25 percent match retirement contributions. Not included in the survey is how many schools offer postdocs enrollment in a pension plan.

Likewise, when graduate assistants working in Storrs unionized in 2014 and their health benefits improved, the fringe rate jumped from 17.6 percent to 27.7 in one year.

“Institutions struggle with how to reward these employees, who, without them, the whole system would come crashing down,” said Rachel Dreskback, the president of the National Association of Research Development Professionals. “There is really not a good solution.”

Overtime issue looms

The cost for UConn and UConn Health to employ research staff is expected to spike yet again soon. That’s because President Obama has directed the U.S. Department of Labor to update federal regulations to broaden who must be paid overtime to include many research staff at college campuses.

“We, and just about everybody else who might be effected by this, especially in higher education, it would be a combination of additional costs and probably some working rules around the workforce that currently doesn’t pay attention to its hours,” said Scott Jordan, UConn’s budget chief. “These rules are not a good fit for the higher education environment.”

report by UConn officials of the regulations that are in the final stages of federal review shows that at UConn Health, 108 postdocs, research assistants and residents and potentially 148 graduate assistants would need to be paid overtime. At UConn’s Storrs and regional campuses, 832 graduate assistants who conduct research full-time and 344 postdocs and other research staff would qualify for overtime. Another 1,214 staff may also qualify for overtime, UConn reported.

The university has not yet estimated the price tag of providing overtime for the 1,284 to 2,646 employees that would qualify.

‘We can’t control that cost’

UConn’s president summed up for legislators how her staff responds to faculty complaints that the high fringe benefit rates are making it difficult to fill their labs.

“We say, ‘We can’t control that cost because it’s the state rate,” Herbst told the Appropriations Committee in February.

UConn President Susan Herbst

CT Mirror file photo

“We can’t control that cost,” said UConn President Susan Herbst.

The fringe rate is calculated by the state comptroller each year by factoring in the present and future costs of providing health and retirement benefits and the cost to administer the plans.

Because the federal government pays for a portion of the salary and benefits for thousands of state employees, the state is required each year to have its fringe rates approved by the U.S. Department of Health and Human Services.

Federal guidelines require that employees all have the same fringe rates, with a few exceptions, such as employees who work in hazardous environments and who are likely to be have higher fringe rates because health and disability costs are likely to be higher. This uniform fringe rate approach ensures that federally funded employees are not disproportionally paying for the state’s unfunded pension liabilities.

So when UConn Health’s postdoc students unionized and the university agreed to allow them to join the state’s pension system, the fringe rate for postdocs permanently increased to that charged for all state employees.

“That’s a huge chunk of money. This is something we just have to swallow,” said Maronde, the union president.

That’s not easy for Claffey and Mayer to accept as they watch faculty lose grant after grant. UConn Health has seen steady decreases in research spending over the last decade.

Between the 2013-14 and the last school year, research spending declined by $2.5 million. Meanwhile, at UConn’s Storrs campus, research spending increased by $3.9 million.

“It seems disingenuous to use postdocs to fill the hole” of unfunded pension obligations, Mayer said. “Higher education is being squeezed to fill that hole. Anyone that hires with a grant has to deal with this. It isn’t research at UConn that is benefiting. The postdoc isn’t benefiting. In the end, the state is the one who benefits.”

Coming tomorrow: The Mirror dissects the data on research at UConn in a series of charts that show where it’s thriving and where it’s struggling.

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