State move could reduce faculty retirement benefit

By Anne Bromley

One of several budget cuts Gov. Jim Gilmore proposes for the second year of the 2000-02 biennium -- because state revenues haven't risen as much as expected -- could lower statewide faculty retirement benefits, U.Va. financial administrators told the Board of Visitors at a Finance Committee meeting Jan. 19.

The measure would decrease the amount of the state's contributions for almost 80 percent of faculty, who choose an optional retirement program. The governor's plan would reduce the current contribution rate of 10.4 percent for the optional retirement program to 9.24 percent, the same rate applied to the Virginia Retirement System.

The University is looking at several options to make up the difference if the move does get passed, said Melody Bianchetto, U.Va. budget director.

The two plans differ in how the retirement benefit is calculated. The VRS plan for classified employees is a defined benefit plan, based on years of service and salary. But the faculty's optional retirement plan is based on a defined contribution, which affects the eventual amount of the retirement benefit. The state contributes a set amount every pay period.

Bianchetto offered an example of how the reduction would affect a faculty member. Assuming a 2001-02 faculty salary of $81,500 for a faculty member aged 40, if the faculty member gets an annual salary increase of 4 percent and retires at 65, and the return on the retirement plan investment is 8 percent, retirement assets would be almost $114,000 less.

Making the contribution rate the same for both plans is like comparing apples and oranges, Bianchetto said. U.Va. administrators plan to explain the impact to legislators and the governor's staff. The measure does not preclude institutions from subsidizing the state contribution. If it passes, the University would have to come up with $541,149 to make up the difference.

Although the governor's budget provides for faculty salary increases averaging 3.4 percent, U.Va. would not rise to the 60th percentile as intended and already has slipped back to the 48th percentile, said U.Va. Vice President for Management and Budget Colette Sheehy.

Sheehy noted that the State Council of Higher Education for Virginia recommends a 6.4 percent salary increase to move U.Va. to the 60th percentile.

"We ought to find a way to keep ourselves where we are now and then get ahead, not to let the state out of its obligation," said board member William H. Goodwin Jr.

A legislative proposal that would allow the Medical Center to keep the interest on its medical revenues -- rather than that money going to the state treasury, as it currently does -- passed out of the House Appropriations Committee Jan. 30. The change would add more than $4 million to the center's operating margin.

Student housing rate to increase

The board approved increasing student housing rates by 5.8 percent, which includes a special fee that eventually will be used for renovations.

The increase would raise the University's average housing rate to $2,260 for 2001-02, still below the statewide average.

The new fee, starting at $50 this fall and increasing by $50 for the following two years, is intended to build up the maintenance reserve fund, Sheehy said. The surcharge will generate $1 million for renovations, for a total of $4 million. It will be used for making improvements to the Alderman Road dormitories and Lambeth Field apartments.

New professorships

Three new professorships were established at the January board meeting, bringing the total number of endowed professorships to 453.

The Bigelow Research Professorship in Business Administration is a gift of E. Thayer Bigelow Jr., a 1967 Darden alumnus who chairs the Darden campaign, with additional funds coming from the Batten Family Leadership Challenge.

An endowed professorship established in the School of Architecture was named in honor of Professor Emeritus Mario di Valmarana, who retired last spring after teaching at U.Va. for 28 years. The chair was made possible by gifts from friends, former students and the Center for Palladian Studies in America. Valmarana started one of the University's first study-abroad programs, which still sends students to Italy.

Two brothers who graduated from the McIntire School of Commerce and their father made gifts to establish the Murray Research Professorship. James K. Murray III graduated from the Commerce School in 1985 and Michael Murray graduated in 1988.