An Incentive Proposal for Accelerating Tenured Faculty Retirement and Reducing University Budget Deficits
I am deeply worried about the academic job prospects for young Ph.Ds in fields such as economics. During a time when few Universities are actively seeking to increase their faculty hiring, new job opportunities are often created by the retirement of senior faculty. I am also worried about how the Deans are going about cutting their fiscal deficits.
Senior faculty have tenure and have the property right to never retire. I know some faculty over the age of 90 at my University.
Facing this reality, the Deans could consider the following proposal. Identify all of their tenured faculty between the ages of 58 and 68 and offer the following deal.
“Professor Z, if you retire. We will pay you 50% of your current salary for the next 5 years. We will not pay you benefits during those years.”
Why Did I Select 50%?
In truth, this is the minimum % that I would need in order to induce me to retire. Faculty of the ages of 58 to 68 are still relatively “young” and they could stick around for a long time. Tenured faculty have a very good quality of life.
Gains to Trade?
The professor is offered a chance to retire early and have an additional 5 years of a pretty good salary! Active scholars can find another short term teaching or research gig at a lower stipend from some other University.
Would the Deans gain from this Deal? Consider a faculty member whose current salary is $270,000 per year. The University pays an extra 33% in benefits for things such as pension contributions, health insurance subsidies; so this employee costs the University $360,000 per year.
If this professor retires, she is paid $135,000 for the next 5 years. Over the next 5 years, the University saves; $360,000 - $135,000 = $225,000 and after the five years, the professor “vanishes” from the accounting.
The University can use this $225,000 to hire a new Assistant Professor who may be paid $140,000 a year + $50k in benefits. So, in the short run the University’s faculty gets younger, more energetic and the University even saves some $! The University could delay hiring the new Assistant Prof for a few years in order to improve the budget position.
Could this Proposal have Ugly Unintended Consequences?
A University might lose some aging Superstars who would take 50% of their salary and jump to another place. Is this a big loss? The Deans could have a private talk with this small set of scholars to find out what they would need to remain at the home institution. I do not believe that the typical University holds such an lopsided portfolio of professors.
Is my Proposal Legal?
I spoke to Grok about this and Grok says my proposal is legal.
Yes, universities in the United States can offer voluntary retirement incentives to tenured faculty that vary by age, including programs targeting specific age ranges such as 60 to 70, provided they comply with the Age Discrimination in Employment Act (ADEA) and its safe harbor provisions.
These incentives are typically designed as supplemental benefits (e.g., lump-sum payments or phased retirement options) that decrease or phase out as the faculty member's age increases, encouraging earlier retirement within the targeted window without reducing other existing benefits.
To qualify under the ADEA's safe harbor (added by a 1998 amendment), such programs must meet several key requirements to ensure they are truly voluntary and non-discriminatory:
The incentives must be available only to tenured faculty (or those with similar protections) and supplement, rather than replace, regular retirement or severance benefits offered in the prior year.
Eligible faculty must have at least 180 days to elect the maximum benefit level, with an additional 180 days allowed between the election and actual retirement date (often called the "one bite at the apple" rule to prevent age-based exclusion).
For ongoing programs, an upper age limit (e.g., cutting off at 70) is permissible, but temporary "window" programs (lasting 6-18 months) generally should not impose an upper limit to avoid violating the Older Workers Benefit Protection Act (OWBPA) amendments to the ADEA.
The program must not involve coercion, such as threats of layoff or intolerable working conditions, and participants must waive ADEA rights knowingly and voluntarily, with adequate time (21-45 days) and information for decision-making.
These rules stem from the ADEA's goal of prohibiting arbitrary age discrimination while allowing flexibility for higher education institutions to manage faculty turnover, especially after the 1994 end of mandatory retirement for tenured professors.
Institutions should also consider state laws, ERISA (for private universities), and tax implications, and consulting legal counsel is recommended due to the complexity.
Very interesting, Matt, but I am surprised, especially for a thoughtful microeconomist like you that this is all carrot and no apparent stick. Don’t you have to make their jobs more difficult—undergraduate teaching, restricted leaves unless externally funded, more committees, etc. and then evaluate their performance? Or do you think their good will towards the university will solve the problem?
Notice that this article never used the word "student." You merely copied what the greediest, cost-cutting, zero investment corporations have done since the early 1990s (when it was called "downsizing" to raise profits without adding to sales, improving product quality, or innovating. Nor did it focus on econ's preeminent problems: (1) lack of econ majors or Americans in our grad programs lack of meaningful research focus on public policy, applied areas, macro, forecasting, record inequality, and any relation to business (which itself has been captured by psychology research: the art of conning stockholders, employees, supplier, and consumers into believing they are productive, innovation, and responsive).