How Iowa gets the most out of its early retirement program

Since the downturn, more and more institutions have experimented with early retirement packages to meet funding gaps or free up resources to reinvest elsewhere.

These programs can generate savings by vacating positions that are then refilled with less-experienced (and lower-paid) staff—or by eliminating the positions all together.

While program mechanics such as financial payouts, benefit offerings, phased retirement options, and staff eligibility vary across institutions, all early retirement programs face the same two challenges:

1. Institutions will lose some of their best employees that can take the offer and secure employment elsewhere.
These employees are often the highest-skilled, longest-tenured staff, and their loss can negatively impact institutional knowledge and culture.

2. Programs have many—sometimes hidden—accompanying costs that undermine the savings goal.
In addition to the upfront cost of the buy-out itself and administering the program, institutions must account for backend, unit-level costs in response to the lost staff member. This includes recruiting, training, and compensating any new staff, as well as possible overtime or temp labor to fill in cracks.

Institutions pursuing early retirement programs should anticipate facing both challenges to some degree. Because there are no easy fixes, leaders must ensure they structure the program to maximize savings in order to offset the hidden costs and potential talent loss.

Structure retirement programs to maximize savings

Limit participation to positions that meet savings threshold

Counterintuitively, the best way to ensure an early retirement program’s financial success is to limit participation. Institutions typically determine age and tenure eligibility, and then drive participation in the program as high as possible within this candidate pool.

However, this approach does not consider the impact of a retirement on the unit. Will the unit be able to eliminate, redistribute, or automate the position’s work? If not, how expensive will it be to backfill the position with a less experienced employee, or rely on overtime and temporary labor?

When the University of Iowa launched an early retirement program in 2008, senior leadership mandated that each early retirement should generate at least $25K in annual net savings for the next five years. For any employee that expressed interest in the program, HR worked with the unit’s leadership to develop a five-year staffing plan detailing how the unit would adapt to the loss of the employee.

If the plan did not leave at least $25K in net annual savings after accounting for the payout and the unit’s expenses automating tasks or hiring new labor, the employee was not eligible to participate in the program.

Continuously screen participating units' new staffing decisions

After the window for early retirement closed, all new hiring requests by units participating in the early retirement program had to be screened and approved by HR for five years. This guaranteed the unit did not impinge upon the annual $25K in savings accruing to the university.

Ultimately, the University of Iowa saved $65 million dollars by proactively planning the consequences of individual staff retirements, restricting eligibility to employees that ensured the university meaningful net savings, and monitoring unit spending to ensure they made their five-year annual savings commitment.

More ways to cut costs and find alternative revenue

Alternative Revenues in Higher Education

Due to increasing costs and flat or decreasing tuition revenues, members are seeking any and all nontraditional revenue opportunities—and many have been successful.

To help you identify additional revenue streams, we have catalogued 200 individual alternative revenue ideas in seven distinct categories. While not every idea is suitable for every institution, there are a host of strategies to explore.

Get The Infographic

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