BLOOMINGTON, Ind. — When Indiana University began offering a lucrative retirement plan more than four decades ago to attract and retain faculty, a key detail apparently fell through the cracks: how to pay for it.
Now those vested under the program are beginning to retire — and the university is confronted with paying $2 billion over the next 30 years to professors who no longer teach.
Administrators are scrambling to find ways to pay the bill, and some professors fear the cost eventually will compromise the school's future.
"This has definitely put a crimp in the budgets of many programs," said Mary Fisher, an associate professor of nursing. "They're trying to get us to take on more students, but we can't hire new teachers right now because of these budget restraints."
A review by The Associated Press found that the program's cost has forced the university to cut the base retirement plan it offers new employees by a third, require individual departments to shoulder 20 percent of the cost of their retirees, and offer incentives to retirement-eligible faculty to keep teaching.
The program is known unofficially by faculty members as the "golden handcuffs" — because the reward for staying at Indiana is so rich, professors are financially bound to the university.
Officially it's called the 18-20 Program. It allows a professor or administrator who has worked at the university for at least 20 years, and contributed to the base retirement plan for at least 18 years, to retire at age 64 and continue receiving a full salary for five more years. That salary is roughly the average of the person's annual pay during the five years leading up to retirement.
The university also continues to pay into the person's base retirement account during the five years.
As of May, 323 retirees were in the program, receiving an average annual benefit of $75,093. An additional 1,925 employees will be eligible once they retire.
Indiana's plan is the most generous ever encountered by Ronald Ehrenberg, chairman of the American Association of University Professors Committee on Retirement and a Cornell University economics professor.
"Only a small fraction of institutions basically pay their faculty members for not working. When they do, then typically it's less than a year," Ehrenberg said. "I've never heard of five years."
Judith Palmer, a university vice president and its chief financial officer, said the program was started "for all the right reasons."
"It would just have been nice had somebody put a funding methodology in place at the same time," she said.
The program was eliminated in 1989 as officials recognized the impending costs.
It was created by former university President Herman B Wells when the school was unable to offer competitive salaries. Wells, who helped oversee the university's growth from about 9,000 students to more than 90,000 today on eight campuses, often was referred to as an "Indiana treasure" and was revered by Hoosiers inside and outside the university.
But for reasons that are unclear to current university officials, the program went unchecked — and unfunded — for 30 years. Wells died in March, and much of the explanation of the program seems to have gone with him.
The program's legacy, outside of the funding problems, is favorable, said Dan Dalton, head of the university's business school.
"We have retained untold number of folks over the years that I doubt we would have retained without 18-20," Dalton said. "At the end of the day, I'd say 18-20 has far more advantages than it does downsides."
Some have suggested turning to the state for help in funding the program.
But in a 1998 meeting with faculty, university President Myles Brand said: "Is there any cost in asking? Yes, there's a very serious cost in asking because what we say to the state is that we can't manage our affairs."
Brand declined to comment for this story.