Contingency planning amid financial uncertainty
Higher education has entered an unprecedented period of disruption and financial uncertainty. Colleges and universities are responding in various ways, but there is broad agreement that campus leadership must remain focused on students and the institution’s academic mission. While the full impact of current challenges is uncertain, contingency planning is essential, and this may include evaluating workforce reductions.
Reducing headcount is always a challenge and, in some cases, not an option. One approach colleges and universities have historically taken to mitigate workforce disruption is to implement an early retirement incentive program (ERIP). These programs offer additional benefits to faculty or staff who voluntarily retire during a limited "open window" period, easing long-term budget pressures while creating opportunities for remaining employees.
In our experience, ERIPs have been most successful in recent years – across all industries –when organizations leverage targeted program designs. In addition, an evolving legal framework and the use of digital technology have significantly streamlined communication and implementation. Higher education, in particular, can benefit from these developments given the distinct characteristics of this industry. These include a diverse and demanding workforce, an emphasis on extended and deliberate decision making, faculty who are often reluctant to retire and a decentralized governance structure.
We have identified four key factors for colleges and universities to consider when implementing an ERIP. These suggestions consider the challenges unique to higher education as well as the additional difficulties posed by the current period of uncertainty.
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If your institution is in the conceptual stage of an ERIP, we suggest formalizing your ideas through a financial and ROI analysis. This analysis doesn’t need to be overly complex, but it should be thorough enough so that it can be integrated into the institution’s broader contingency planning and financial modeling. While the final program design can be determined at a later stage, institutions should determine the level of incentive they are willing to offer. In our experience, the total value of a retirement incentive in higher education generally falls between 100% and 150% of pay.
An effective financial analysis should include an ROI assessment that projects the expected payback period while factoring in program costs, expected payroll and fringe savings and the cost of any replacement hires. Running sensitivity analyses under different expected take rates – varying across departments and roles – is also important to generate a range of possible outcomes. Additionally, workforce analytics run at the college or department level can identify areas with excess capacity. This can allow institutions to define program eligibility criteria that minimize regrettable losses.
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As noted, the final program design doesn’t need to be determined at the initial planning stage, but key components should be considered early. While program designs will vary by institution, certain elements are common across most programs. At a minimum, these include a monetary incentive and some form of health coverage support.
The monetary incentive is usually paid in cash, though some schools choose to contribute a portion to the 403(b) plan. Health coverage is often a top concern for participants, making it a critical element of design. Some institutions offer an explicit financial subsidy, while others provide support services to help retirees navigate the individual plan market. For faculty, who are often less motivated by financial incentives, benefits that help them maintain a connection to the university can be effective. These may include opportunities to serve on committees, supervise students, or retain access to lab or office space.
Most importantly, the program design should be simple to administer and to communicate so that participants can understand and fully appreciate its value.
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Recent advances in technology and an evolving legal framework post-COVID have significantly transformed the implementation of workforce reduction programs. Today, these programs can be administered and communicated almost entirely through a digital platform. Employees have adapted well to this shift, as legal developments now permit electronic signatures for participant and spousal elections.
A digital approach offers several advantages, the most significant being cost and time savings – program implementation can be accelerated by weeks. Additionally, a digital platform enables real-time tracking of take rates, eliminates mailing costs and manual election processing, allows for tailored communications to distinct workforce segments and permits just-in-time updates to address questions or add supplemental information. Finally, the employee experience –so important when encouraging program participation – is greatly enhanced.
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While transparency is essential in any communication, it’s especially critical when implementing an early retirement incentive offer. Colleges and universities should clearly articulate the organizational rationale behind the program. Programs can fail – and leadership can lose credibility – if there is a perception that the program was designed without proper input, that its true goal differs from what’s being advertised, or that the initiative is being driven by administration without support from faculty and senior leadership.
Given the current political climate and the pressures on higher education, delivering the right message is crucial. It’s vital to provide factual information and context, emphasize institutional values, offer support resources, and recognize that different campus constituencies, including those not eligible for the program, will have varying concerns and informational needs.
As colleges and universities navigate the current period of financial uncertainty, early retirement incentive programs can be a valuable tool for strategic workforce planning. Institutions that carefully design, implement and communicate their programs can effectively balance financial sustainability with their broader academic mission.
