The Boston Globe reports today that Harvard University has a problem with unsustainable employee benefit costs. Cost growth has outpaced that of the total budget and unfunded pension and retiree healthcare liabilities (particularly the latter) have grown even more (Chart and Table).
The Globe reports that Harvard has put aside assets worth "about one-third" of the retiree healthcare liability, but must mark the liability as completely unfunded because these assets have not been "permanently earmarked" for retiree healthcare. In any event, a 33% funded ratio is nothing to celebrate.
But the conventional wisdom seems to be that the main cost driver is not poor planning but the richness of the benefits. According to healthcare experts interviewed by the Globe, "The combination of having a very entitled workforce and being somewhat insulated from cost pressures means that universities have been slow in general, compared to manufacturing, finance, and even retail employers, in sharing costs with employees."
Harvard's own FY12 annual report agrees that the problem is pervasive throughout higher education: "Universities tend to be generous with their employee benefit offerings, and Harvard is no exception. Yet with those costs continuing to increase at unsustainable rates, Harvard - like its peers and indeed like most other businesses - cannot simply continue with the status quo."
By the way, Harvard employs about 16,500 (4,700 faculty) and its 2012-13 tuition, room, board and fees is $54,496.
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