U professors face risks with retirement money

Investing may be intimidating to those without financial backgrounds.
September 08, 2011

University of Minnesota professorship might now come with a crash course in stock market investment.

The current faculty retirement plan at the University invests the money into long-term stock and bonds to be collected upon retirement. But to someone without knowledge of financial markets or a background in numbers, investing in stocks and bonds may be intimidating, said Mufaddal Baxamusa,  an assistant finance professor at the University of St. Thomas.

“If you look at the stock market and you see the stock market crashing every day, it would be de-motivating [to] think ‘I’ve lost so much money,’” Baxamusa said.

With increased costs for incoming employees, professors will be more wary about having to invest their money, Baxamusa said.

The University’s Faculty Retirement plan is mandatory, and all faculty are automatically enrolled. Starting in January 2012, new faculty and professional administrative staff will see the University’s contribution to their retirement plan drop from 13 percent to 10 percent. The expected employee contribution will rise to 5.5 percent from 2.5 percent, said Lori Ann Vicich,  spokeswoman for the University’s Office of Human Resources.

The University also has an annual plan allowing more frequent investments called the Optional Retirement Plan, Vicich said.

“[University employees] have more choices of where to put their money than any other institution I’ve seen,” said Andrew Whitman, a finance professor at the University.

Whitman said he uses the ORT every year, which deducts money from each paycheck and places it in an investment account that shields the sum from federal or state taxes.

Using the plan, an employee investing $100 each month and receiving an 8 percent interest return could make more than $95,000 in 25 years.

University administrators have promoted this option for several years, Vicich said.

Though the economy looks grim, investing in stocks and bonds is a vital part of any retirement plan, Baxamusa said.

The trick to weathering the economic storm, he said, is to choose long-term investments. Short-term stock investments are like gambling, he said.

The OHR compiles reports of how investments are faring each fiscal quarter and hosts workshops for employees to help them enroll in appropriate retirement plans.

Whitman said that as long as new employees are well-informed on options for investing in stocks or bonds, the risks of investing in a downturned market are negligible.

“New employees are well-keyed into the information system,” Whitman said. “If they’ve got good info, they’re in a great position.”

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