University of MissouriBoard of CuratorsCompensation & Human Resources Committee<br />A Review of Salary and Benefit Progra...
Total Compensation Overview<br />
Compensation Philosophy<br />Total  Compensation Philosophy<br />Attract and retain highly qualified employees through sal...
University must manage and support its TALENT through programs and services that cover the employment and employee lifecyc...
Employees’ needs and values change throughout their employment and employee lifecycles …<br />Compensation Philosophy (con...
Lifecycle Events<br />Employee demographics<br />Average Age:  			45<br />Turnover Rate:  		13% per year<br />				(higher ...
Workforce Demographics<br />Benefits Eligible employees  =  19,000 <br /> <br /> <br />
Workforce Trends<br />Pending retirement of Baby Boomers<br />(23% of UM population is 55 yrs and older)<br />Smaller popu...
Salary Overview<br />
Salary Overview<br />Most significant part of total compensation<br />University spends $1 billion annually on benefits el...
Salary Overview (continued)<br />Initial Salary <br />Job salary ranges based on:  market, job level, job scope<br />Indiv...
Salary Overview (continued)<br />Annual salary adjustments<br />Adjusted in September, based on funds availability, within...
Salary Overview (continued)<br />Salary Decisions<br />Executive Order 6 – establishes delegated responsibility <br />Acce...
Salary Overview (continued)<br />Other salary programs:<br />Extra Compensation (360.010) - pay for duties outside or abov...
Salary DatabyEmployee Group<br />
Salary Data:  Faculty<br />Faculty-Unranked<br />Titles such as Lecturer, Instructor, Research Associate, Program Director...
Salary Data:  Faculty<br />Faculty-Ranked<br />Assistant Professor, Associate Professor, Professor (including clinical/pro...
Salary Data:  Faculty<br />Salary Market Data – Faculty (Ranked)<br />Established based on discussions with academic campu...
Association of Public Land Grant Universities (APLU)
College & University Professional Association for Human Resources (CUPA-HR)</li></li></ul><li>Salary Market Data – Faculty...
Salary Data:  Faculty<br />Salary Market Data – Faculty (Ranked)<br />Data are focused on the contiguous states (and one s...
Salary Data:  Faculty<br />Faculty market data are available online to all campus academic administrators, including depar...
11-Month Salaries<br />Tenure and Tenure Track<br />
11-Month Salaries<br />Tenure and Tenure Track<br />
11-Month Salaries<br />Tenure and Tenure Track<br />
11-Month Salaries<br />Tenure and Tenure Track<br />
Peer Comparisons: Faculty Salaries<br />Includes all ranked faculty per AAU definitions<br />Chart shows percent growth in...
Salary Peer Comparisons:  Faculty<br />
Salary Peer Comparisons:  Faculty<br />
Salary Peer Comparisons:  Faculty<br />
Salary Comparison Samples<br />
Salary Data: Hourly Employees<br />Hourly employees <br />	Total payroll $233 million + benefits $49.8 million<br /> <br /...
Salary Data: Hourly Employees<br />Hourly employees  (continued)<br />Office administration / Support<br />Titles such as ...
Salary Data: Hourly Employees<br />Salary Market Data – Hourly Employees<br />Compared to local/regional markets<br />Note...
Salary Data:  Salaried Employees<br />Salaried employees<br />	Total payroll $772 million + benefits $165 million<br /> <b...
Salary Data:  Salaried Employees<br /> 	Salaried employees (continued)<br />Administrative / Manager / Executive<br />Titl...
Salary Data:  Salaried Employees<br />Salary Market Data – Professional, Administrators and Executives<br />Sources:  Sala...
Salary Data:  Salaried Employees<br />Salary Market Data – Professional, Administrators and Executives (continued)<br />Ma...
Sample Staff Market Data:  Salary.com <br />Salary.com<br />
Sample Staff Market Data:  CUPA-HR <br />
Salary Peer Comparisons:  Staff<br />Do not have complete data on every staff position compared to market<br />Need to do ...
Salary Peer Comparisons:  Staff<br />Staff by Select Occupational Groups<br />69.5% of mkt<br />79.9% of mkt<br />89.7% of...
Salary Increase History:  Faculty and Staff<br />
Summary Observations of Salary<br />UM salaries are below peers regardless of how data are analyzed<br />We typically hire...
Faculty & Staff Benefits<br />August 20, 2009<br />
UM Retirement and Staff Benefits Committee<br />
UM Retirement & Staff Benefits Committee<br />UM Retirement, Disability & Death Benefits Plan<br />Rules and regulations f...
UM Retirement & Staff Benefits Committee<br />Required Membership<br />President of the University, Ex-Officio<br />Chair ...
UM Faculty & Staff BenefitsAdministration<br />
UM Faculty & Staff BenefitsOrganization and Responsibilities<br />
BenchmarksHewitt Associates Benefits IndexRelative Value Study<br />A Study of Comparative Benefit Values<br />
Comparator Institution BenchmarksHewitt Associates Relative Value Study<br />Indiana University<br />Iowa State University...
Comparator Institution BenchmarksHewitt Associates Relative Value Study<br />Value vs. Cost – A Distinction<br />Employer ...
Comparator Institution BenchmarksHewitt Associates Relative Value Study<br />*After 7/1/09 pension  plan amendment<br />
Benefit Eligibility<br />
Employee Benefit Enrollment Eligibility<br />Employees Eligible to Enroll<br />75% FTE<br />Appointment duration of at lea...
Dependent Enrollment Eligibility<br />Legal Spouse (domestic partners not recognized)<br />Surviving Spouse<br />Children<...
Benefit Plans Offered<br />Conventionally Insured, No UM Subsidy<br />Conventionally Insured, UM Subsidy<br />Self Insured...
Conventionally Insured, No UM Subsidy Health and Welfare Plans<br />
Conventionally Insured, UM Subsidized Health and Welfare Plans<br />
Self Insured, UM Subsidized Health and Welfare Plans<br />
Retirement & Deferred Compensation Plans<br />
Flexible Benefits Plans No UM Subsidy<br />
Other Benefit Plans<br />
Benefit Plans Contribution AnalysisBased on 2009 Contribution Rates<br />
UM Dental Benefits Plan<br />
UM Dental Benefits Plan<br />Self Insured<br />50% UM Premium Subsidy<br />
UM Dental Benefits Plan (cont.)<br />$100 Deductible (not applicable to <br />    preventive care)<br />Preventive Care = ...
UM Dental Benefits Plan (cont.)<br />Benchmark<br />Observations:<br /><ul><li>Deductibles of other plans are $25 - $50
   All other plans cover orthodontic
   UM requires higher employee contribution </li></ul>     percentage<br />
UM Long Term Disability Plan<br />
UM Long Term Disability Plan<br />Self Insured<br />Claims Payment – UM Faculty & Staff Benefits<br />3 year pre-existing ...
UM Long Term Disability (cont.)<br />Benchmark<br />Observations:<br /><ul><li>Average benefit percentage - 62%
  Average maximum benefit per month - $10,000
  10 of 15 require employee contributions for base </li></ul>    coverage<br />
UM Death Benefit Coverage<br />
Death Benefits<br />Group Term Life<br />Insurer – Minnesota Life<br />Up to 2X Salary<br />UM Subsidized<br />Supplementa...
Death Benefits (cont.)<br />Accidental Death & Dismemberment<br />Insurer – Minnesota Life<br />Up to $150,000<br />UM Ret...
UM Group Term Life Insurance<br />Benchmark<br />Observations:<br /><ul><li>Significant diversity in employer subsidized <...
UM Medical Benefits Plan<br />
UM Medical Benefits Plan<br />Choice Health Care Program (Point of Service)<br />Catastrophic Health Care Program<br />
UM Choice Health Care Program<br />Self Insured<br />Network Based<br />Eligible Population – Active and Retired Employees...
UM Catastrophic Health Care Program<br />Self insured<br />Eligible Population – Active and Retired Employees<br />Active ...
Medical Benefits Plan – Active Employees<br />Benchmark<br />Observations:<br /><ul><li>Narrow range among institutions in...
UM subsidizes slightly less than average of other institutions</li></li></ul><li>Medical Program Premium Changes<br />* pr...
Towers Perrin 2008 Health Care Performance Study<br />UM actual costs were 16% below the benchmark in total<br />UM actual...
Healthy for Life: T.E. Atkins UM Wellness Program<br />UMHS pilot began in 2004; extended to campuses 2007<br />Cost-Effec...
UM Pension and Deferred Compensation Plans<br />
Deferred Compensation Program Alternatives<br />
UM Retirement, Disability & Death Benefit Plan – A Hybrid Pension Plan<br />Defined Benefit Plan<br />5 Year Vesting<br />...
Deferred Vested Benefits<br />Vested but not eligible for early retirement<br />Lump sum distribution available<br />Cash ...
Early Retirement Benefits<br />Reduced Benefits<br />Age 55 = 10 years of service<br />Age 60 = 5 years of service<br />Re...
Normal Retirement Benefits (unreduced)<br />Age 65<br />
UM Retirement, Disability & Death Benefit Plan<br />
UM Retirement, Disability & Death Benefit PlanCurrent Benefit Recipients<br />
History of Actual UM Contribution Rates<br />% of payroll<br />
UM Retirement Disability and Death Benefit PlanHistory of Major Amendments<br />
Guaranteed Cost of Living Increase<br />Employee Election<br />Reduction in Initial Benefit<br />2% Option<br />4% Option<...
Comparison of CPI-W to UM Pension Ad Hoc Adjustments through September 2008<br />
UM Retirement Disability and Death Benefit PlanRecent History of Pension Adjustments Awarded<br />
UM Retirement, Disability & Death Benefit Plan<br />Benchmark – Before 7/1/09 plan changes<br />Benchmark – After 7/1/09 p...
Observations<br />All institutions offer defined contribution pension plans<br />5 institutions also offer defined benefit...
UM Post Employment Benefits<br />
Other Post Employment Benefits Liabilities<br />GASB 45<br />Annual Liability Accrual - $47.6 million<br />Annual Funding ...
UM Post Employment Benefits<br />UM Subsidized<br />Medical Benefits<br />Dental Benefits<br />Group Term Life Insurance (...
Retiree Medical PlansUM Premium Subsidies<br />Retired Prior to September 1, 1990<br />67% employee and spouse<br />33% su...
UM Retiree Indemnity Medical Program<br />Self Insured<br />Eligible Population – Medicare Eligible Retirees<br />Non Netw...
Medical Benefits Plan – Retired Employees<br />Benchmark – Pre 65<br />Observations:<br /><ul><li>In most instances plan d...
Above average coverage
More liberal eligibility requirements
3 Universities provide access only coverage </li></ul>       (no employer subsidy)<br />
Medical Benefits Plan – Retired Employees<br />Benchmark – Medicare Eligible<br />Observations:<br /><ul><li>8 institution...
3 institutions provide access only coverage</li></li></ul><li>Medical Benefits Plan – Retired Employees<br />Benchmark – A...
Summary Observations of Benefits<br />In order to be competitive in the recruitment and retention of faculty and staff, UM...
Summary Observations of Benefits<br />UM employees, at the time of purchasing health care services bear a significant port...
Summary Observations of Benefits<br />The 7/1/09 change that requires UM employees to contribute to the pension plan has r...
Total Compensation: Salary and Benefits Compared to Peers<br />
Total Compensation Compared to PeersRanked, Tenure-Track Faculty<br />*22% of UM ranked faculty are on 9 month appointment...
Total Compensation Compared to PeersStaff Job Families<br />
Total Compensation Compared to PeersStaff Job Families (cont.)<br />
Total Compensation Conclusions<br />Both salary and benefits (total compensation) are critical factors for recruitment and...
COMPARING DEFINED BENEFIT ANDDEFINED CONTRIBUTIONS PLANS<br />Impact on Contributions and Benefits of Implementinga Define...
116<br />Definitions<br />	Defined Contribution Plan <br />Fixed annual contributions, defined under the plan, accumulate ...
117<br />Comparison of Accumulated Benefits <br />UNDER THE UNIVERSITY’S PENSION PLAN VS. 10% OF PAY DEFINED CONTRIBUTION ...
118<br />Key Employee Advantages<br />	Defined Benefit	<br />Employer assumes investment risk<br />Benefits determinable p...
119<br />Key Employer Advantages<br />Defined Benefit	<br />Favorable investment performance reduces costs<br />Funding fl...
120<br />Impact of Implementing a DefinedContribution Plan for New Employees<br />	Objectives of the Study<br />Explore th...
121<br />Impact of Implementing a DefinedContribution Plan for New Employees continued<br />Methodology<br />	Impact on Co...
122<br />Impact of Implementing a DefinedContribution Plan for New Employees continued<br />Methodology<br />	Impact on Ne...
123<br />Impact of Implementing a DefinedContribution Plan for New Employees continued<br />Recent Events<br />University’...
124<br />Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees<br />On the basi...
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University of Missouri System Board of Curators: Compensation & Human Resources Committee: A Review of Salary and Benefit Programs

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University of Missouri System Board of Curators: Compensation & Human Resources Committee: A Review of Salary and Benefit Programs

  1. 1. University of MissouriBoard of CuratorsCompensation & Human Resources Committee<br />A Review of Salary and Benefit Programs<br />August 2009<br />Betsy Rodriguez, Vice President for Human Resources<br />and<br />Mike Paden, Associate Vice President for Benefits<br />
  2. 2. Total Compensation Overview<br />
  3. 3. Compensation Philosophy<br />Total Compensation Philosophy<br />Attract and retain highly qualified employees through salary and benefits that are:<br />Competitive (measured by peer comparisons)<br />Cost effective (measured by national and regional benchmarks)<br />Valuable (measured by employee surveys and peer comparisons)<br />
  4. 4. University must manage and support its TALENT through programs and services that cover the employment and employee lifecycle. <br />Note: Programs not traditionally considered part of total compensation include employee development and training, career progression opportunities, employee assistance programs, etc. and are not included in this presentation.<br />Compensation Philosophy (continued)<br />
  5. 5. Employees’ needs and values change throughout their employment and employee lifecycles …<br />Compensation Philosophy (continued)<br />
  6. 6. Lifecycle Events<br />Employee demographics<br />Average Age: 45<br />Turnover Rate: 13% per year<br /> (higher turnover for those &lt; 5 years)<br />Salary level: 50% employees make &lt; $50,000<br />Average Length of Service: 9.8 years<br />Other considerations<br />Marital status<br />Dependents<br />Geographic location (rural vs. urban)<br />Medical history<br />
  7. 7. Workforce Demographics<br />Benefits Eligible employees = 19,000 <br /> <br /> <br />
  8. 8. Workforce Trends<br />Pending retirement of Baby Boomers<br />(23% of UM population is 55 yrs and older)<br />Smaller population to replace Baby Boomers<br />(Labor shortage expected 2010-2016, especially in health care, info technology and education)<br />Generational differences– different values and expectations from employees<br />Increasing demand for work/life balance<br />
  9. 9. Salary Overview<br />
  10. 10. Salary Overview<br />Most significant part of total compensation<br />University spends $1 billion annually on benefits eligible salaries<br />Lower public sector salaries are often viewed as counterbalanced by stability, job security, and substantial benefits package (especially retirement plans)<br />
  11. 11. Salary Overview (continued)<br />Initial Salary <br />Job salary ranges based on: market, job level, job scope<br />Individual salary based on: market and recruitment conditions, applicant skills and experience, and internal equity*<br />Salary is not based on funding source<br />Initial salary is critical given relatively minimal annual adjustments and career progression opportunities<br />*New hire salaries often create significant internal equity issues.<br />
  12. 12. Salary Overview (continued)<br />Annual salary adjustments<br />Adjusted in September, based on funds availability, within ‘pool’ established by board of curators<br />Based on merit*, with available salary budgets distributed under locally administered processes <br />Typically ‘base building’<br />Occasional market adjustments (e.g. Fall ’08)<br />Annual adjustments may include promotion (e.g. academic progression)<br />Supervisors are expected to complete annual performance evaluations<br />*Assumes salaries are already at market<br />
  13. 13. Salary Overview (continued)<br />Salary Decisions<br />Executive Order 6 – establishes delegated responsibility <br />Access to market data (through Human Resources or website)<br />
  14. 14. Salary Overview (continued)<br />Other salary programs:<br />Extra Compensation (360.010) - pay for duties outside or above the &apos;normal&apos; duties<br />Executive Compensation/Incentive (by incentive plan or individual contract)<br />Summer appointments (360.020) - pay for 9-month faculty who elect to teach or conduct other academic work during the summer months<br />Incentive compensation (360.150) - incentive pay plans <br />About 40 plans across campuses<br />Typically done for revenue generating areas (sales, dining halls, athletics)<br />Require President approval<br />
  15. 15. Salary DatabyEmployee Group<br />
  16. 16. Salary Data: Faculty<br />Faculty-Unranked<br />Titles such as Lecturer, Instructor, Research Associate, Program Director, Extension Specialist<br />Approximately 2,280<br />Term appointments (annual or no more than 3-year)<br />Average salary = $47,940 (12-month)<br />
  17. 17. Salary Data: Faculty<br />Faculty-Ranked<br />Assistant Professor, Associate Professor, Professor (including clinical/professional practice, research, teaching, and extension nontenure tracks)<br />Approximately 3,200<br />Term appointments and continuous<br />Average salary ranked faculty = $74,048 (9-month)<br /> (tenured/tenure track = $78,338)<br /> (nontenure track = $60,194)<br />
  18. 18. Salary Data: Faculty<br />Salary Market Data – Faculty (Ranked)<br />Established based on discussions with academic campus leadership<br />Market comparisons by academic discipline<br />Derived from the following data sources:<br /><ul><li>Association of American Universities (AAU)
  19. 19. Association of Public Land Grant Universities (APLU)
  20. 20. College & University Professional Association for Human Resources (CUPA-HR)</li></li></ul><li>Salary Market Data – Faculty (Ranked)<br />From data sources developed 5 market comparisons:<br />AAU Inclusive (all 35 AAU institutions)<br />AAU (excludes institutions in coastal states) <br />CUPA-HR Public National (50 public institutions: doctoral granting; intensive research; 15,000 and higher enrollment) <br />CUPA-HR Urban 21 (21 institutions located in urban areas)<br />APLU (land grant institutions excluding coastal states)<br />Salary Data: Faculty<br />
  21. 21. Salary Data: Faculty<br />Salary Market Data – Faculty (Ranked)<br />Data are focused on the contiguous states (and one state removed) <br />Updated annually but typically lags about six months<br />Medical school faculty are excluded from all disciplines due to the higher salaries associated with MD degrees<br />University and market data are accessible online to department chairs, deans, and provosts –SEE SAMPLE<br />
  22. 22. Salary Data: Faculty<br />Faculty market data are available online to all campus academic administrators, including department chairs<br />See next slides for sample data by campus and selected disciplines<br />
  23. 23. 11-Month Salaries<br />Tenure and Tenure Track<br />
  24. 24. 11-Month Salaries<br />Tenure and Tenure Track<br />
  25. 25. 11-Month Salaries<br />Tenure and Tenure Track<br />
  26. 26. 11-Month Salaries<br />Tenure and Tenure Track<br />
  27. 27. Peer Comparisons: Faculty Salaries<br />Includes all ranked faculty per AAU definitions<br />Chart shows percent growth in overall salary base, with an average salary<br />Average salary ranges from $73k to $116.8k<br />MU was only one of few schools with increase in 2008<br />With strategic investment in Fall 2008, MU remains next to last<br />
  28. 28. Salary Peer Comparisons: Faculty<br />
  29. 29. Salary Peer Comparisons: Faculty<br />
  30. 30. Salary Peer Comparisons: Faculty<br />
  31. 31. Salary Comparison Samples<br />
  32. 32. Salary Data: Hourly Employees<br />Hourly employees <br /> Total payroll $233 million + benefits $49.8 million<br /> <br /> Service/Maintenance& Skilled Trades<br />Titles such as Police Officer, Child Care Assistant, Food Services, Custodians, Power Plant Operators, Electricians, Pipefitters<br />Approximately 2,150 employees<br />Majority are union eligible positions (about 20% are union members) <br />Meet and confer for annual agreement, nonbinding<br />Average hourly rate = $14.50 (range from $8 to $31)<br />
  33. 33. Salary Data: Hourly Employees<br />Hourly employees (continued)<br />Office administration / Support<br />Titles such as Administrative Assistant, Office Support Staff, Fiscal Assistant<br />Approximately 3,320 employees<br />Average hourly rate = $14.50 (range from $7.25 to $35.00)<br /> Technical<br />Titles such as Research Technician, Optician Assistant, Broadcast Technician, Reactor Operator, Computer Operator, Hygienist<br />Approximately 2,050 employees<br />Average hourly rate = $16.75 (range from$8.00 to $39.50)<br />
  34. 34. Salary Data: Hourly Employees<br />Salary Market Data – Hourly Employees<br />Compared to local/regional markets<br />Note: Columbia IS the market for many positions<br />Union salary structure is discussed during annual ‘meet and confer’<br />Union salary structure is a step system by which employees in same title with same length of service receive same hourly pay <br />
  35. 35. Salary Data: Salaried Employees<br />Salaried employees<br /> Total payroll $772 million + benefits $165 million<br /> <br /> Professional<br />Titles such as Programmer / Analyst, Attorney, Psychologist, Accountant, Engineer, Chemist<br />About 4,100 employees<br />Average annual salary $50,400<br />
  36. 36. Salary Data: Salaried Employees<br />  Salaried employees (continued)<br />Administrative / Manager / Executive<br />Titles such as Farm Supervisor, Ticket Manager, Admissions Director, Placement Director, Coach, Provost, Chancellor, President<br />About 1,900 employees<br />Average annual salary $79,000<br />
  37. 37. Salary Data: Salaried Employees<br />Salary Market Data – Professional, Administrators and Executives<br />Sources: Salary.com and other purchased or generated market databases<br />Administrative work varies across many industries (e.g., agriculture, entertainment, sports, retail, finance, print, power generation, restaurant, resource management, housing, research, healthcare, student services)<br />
  38. 38. Salary Data: Salaried Employees<br />Salary Market Data – Professional, Administrators and Executives (continued)<br />Maintaining competitive pay across these industries is constant balancing act as each industry moves in response to economic conditions and labor markets<br />Large salary differences across industries lead to issues of ‘fairness’ and ‘equity’ among university employees (e.g., typically student services have lower market salaries than finance)<br />Assess markets and salary needs within Occupational Group(s) <br />Exception: Senior Leadership and strategic valued position<br />are often individually compared to market <br />
  39. 39. Sample Staff Market Data: Salary.com <br />Salary.com<br />
  40. 40. Sample Staff Market Data: CUPA-HR <br />
  41. 41. Salary Peer Comparisons: Staff<br />Do not have complete data on every staff position compared to market<br />Need to do significant work to develop accurate market comparisons (due to title inflation and other considerations)<br />Selected 150 titles—salaried only for comparison<br />
  42. 42. Salary Peer Comparisons: Staff<br />Staff by Select Occupational Groups<br />69.5% of mkt<br />79.9% of mkt<br />89.7% of mkt<br />90.8% of mkt<br />91.9% of mkt<br />UNIV<br />MKT<br />79.6% of mkt<br />
  43. 43. Salary Increase History: Faculty and Staff<br />
  44. 44. Summary Observations of Salary<br />UM salaries are below peers regardless of how data are analyzed<br />We typically hire at lower end of range (which is below market) because of internal equity issues, but fall further behind quickly<br />High turnover in the first 2-3 years is costly<br />High turnover will be exacerbated as we reach workforce shortages<br />Increasing market pressure on new hires creates salary ‘compression’ (new hires at or above longer term employees)<br />Small annual merit pools have exacerbated market situation<br />‘Catch up’ will require strategic multi-year investment<br />
  45. 45. Faculty & Staff Benefits<br />August 20, 2009<br />
  46. 46. UM Retirement and Staff Benefits Committee<br />
  47. 47. UM Retirement & Staff Benefits Committee<br />UM Retirement, Disability & Death Benefits Plan<br />Rules and regulations for administration of the plan<br />Interpretation and construction of the plan<br />Rulings subject to review and final determination by Board of Curators<br />Advisor to President on Benefits Issues<br />Plan design and development<br />New program offering<br />Strategic planning<br />
  48. 48. UM Retirement & Staff Benefits Committee<br />Required Membership<br />President of the University, Ex-Officio<br />Chair – appointed by the President<br />Other members – appointed by the President, with a majority being faculty<br />
  49. 49. UM Faculty & Staff BenefitsAdministration<br />
  50. 50. UM Faculty & Staff BenefitsOrganization and Responsibilities<br />
  51. 51. BenchmarksHewitt Associates Benefits IndexRelative Value Study<br />A Study of Comparative Benefit Values<br />
  52. 52. Comparator Institution BenchmarksHewitt Associates Relative Value Study<br />Indiana University<br />Iowa State University<br />Michigan State University<br />Ohio State University<br />Pennsylvania State University<br />Purdue University<br />Texas A&M<br />University of Colorado<br />University of Illinois<br />The University of Iowa<br />University of Kansas<br />University of Michigan<br />University of Minnesota<br />University of Nebraska<br />University of Texas<br />
  53. 53. Comparator Institution BenchmarksHewitt Associates Relative Value Study<br />Value vs. Cost – A Distinction<br />Employer Value Index-Average=100<br />Total Value Index-Average=100<br />Employer Value Ranking<br />Total Value Ranking<br />Frequency-every 5 years<br />
  54. 54. Comparator Institution BenchmarksHewitt Associates Relative Value Study<br />*After 7/1/09 pension plan amendment<br />
  55. 55. Benefit Eligibility<br />
  56. 56. Employee Benefit Enrollment Eligibility<br />Employees Eligible to Enroll<br />75% FTE<br />Appointment duration of at least 9 months<br />Employees Not Eligible to Enroll<br />Students<br />Part time<br />Temporary<br />
  57. 57. Dependent Enrollment Eligibility<br />Legal Spouse (domestic partners not recognized)<br />Surviving Spouse<br />Children<br />
  58. 58. Benefit Plans Offered<br />Conventionally Insured, No UM Subsidy<br />Conventionally Insured, UM Subsidy<br />Self Insured, UM Subsidy<br />Pension and Deferred Compensation<br />Other Employer Sponsored Plans<br />
  59. 59. Conventionally Insured, No UM Subsidy Health and Welfare Plans<br />
  60. 60. Conventionally Insured, UM Subsidized Health and Welfare Plans<br />
  61. 61. Self Insured, UM Subsidized Health and Welfare Plans<br />
  62. 62. Retirement & Deferred Compensation Plans<br />
  63. 63. Flexible Benefits Plans No UM Subsidy<br />
  64. 64. Other Benefit Plans<br />
  65. 65. Benefit Plans Contribution AnalysisBased on 2009 Contribution Rates<br />
  66. 66. UM Dental Benefits Plan<br />
  67. 67. UM Dental Benefits Plan<br />Self Insured<br />50% UM Premium Subsidy<br />
  68. 68. UM Dental Benefits Plan (cont.)<br />$100 Deductible (not applicable to <br /> preventive care)<br />Preventive Care = 100% coverage<br />Other Care = 50% to 80% coverage levels<br />Maximum Annual Benefit = $1,500<br />
  69. 69. UM Dental Benefits Plan (cont.)<br />Benchmark<br />Observations:<br /><ul><li>Deductibles of other plans are $25 - $50
  70. 70. All other plans cover orthodontic
  71. 71. UM requires higher employee contribution </li></ul> percentage<br />
  72. 72. UM Long Term Disability Plan<br />
  73. 73. UM Long Term Disability Plan<br />Self Insured<br />Claims Payment – UM Faculty & Staff Benefits<br />3 year pre-existing condition period<br />5 month elimination period<br />Integration with other plans<br />Option A - 60% of salary benefit, no employee premium<br />Option B - 67% of salary, employee premium required<br />
  74. 74. UM Long Term Disability (cont.)<br />Benchmark<br />Observations:<br /><ul><li>Average benefit percentage - 62%
  75. 75. Average maximum benefit per month - $10,000
  76. 76. 10 of 15 require employee contributions for base </li></ul> coverage<br />
  77. 77. UM Death Benefit Coverage<br />
  78. 78. Death Benefits<br />Group Term Life<br />Insurer – Minnesota Life<br />Up to 2X Salary<br />UM Subsidized<br />Supplemental Term Life<br />Insurer – Minnesota Life<br />Up to 3X Salary<br />No UM Subsidy<br />
  79. 79. Death Benefits (cont.)<br />Accidental Death & Dismemberment<br />Insurer – Minnesota Life<br />Up to $150,000<br />UM Retirement, Disability & Death Benefit Plan<br />Vested Status Required<br />Greater of 2X Salary or present value of future pension benefits<br />UM Subsidized<br />
  80. 80. UM Group Term Life Insurance<br />Benchmark<br />Observations:<br /><ul><li>Significant diversity in employer subsidized </li></ul> coverage from lower fixed amounts to higher <br /> multiples of salary<br /><ul><li> Lower Total Value primarily due to the average </li></ul> overall access is 6 X pay.<br />
  81. 81. UM Medical Benefits Plan<br />
  82. 82. UM Medical Benefits Plan<br />Choice Health Care Program (Point of Service)<br />Catastrophic Health Care Program<br />
  83. 83. UM Choice Health Care Program<br />Self Insured<br />Network Based<br />Eligible Population – Active and Retired Employees<br />Active Employee Premium Subsidy – 73%<br />Design Objectives and Features<br />
  84. 84. UM Catastrophic Health Care Program<br />Self insured<br />Eligible Population – Active and Retired Employees<br />Active Employee Premium Subsidy – 66-2/3%<br />Non Network Based<br />Design Objectives and Features<br />
  85. 85. Medical Benefits Plan – Active Employees<br />Benchmark<br />Observations:<br /><ul><li>Narrow range among institutions in total value: 87.3 to 110.1
  86. 86. UM subsidizes slightly less than average of other institutions</li></li></ul><li>Medical Program Premium Changes<br />* projected<br />Benchmark – Towers Perrin Health Care Cost Survey (500 employers, 10 million employees)<br />
  87. 87. Towers Perrin 2008 Health Care Performance Study<br />UM actual costs were 16% below the benchmark in total<br />UM actual costs fall below the 25th percentile<br />UM overall program efficiency is 16% below the database. Translates into current savings of $23.9 million<br />UM administration fees are competitive and fall below the 25th percentile<br />
  88. 88. Healthy for Life: T.E. Atkins UM Wellness Program<br />UMHS pilot began in 2004; extended to campuses 2007<br />Cost-Effectiveness: 524 employee volunteers; over 450 student volunteers per year; doctoral, masters, & undergraduate practicum students provide an array of program support<br />Broad Penetration: 3,920 wellness fair employee attendees; 3,995 annual screenings; 2,333 pedometer program enrollees, 957 other physical activity program enrollees; 210 tobacco interventions<br />Leveraging Resources: received grant to support the nation’s first use of self-management model for employee health & job satisfaction<br />Benchmarking: data warehouse will aggregate & analyze data on health behavior, wellness program enrollment, sick leave, worker compensation/work injury, and claims experience<br />Data-driven Planning: Goal to improve tools & incentives for annual health survey to monitor and mitigate emerging health risks<br />
  89. 89. UM Pension and Deferred Compensation Plans<br />
  90. 90. Deferred Compensation Program Alternatives<br />
  91. 91. UM Retirement, Disability & Death Benefit Plan – A Hybrid Pension Plan<br />Defined Benefit Plan<br />5 Year Vesting<br />Benefit Formula:<br />2.2% X length of service X final average salary<br />Final average salary – 5 highest consecutive<br />Minimum Value Accumulation<br />5% of salary<br />7-1/2% interest rate<br />
  92. 92. Deferred Vested Benefits<br />Vested but not eligible for early retirement<br />Lump sum distribution available<br />Cash (taxable)<br />Rollover non-taxable<br />Reduced annuity benefits as early as age 55<br />Full annuity benefit at age 65<br />
  93. 93. Early Retirement Benefits<br />Reduced Benefits<br />Age 55 = 10 years of service<br />Age 60 = 5 years of service<br />Reduction factor = 3-1/3% for each year retirement precedes age 65<br />Unreduced Benefits<br />Age 62 = 25 years of service<br />
  94. 94. Normal Retirement Benefits (unreduced)<br />Age 65<br />
  95. 95. UM Retirement, Disability & Death Benefit Plan<br />
  96. 96. UM Retirement, Disability & Death Benefit PlanCurrent Benefit Recipients<br />
  97. 97. History of Actual UM Contribution Rates<br />% of payroll<br />
  98. 98. UM Retirement Disability and Death Benefit PlanHistory of Major Amendments<br />
  99. 99. Guaranteed Cost of Living Increase<br />Employee Election<br />Reduction in Initial Benefit<br />2% Option<br />4% Option<br />
  100. 100. Comparison of CPI-W to UM Pension Ad Hoc Adjustments through September 2008<br />
  101. 101. UM Retirement Disability and Death Benefit PlanRecent History of Pension Adjustments Awarded<br />
  102. 102. UM Retirement, Disability & Death Benefit Plan<br />Benchmark – Before 7/1/09 plan changes<br />Benchmark – After 7/1/09 plan changes<br />
  103. 103. Observations<br />All institutions offer defined contribution pension plans<br />5 institutions also offer defined benefit plans<br />Average employer contribution rate = 9.6%<br />Average employee contribution rate = 5.75%<br />Employer contribution rate range = 6.8% to 15%<br />Low total value ranking is due to other plans requiring higher employer contribution<br />
  104. 104. UM Post Employment Benefits<br />
  105. 105. Other Post Employment Benefits Liabilities<br />GASB 45<br />Annual Liability Accrual - $47.6 million<br />Annual Funding Rate – 50%<br />
  106. 106. UM Post Employment Benefits<br />UM Subsidized<br />Medical Benefits<br />Dental Benefits<br />Group Term Life Insurance (to age 70)<br />• Long Term Disability Benefits<br />Not UM Subsidized<br />Supplemental Life Insurance<br />Dependent Life Insurance<br />Vision Benefits<br />Accidental Death & Dismemberment<br />Long Term Care<br />
  107. 107. Retiree Medical PlansUM Premium Subsidies<br />Retired Prior to September 1, 1990<br />67% employee and spouse<br />33% surviving spouse<br />Retired on or after September 1, 1990<br />Subsidy based on age + service<br />Range for employee coverage = 33% to 73% (average 50%)<br />Range for spouse coverage = 18% to 33% <br /> (average 25%)<br />
  108. 108. UM Retiree Indemnity Medical Program<br />Self Insured<br />Eligible Population – Medicare Eligible Retirees<br />Non Network Based<br />Relationship to Medicare<br />Design Objectives and Features<br />
  109. 109. Medical Benefits Plan – Retired Employees<br />Benchmark – Pre 65<br />Observations:<br /><ul><li>In most instances plan design is same as active employee
  110. 110. Above average coverage
  111. 111. More liberal eligibility requirements
  112. 112. 3 Universities provide access only coverage </li></ul> (no employer subsidy)<br />
  113. 113. Medical Benefits Plan – Retired Employees<br />Benchmark – Medicare Eligible<br />Observations:<br /><ul><li>8 institutions use “carve out” approach with Medicare
  114. 114. 3 institutions provide access only coverage</li></li></ul><li>Medical Benefits Plan – Retired Employees<br />Benchmark – All Retirees<br />
  115. 115. Summary Observations of Benefits<br />In order to be competitive in the recruitment and retention of faculty and staff, UM benefit programs must at least be at the average of peer institutions<br />UM offers a competitive array of benefit programs that are currently slightly below the average of its peer group<br />UM, strategically, assumes risk through self-insurance when appropriate<br />UM employees, through premiums/contributions bear a significant portion of the cost of providing UM benefit programs<br />
  116. 116. Summary Observations of Benefits<br />UM employees, at the time of purchasing health care services bear a significant portion of cost for services rendered<br />Areas of significant deviation from the average of the peer group include:<br />Above average<br /> Employer Paid Value of Long Term Disability Base Plan<br /> Employer Paid Value of Post Retirement/Pre 65 Medical Benefits<br />Below Average<br /> Employer Paid Value and Total Value of Dental Benefits<br />
  117. 117. Summary Observations of Benefits<br />The 7/1/09 change that requires UM employees to contribute to the pension plan has resulted in a significant decrease in UM’s ranking among peer institutions in both the pension and overall categories<br />The majority of peer institutions continue to offer subsidized post employment health care benefits<br />UM is unique in offering a defined benefit plan as the primary pension plan avenue<br />
  118. 118. Total Compensation: Salary and Benefits Compared to Peers<br />
  119. 119. Total Compensation Compared to PeersRanked, Tenure-Track Faculty<br />*22% of UM ranked faculty are on 9 month appointments salaries adjusted to <br />11 month basis for comparison purposes<br />
  120. 120. Total Compensation Compared to PeersStaff Job Families<br />
  121. 121. Total Compensation Compared to PeersStaff Job Families (cont.)<br />
  122. 122. Total Compensation Conclusions<br />Both salary and benefits (total compensation) are critical factors for recruitment and retention<br />On average UM total compensation is lower than peers, especially for salary<br />Less competitive total compensation will exacerbate the impact of projected workforce shortage and high turnover rates<br />CORRECTION WILL REQUIRE MULTI YEAR STRATEGY AND INVESTMENT<br />
  123. 123. COMPARING DEFINED BENEFIT ANDDEFINED CONTRIBUTIONS PLANS<br />Impact on Contributions and Benefits of Implementinga Defined Contribution Plan for New Employees<br />August 2009<br />Presented by:<br />Howard Rog, FSA, MAAA, EASenior Vice President and Actuary<br />This document has been prepared by The Segal Company for the benefit of the University of Missouri and is not complete without the presentation made to the University. This document should not be shared, copied or quoted, in whole or in part, without the consent of The Segal Company, except to the extent otherwise required by law.<br />Copyright ©2009 by The Segal Group, Inc., parent of The Segal Company. All rights reserved. <br />
  124. 124. 116<br />Definitions<br /> Defined Contribution Plan <br />Fixed annual contributions, defined under the plan, accumulate with investment income to a lump sum available at retirement <br />Can be annuitized <br />Monthly annuity income depends on how much has been accumulated<br />Defined Benefit Plan<br />Provides a monthly pension calculated under a benefit formula “defined” under the plan <br />The University&apos;s retirement plan is a defined benefit/“hybrid” plan<br />
  125. 125. 117<br />Comparison of Accumulated Benefits <br />UNDER THE UNIVERSITY’S PENSION PLAN VS. 10% OF PAY DEFINED CONTRIBUTION PLAN<br />Early Retirement Subsidy<br />
  126. 126. 118<br />Key Employee Advantages<br /> Defined Benefit <br />Employer assumes investment risk<br />Benefits determinable prior to retirement<br />Final average pay plans responsive to pay increases<br />Rewards long service<br />Provides protection against inflation and disability<br />Employee can’t outlive benefits<br />Provides vehicle for early retirement benefits<br />Provides survivor benefits<br />Defined Contribution<br />Benefits are more portable<br />Simplicity<br />Employee investment control<br />Faster account build-up for younger employees<br />Provides capital accumulation<br />
  127. 127. 119<br />Key Employer Advantages<br />Defined Benefit <br />Favorable investment performance reduces costs<br />Funding flexibility<br />Design versatility<br />Defined Contribution<br />No investment risk <br />Predictable budgeting<br />Appreciation by younger workers<br />Potential ease of administration depending upon number of investment choices<br />
  128. 128. 120<br />Impact of Implementing a DefinedContribution Plan for New Employees<br /> Objectives of the Study<br />Explore the impact of introducing a defined contribution plan for new employees<br />Determine the future retirement contribution requirements and unfunded pension plan liability by performing 20-year stochastic projections<br />Understand potential impact on participants’ future benefits using stochastic modeling<br />
  129. 129. 121<br />Impact of Implementing a DefinedContribution Plan for New Employees continued<br />Methodology<br /> Impact on Contributions and Unfunded Liability:<br />Investment returns were projected using 1,000 Monte Carlo simulations<br />The projections were performed under two alternatives<br />The first was to assume that the pension plan continued to be open to new employees. The second was to assume that the pension plan would be limited to existing employees (“closed group”) and new employees would be covered by a new defined contribution plan<br />The defined contribution plan’s projected contributions were based on an annual 10% of pay contribution from the University<br />
  130. 130. 122<br />Impact of Implementing a DefinedContribution Plan for New Employees continued<br />Methodology<br /> Impact on New Employees’ Benefits:<br />Benefits for a new employee hired at an age of 30 were studied<br />Assumed the employee would invest their accounts in a “life cycle” fund<br />A life cycle fund is one in which the asset allocation between equities and fixed income changes over time as the employee ages<br />Benefits at termination ages prior to age 55 were studied by comparing the defined contribution account balance to the Minimum Value Accumulation Account<br />Benefits at retirement ages of 55 and over were studied using income replacement ratios.<br />An income replacement ratio represents the percentage of the annual retirement benefits (payable as a life time annuity) to the employee’s last year’s salary<br />
  131. 131. 123<br />Impact of Implementing a DefinedContribution Plan for New Employees continued<br />Recent Events<br />University’s Board of Curators approved a change to the Pension Plan which requires employee contributions to the plan to offset part of the University’s contribution requirement’s<br />This change has not been reflected in this study<br />
  132. 132. 124<br />Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees<br />On the basis that new employees will have the defined contribution plan offered to them, below are the percentages of total payroll covered by the two retirement programs change over time<br />% of Payroll Covered<br />
  133. 133. 125<br />Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees continued<br /> Projected Contributions 2010 (Percentage of Payroll)<br /><ul><li>On an expected basis (mean/50% percentile basis), the long-term cost of the defined contribution plan for new employees is greater than if they participate in the pension plan
  134. 134. There is a narrower range of total University retirement contributions with the introduction of a defined contribution plan for new employees.
  135. 135. However, this comes with a higher total expected retirement cost to the University</li></li></ul><li>126<br />Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees continued<br /> Projected Contributions 2025 (Percentage of Payroll)<br /><ul><li>On an expected basis (mean/50% percentile basis), the long-term cost of the defined contribution plan for new employees is greater than if they participate in the pension plan
  136. 136. There is a narrower range of total University retirement contributions with the introduction of a defined contribution plan for new employees.
  137. 137. However, this comes with a higher total expected retirement cost to the University</li></li></ul><li>127<br />Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees<br />Using appropriate actuarial scenario techniques, we modeled the replacement defined contribution plan for a hypothetical employee of the University of Missouri hired at the age of 30<br />Steps<br />Select a typical employee (male academic employee hired at age 30)<br />Model the Defined Contribution (DC) plan design<br />Simulate changes in the employee’s compensation base and account value from hire date to various retirement dates<br />Compensation base varies with salary inflation<br />DC account balance varies with the assets’ monthly rates of return<br />At retirement, convert the DC account into a life annuity <br />The life annuity varies with the prevailing interest rate environment<br />Determine the ratio of annuity conversion to the employee’s compensation base<br />Perform this process many times so that robust measures of expectancy and risk can be quantified <br />Compare the benefits from the DC plan with that of the current pension plan (DB)<br />
  138. 138. 128<br />Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued<br /> Lump Sum Benefits prior to reaching early retirement eligibility (pre-age 55):<br />The defined contribution plan provides for a 10% of pay contribution, while the Minimum Value Accumulation (“hybrid feature”) under the pension plan provides a 5% of pay credit<br />The investment credit under the defined contribution plan is based on the actual market returns of the invested assets while the Minimum Value Accumulation in the pension plan provides a guaranteed investment credit of 7.5% annually<br />At the 50th percentile, the lump sum paid to the employees prior to retirement eligibility is double what is paid from the pension plan<br />There is a significant range of the lump sum payable from the defined contribution plan compared to that from the pension plan<br />
  139. 139. 129<br />Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued<br />PROJECTED ACCOUNT VALUE AS A PERCENT OF FINAL COMPENSATION<br />Employee hired at age 30.<br />Terminates prior to early retirement eligibility (pre age 55)<br />
  140. 140. 130<br />Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued<br /> Retirement Income Benefits after reaching eligibility for retirement:<br />At retirement age 65, approximately half of the time employees will be able to match or exceed the replacement ratio (RR) of the defined benefit plan:<br />50% of the future scenarios show the DC plan providing a RR of 76% or more<br />But, in worst case scenarios, employees face a catastrophic replacement ratio with serious consequences on their retirement viability:<br />5% of simulations have a RR at age 65 equal to or less than 24% or approximately one third of the defined benefit plan<br />At retirement ages prior to age 65, there is about a 40% probability that the defined contribution plan will provide equal or better benefits than the pension plan. At retirement age of 70, there is a 60% chance of it providing a greater benefit<br />
  141. 141. 131<br />Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued<br />INCOME REPLACEMENT RATIO ANALYSIS<br />Employee hired at age 30<br />
  142. 142. 132<br />Questions and Discussion<br />

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