RETIREE HEALTH INSURANCE
and
GASB 45 LIABILITY
UNIVERSITY SENATE MEETING
February 28, 2007
BENEFITS LIAISON GROUP
Members
MISSION STATEMENT
The Benefits Liaison
Group (BLG) is an advisory group whose mission is
to provide the best possible fringe benefit package within the University00 available resources.
GASB 45
Government Accounting
Standards Board
Beginning July 1, 2007 the accounting
practice for other post-employment benefits 00
retiree health insurance
- will change from a 00ay
as you go00practice to
a 00ecognize the
expense as earned00practice.
Retirees00
health care expenses can no longer be pooled with active employees00
health care expenses.
GASB 45 OBLIGATION
As of December 31,
2005
Accrued Actuarial Liability - $47 million
Active Employees - $25 million 83/84 Retirees - $4.5 million Current Retirees - $17.5 millionAnnual Required Contribution - $4.3 million
Active Employees - $3.3 million 83/84 Retirees - $200,000 Current Retirees - $800,000*30 year amortization
*Calculated by AON
BLG Charge
November 2006
00/b>To
provide at least two, but no more than four,
options to address the liability concerns of GASB-45.00/u>
00/b>Each
option will provide cost/benefits analysis with timeline. The
BLG must solicit involvement from the appropriate campus community.00/b>
00/b>Completion
Date: The analysis and timeline for each option must be completed
by February 28, 2007.00/b>
WHY THE CHANGE NOW
GASB 45 requires Michigan Tech to
recognize the expense of post-employment benefits.
The GASB 45 liability affects Michigan
Tech00 Bond rating.
The GASB 45 liability affects Michigan
Tech00 audit opinion.
The Executive Team has directed
the reduction of the GASB 45 liability.
Current and future budget focus
is on the goals of the Strategic Plan.
RETIREMENT SUPPLEMENTAL VOLUNTARY PROGRAM
RSVP
As of January 31,
2007
RSVP 00
Retirements Since July 1, 2002
Faculty 37
Staff 28
AFSCME 11
UAW 8
Total 84
Employee Severance Program
- ESP Retired August 31, 2003
Faculty 9
Staff 3
AFSCME 3
UAW 1
Total
16
AVERAGE AGE OF RETIREMENTS
The average age of retirement at Michigan Tech
1995 to 2005.
Faculty Staff
MPSERS 62 60
TIAA-CREF 64
60
2007 TIAA-CREF RETIREE
HEALTH CONTRACT INFORMATION
TIAA-CREF Retirees 00Post-65 90
TIAA-CREF Retirees 00Pre-65 14
TIAA-CREF Retirees (dental only)
3
83/84 Retirees Health/Dental 36
83/84 Retirees Dental Only 38
Total
181
2007 TIAA-CREF RETIREE
HEALTH CONTRACT INFORMATION
20% Premium Co-pay 41 contracts
30% Premium Co-pay 10 contracts
40% Premium Co-pay 9 contracts
50% Premium Co-pay 1 contract
60% Premium Co-pay 13 contracts
70% Premium Co-pay 1 contract
80% Premium Co-pay 5 contracts
90% Premium Co-pay 5 contracts
100% Premium Co-pay 19 contracts
2006 Calendar Year
Retiree Medical Costs
Retiree health care costs $1,200,000
Premiums from retirees
$
492,000
Current Implicit Subsidy
$ 708,000
Goal: To close the gap between retiree health
care costs and retiree premiums.
OPTIONS TO ADDRESS
THE GASB 45 LIABILITY
The University cancels all current retiree health insurance and discontinues current employees00/u> access to retiree health insurance.
Provide an alternative option for retiree health care.
The University continues with current retiree health insurance at ( a subsidized rate or a non-subsidized rate) but discontinues the current employees00/b> access to retiree health insurance.
The University continues with current retiree health insurance at ( a current subsidized rate or a non-subsidized rate) and continues the current employees00/b> access to retiree health insurance at (a subsidized rate or a non-subsidized rate) .
FACTORS CONSIDERED
Employees Concerns
University Realities
State funding is uncertain. Escalating subsidized health care costs for retirees and current employees. Faculty and staff recruitment and retention.
THE BLG GASB 45 PHILOSOPHY
To maintain access to Michigan Tech00 health insurance plan for current retirees and active employees
To smooth the transition from a subsidized health plan to an unsubsidized health plan.
Expand health plan choices.
Provide assistance in making well-informed health plan choices.
GASB 45 Options
from the
BLG
OPTION 1
Not Recommending
Proposal: To make no
changes and record the GASB 45 liability.
Financial Impact (annual): $4.3 million or
$3.3 million
(net)
Not recommending because:
The Executive Team has directed the reduction of the GASB 45
liability.
OPTION 2
Not Recommending
Proposal: To cancel
all current retiree health insurance and discontinue current employee00 access to retiree health insurance.
Financial Impact: GASB liability
is instantly decreased.
Not recommending because:
This is against the BLG philosophy.
OPTION 3
Not Recommending
Proposal: To contract
with Emeriti to set-up employee VEBA accounts and begin to offer AETNA
health insurance to Tech00
current and future retirees.
Financial Impact (annual):
Emeriti fees +$15,000 one-time fee
+$61,000 administration fee
+$76,000 first year fee
OPTION 3 (continued)
Financial Impact 00continued:
VEBA Account - Annual Michigan Tech
Contributions:
33% funding of retiree health insurance +$600,000
$700 /employee
$850/employee
$1,060/employee
OPTION 3 (continued)
Not recommending because:
Emeriti is a new company and we are concerned about viability.
The Emeriti option is not cost-neutral.
Currently Michigan Tech has the 2%+2% matching program and RSVP - employees and the University are contributing toward future health plan costs.
OPTION 4
Not Recommending
Proposal: To continue with
the health insurance premium subsidy for current retirees.
Financial Impact (annual):
Does not reduce $962,000 ARC liability, as reported by AON on December,
2005.
Not recommending because:
Does not reduce the GASB 45 liability Favors current retirees over future retirees and active employees.
OPTION 5
Recommending
Proposal: To slowly eliminate
the subsidy (using a 7 year premium ramp) for retiree health insurance
for employees beginning January 1, 2008.
Financial Impact (annual):
Reduces the $3.3 million annual required contribution (ARC) liability,
as reported by AON on December, 2005, to $670,000
Recommending:
Reduces the GASB 45 ARC liability by $2.6 million Allows a gradual increase in retiree health premiums for employees to plan for their future retirement. Allows Michigan Tech to continue to offer retiree health insurance after January 1, 2008.
OPTION 6
Recommending
Proposal: To slowly eliminate
the premium subsidy (by using a 7 year premium ramp) for retiree health
insurance for current retirees beginning January 1, 2008.
Financial Impact (annual):
Reduces the $962,000 ARC liability, as reported by AON on December,
2005.
Option 6 (continued)
Recommending because:
Allows a gradual increase in health premiums for current retirees.
Allows Michigan Tech to continue to offer retiree health insurance after January 1, 2008.
Treats retirees and active employees consistently.
RETIREE RATES WITH and WITHOUT SUBSIDY
Estimated Rates
- Pre 65
7 YEAR PHASE-IN
Single Retiree Premium
Standard Plan
Per Month Rates
Pre 65 Pre 65
(subsidized) (unsubsidized)
2007 Current Premium $385
2008 Year 1 $431 $482
2009 Year 2 $479 $599
2010 Year 3 $526 $737
2011 Year 4 $574 $898
2012 Year 5 $620 $1,085
2013 Year 6 $663 $1,299
2014 Year 7 $703 $1,541
*Premiums include health care cost
trend as reported by AON.
RETIREE RATES WITH AND WITHOUT SUBSIDY
Estimated Rates 00Post 65
7 YEAR PHASE-IN
Single Retiree Premium
Standard Plan
Per Month Rates
Post 65 Post 65
(subsidized)
(unsubsidized)
2007 Current Premium
$300
2008 Year 1 $336 $345
2009 Year 2 $373 $393
2010 Year 3 $410 $443
2011 Year 4 $447 $495
2012 Year 5 $483 $549
2013 Year 6 $517 $602
2014 Year 7 $548 $655
*Premiums include health care cost
trend as reported by AON.
THE GASB 45 LIABILITY
IS REDUCED
GASB 45 OBLIGATION
As of December 31,
2006
Accrued Actuarial Liability - $24.3 million
Active Employees - $5.3 million 83/84 Retirees - $4.5 million Current Retirees - $14.5 millionAnnual Required Contribution - $1.5 million
Active Employees - $670,000 83/84 Retirees - $200,000 Current Retirees - $636,000*30 year amortization
*Calculated by AON
Time Line - BLG
March & April 2007
Provide GASB 45 liability information
to campus and retirees.
Gather input from the campus community
about 2008 calendar year health plan options.
March 00
June 2007
Begin working on calendar year 2008
health plan options.
June 2007
Present calendar year 2008 cost
options to the Executive Team.
TIME LINE 00BLG (continued)
September 2007
Present calendar year 2008 cost
containment ideas to the University community and retirees and gather
their input.
October 2007
Roll-out informational sessions
to employees and retirees on the new calendar year 2008 health options
and choices.
November 2007
TechSelect online enrollment!
January 2008
AON will update GASB 45 calculations
based on current population and 2007 health claims data.
CURRENT MICHIGAN
TECH PRE & POST RETIREE BENEFITS
Retirement Supplemental Voluntary Program (RSVP) Rule of 00000 50% of salary at time of retirement up to $50,000.
Access to retiree health insurance benefits.
Access to retiree life insurance. Coverage up to $50,000
Questions?
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