Peb Briefing Final 102009

The President’s Task Force on Post Employment Benefits Overview Local Forum

Forum Agenda ¾ Work Force Demographics ¾ Background on UCRP ¾ Background on Retiree Health ¾ President’s Task Force on Post Employment Benefits ¾ Questions & Answers

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Objectives For Today • To provide an understanding of UC post employment benefits • To explain the scope of the financial issues due to post employment benefit liabilities • To provide an understanding of the need for significant funding and the need to review potential benefit changes • To answer your questions and to listen to your concerns

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University Workforce Profile Mgmt & Sr Professionals ~ 8,200 Academics ~22,500

Sr Mgmt Group ~ 290

LBNL ~2,400 Professional Support Staff ~ 82,300

~115,700 faculty and staff career employees and ~69,000 student and other non-career employees

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Age Distribution of UCRP Active Members Faculty

Staff

7,819

60+ Years Old

3,234

26,215

50 - 59 Years Old

4,245

25,879

40 - 49 Years Old

4,540

24,577

30 - 39 Years Old

3,398

15,718

Under 30 Years Old

120

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Active UCRP Members by Years of Service

45,173

22,219

12,317 8,382 4,767

0–4 Years

3,540

5–9 Years

2,181

10–14 Years Staff

6,228 1,783

15–19 Years

5,889 1,344

20–24 Years

1,922

25+ Years

Faculty

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Total Remuneration Components and Allocation Values vs. Market Comparators 64%

$68,089

UC

Market Comparators Market

0%

10%

20%

30%

19%

11%

6%

$19,940

$11,833

$6,179

73%

17%

$78,365 73%

$18,777 17%

40%

50%

60%

70%

80%

8% 2%

$8,805 $2,034 8% 2%

90%

100%

Excludes medical centers Market Cash Compensation

Market Health & Welfare

Market Retirement (DB/DC)

Market Retiree Medical & Life

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Components of UCRS UC Retirement Plan (UCRP)

UCRP

Defined Contribution (DC) Plan

DC Plan

457(b)

457(b) Deferred Compensation Plan

403(b) Tax-Deferred 403(b) Plan

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UCRP Membership Separated members owed a benefit ~ 64,600

Retirees & Survivors ~ 50,200

Active Employee members ~ 114,200

~229,000 Members in UCRP (7/1/08)

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What Does UCRP Provide?

While employed at UC

Disability Protection

Survivor Benefits

Death Benefits

At Retirement

During Retirement

Death

Lifetime retirement income or lump sum equivalent

Annual COLA’s

Death Benefits

The After-life

Postretirement Survivor Continuance

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UCRP Investment Rates of Return 25% 20% 18.2% 15% 12.7% 10%

19.0% 14.5%

12.1%

10.3%

5.2%

9.3%

7.2%

5.6%

5%

5.9%

0%

1.9%

-5.5%

-5% -10% -15%

-9.0%

'00-'01

'01-'02

1.7% -5.6%

2.7%

Market Value of Assets (MVA) 7.5% Assumed Actuarial Value of Assets (AVA)

-20% -25% '99-'00

2.5%

11.5%

'02-'03

'03-'04

'04-'05

'05-'06

'06-'07

'07-'08

-20.0%

'08-'09 Est.

AVA recognizes each MVA return above or below the assumed rate (7.5%) over five years 11

Funding Retirement Benefits – Elements of Cost • The Normal Cost is the portion of the long term cost allocated to a year of service. – Only active members have a current Normal Cost

• The Actuarial Accrued Liability (AAL) measures the Normal Costs from past years. – For retired members, the AAL is the entire value of their benefit Current Year Normal Cost Actuarial Accrued Liability Entry Age

Future Normal Costs Current Age

Retirement Age 12

UCRP Historical Funded Status $80

160%

149% 140%

$70

140%

128% 119% 112%

$ in billions

$60

106%

120% 105%

103%

$50

100%

$40

80%

$30

60%

$20

40%

$10

20% 0%

$0 2001

2002

2003

2004

Actuarial Accrued Liability (AAL)

2005

2006

2007

Actuarial Value of Assets (AVA)

Campus/Medical Centers Only

2008 Ratio

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What it Takes to Stay 100% Funded 110

Percent Funded

105

Contributions equal Normal Cost (currently 17% of pay) 100

Assets earn assumed return (currently 7.5% )

95

All other experience matches assumptions

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Why Restart Contributions? • Sustain and preserve UC retirement benefits • Maintain UCRP target funded status of 100% • Allocate cost of UCRP to all funding sources: – State and UC general funds and student fees – Contracts and grants – Medical Centers and other self-supporting enterprises – Department of Energy (Lawrence Berkeley National Lab)

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Regents Approved April 15, 2010 Contributions • Employer – FY 09/10 • All employer payroll funding sources will start at 4%

– FY 10/11 • At least 4%, higher if funding available

• Member – Beginning April 15, 2010 – Amounts currently redirected to the DC Plan ─ No reduction in take home pay ─ About 2% for most members – Same amounts for FY 10/11 – Gradually increase to parallel CalPERS member rates (currently 5%) – Subject to collective bargaining, as applicable 16

Examples of Member Contribution Amounts Monthly Covered Compensation

Monthly Member Contribution

Percent

$2,500 ($30,000 annual)

$31

1.24%

$4,167 ($50,000 annual)

$64

1.54%

$6,250 ($75,000 annual)

$106

1.70%

$8,333 ($100,000 annual)

$148

1.78%

$10,417 ($125,000 annual)

$220

2.11%

$12,500 ($150,000 annual)

$303

2.42% 17

Funded Ratio (Actuarial Value Basis) 120%

Funded Ratio

100% 80% 60% 40% 20%

-20% MV return for 2008/09; 7.5% Per Year Starting July 1, 2009 2013 Funded Ratio = 61% ($18 Billion Unfunded Liability)

0% 2008

2009

2010

2011

2012

2013

Plan Year Beginning July 1, 18

What is NOT Changing for UCRP ? 9 Pension benefits that current employees have already earned 9 Pension benefits for current retirees 9 Retirees will not be asked to contribute to UCRP

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UC Retiree Health Benefits

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UC Retiree Health Benefits ¾ Medical • Medicare • Non Medicare

¾ Dental ¾ Wellness Program ¾ Access to Vision plan ¾ Access to Legal plan 21

Medical Plan Enrollment ~110,100 Employees Retiree dependents ~17,500

Employee dependents ~128,000

~ 34,000 Retirees

UC medical program covers ~289,600 employees, retirees and their dependents

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Financial Background on Retiree Health • Annual Retiree Health Valuation • Financial Reporting Obligations – “Pay-as-you-go” cash costs – Annual Required Contribution (ARC) • Net OPEB balance sheet obligation (GASB)

– Unfunded actuarial accrued liability (GASB)

• Budget Impact • CY 2009 cash costs ~ $230 million • CY 2010 cash costs ~ $255 million 23

GASB Impacts Unless changes to plan design and/or funding are made 9 Significant operating deficits 9 Significant unfunded liability 9 Erosion of University's equity Retiree Health TRUST 115 established July 2007 Pre-funding annual liability has not started

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$60

$600

$50

$500

$40

$416

$400

$373

$30

$295

$259 $225

$20 $10 $0

$300

$332

$ in Millions

$ in Billions

Retiree Health Benefit Program Unfunded Liability and Cash Costs

$200

$13.3

$14.3

$15.4

$16.5

$17.7

$18.9

2008

2009

2010

2011

2012

2013

$100 $0

Plan Year Beginning July 1 Unfunded Retiree Health Benefit Program Liability "Pay-As-You-Go" Cash Costs

* Based on 7/1/2008 valuation

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5-Year Projection Growth in Balance Sheet Obligation

$7,828

Projected $6,358 $4,953 $3,607 $1,087

$2,319

$0

FYE 2007

FYE 2008

FYE 2009

FYE 2010

FYE 2011

FYE 2012

FYE 2013

* Based on 7/1/2008 valuation Deloitte Consulting LLP

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2010 Retiree Health • What is not changing for 2010: – No change to basic or graduated eligibility – No change to definition of eligible dependents – Retiree medical benefits continue to mirror employee benefits – Blended experience to continue (employees and nonMedicare) – Retiree dental will continue to be fully paid (subject to graduated eligibility)

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2010 Retiree Health Changes • What is changing for 2010: – The average UC contribution for retirees, as a percent of total premiums (including Medicare Part B), will be more closely aligned with the percent contributed for active employees due to budget constraints and financial reporting obligations – UC contribution overall average changes from 92% to 89% – Retiree rates will be increasing – UC still paying $25 million more in CY 2010 over CY 2009

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Current PEB Valuation Comparisons (7/1/2008)

Active 64,000 Vested 114,200 Employees 50,200 Non-Vested 29,400 Vested Inactive

$42.6 B*

UCRP Annuitants 41,600 Retired 50,200 Total 113,100 Active Employees

25,800 Eligible Now 87,300 Earning Eligibility

Retiree Health

$13.3 B Retirees (UCRP & PERS) 31,500 Primary Lives 47,800 Total Lives

* Includes campus/medical centers and National Laboratories

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Overview of Employee PEB Assets / Liabilities / Shortfall $80

-20% MV Return for 2008/09 and 7.5% per year beginning July 1, 2009 for UCRP $70

$ in Billions

$60 $50 $14.3

$13.3

$40

$12.1

$16.5

$15.4

$16.4

$18.9

$17.7

$37 $26.5

$21.7

$32.3

$30 $20

$35.5 $34.3

$34.3 $36.4

2008

2009

$32.5

$31.2

$46.3

$43.7

$41.2

$38.8

$29.1

$28.2

2012

2013

$10 $0

UCRP Actuarial Value of Assets

2010 2011 Plan Year Beginning July 1,

UCRP Actuarial Accrued Liability

UC Retiree Medical Unfunded Actuarial Accrued Liability

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PEB Work Teams Interactive Process Steering Committee Pension Benefits Work Team

Retiree Health Work Team

Finance Work Team 31

PEB Task Force Mission Statement

The University of California is committed to providing competitive pay and benefits programs to attract and retain excellent faculty and staff to accomplish its mission for the people of California, while ensuring sustainable post employment benefits for current and future retirees. 32

PEB Task Force Charge •

Consider the impact of: – Market competitiveness, – Talent management, work force development and renewal, work force behavior, – Affordability and sustainability

•

Analyze: – Cost and cash flow – Long-term funding options & impact on UC financial integrity

•

Complete work within a reasonable timeframe

•

Make recommendations which allow the Regents to meet: – Fiduciary obligations – Educational responsibilities 33

PEB Task Force Process Timeline 2009 July –Sept

2009 Oct–Dec

2010 Jan –Mar

2010 Apr –Jun

2010 July –Aug

Steering Committee Meeting

Steering Committee Meeting

Steering Committee Meeting

Steering Committee Meeting

Steering Committee Meeting

Work Team Meetings

Work Team Meetings

Work Team Meetings

Work Team Meetings

Work Team Meetings

Phase 4:

Local Forums

Local Forums

Phase 1:

Phase 2:

Phase 3:

Assessment and Preparation

Defining Options and Analysis

Frame Recommendations

Prepare Report and Recommendations

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Consultation and Communication Process President’s charge: engage in a robust consultation and communication process. ¾ Local Forums with stakeholders and advisory groups ¾ Meeting all HEERA obligations with unions ¾ State of California ¾ Website : http://www.universityofcalifornia.edu/news/ucrpfuture/

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QUESTIONS 36