UMSYSTEM.EDU February 20091UMSYSTEM.EDU

Compensation and Benefits Update

February 2009

Betsy RodriguezVice President for Human Resources

rodriguezea@umsystem.edu

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Context – National Economy

• Colleges and Universities are making drastic budget cuts due to:• Reduced investment earnings• Reduced state appropriations and other revenues

• Budget cuts result in layoffs, furloughs, salary cuts, benefits reductions

• See Chronicle article on university pension plans

• It all happened very quickly!

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Quote from President Forsee

• “The worst thing that can happen is that we delay actions, that we wait for the perfect answer to come, and then we find out that we can’t execute (a plan) without doing something that would dramatically affect our mission.”

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Board Actions

February 2009Board of Curators Meeting

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Compensation Changes

• Guiding principles for compensation changes:

Minimize current impact to employees whose annual salary is below $50,000

Maintain competitive position within peer group

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Delegated Authority: Transition Assistance

• Authority to President to develop a procedure for employees who lose jobs due to budget reductions

• Transition Assistance components: Continued access to medical insurance Severance pay based on years of university service, with

cap Available only to staff

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Delegated Authority: Furloughs

What is a furlough?• Unpaid time off, typically a few days per year• Gives university ability to reduce salary costs on

a one-time basis• Complicated by need to keep essential functions • President required to have board discussion• President’s authority ends June 30, 2009

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Overtime Calculation

• Eliminate paid leave as part of overtime calculation – pay overtime only on actual hours worked

• Most employers do NOT allow paid leave to count toward overtime

• Results in annual savings of about $2m

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Information Items: No Board action

• No early retirement package• Too expensive (create long-term liability)• Disruptive to workplace

• FY2010 Salary pool• No merit increases• Possible 1% pool (e.g., faculty promotions, mid

year retention, and market adjustments)

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Context for pension plan change

• Actuarial study 10-1-08

• Investment projections

• Peer group comparison

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How do we compare to our peers– for benefits?

Employer Paid Value Total Value

Rank(out of 15) Index

Rank(out of 15) Index

Current Retirement 2/3 117.9 14/15 77.6

Benefit Index Relative Value Study

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Actuarial Value of Liabilities vs. Assets

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History and Future UM Contribution Rates

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Employee Contribution to Retirement Plan

• Allows UM to continue commitment to support meaningful pension benefits

• 1% up to $50,000 salary; 2% on all salary above $50,000

• Annual fiscal impact - $11.9 million (based on current salaries)

• Employees will contribute on a pre-tax basis

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Paycheck Examples

Annual Benefit Eligible Salary Monthly contribution (pre-tax)

• $36,000 $30

• $50,000 $42

• $150,000 $208

Hourly Wage Biweekly Contribution (pre-tax)

• $10/hour $8

Note: Net impact on take home pay will be based on individual’s tax rate.

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How Does the Money Flow?

UMBenefits Budget

Retirement Trust Fund

Employee Contributions

Budget Stabilization Fund

When UM share is greater than budget

Total Required Contribution2009 5.87%2010 6.12%2011 8.80%2012 10.7%2013 12.2%

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How do we compare to our peers– for benefits?

Employer Paid Value Total Value

Rank(out of 15) Index

Rank(out of 15) Index

Current Retirement 2/3 117.9 14/15 77.6

Future Retirement 7/8 101.9 14/15 77.6

Benefit Index Relative Value Study

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AAU Public Average Faculty Salaries

10-Year Trend

b

How do we compare to our peers—for salary?

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Questions? Comments?

‘Frequently Asked Questions’ on benefits web site: www.umsystem.edu/benefits

oremail your questions to: benefits@umsystem.edu