The President’s Task Force on Post Employment Benefits

Overview

Local Forum - 2009 Tour

2

Forum Agenda

Work Force Demographics

Background on UCRP

Background on Retiree Health

President’s Task Force on Post Employment Benefits

Questions & Answers

3

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

4

University Workforce Profile

~116,000 faculty and staff career employees

Professional Support Staff ~ 82,300

Lawrence Berkeley Nat’l Lab ~2,400

Academics ~22,500Mgmt & Sr Professionals ~ 8,200

Sr Mgmt Group ~ 290

and ~69,000 student and other non-career employees

5

120

3,398

4,540

4,245

3,234

7,819

15,718

24,577

25,879

26,215

Under 30 Years Old

30 - 39 Years Old

40 - 49 Years Old

50 - 59 Years Old

60+ Years Old

Faculty Staff

120

3,398

4,540

4,245

3,234

7,819

15,718

24,577

25,879

26,215

Under 30 Years Old

30 - 39 Years Old

40 - 49 Years Old

50 - 59 Years Old

60+ Years Old

Faculty Staff

Age Distribution of UCRP Active Members

6

Active UCRP Members by Years of Service

4,767 3,5402,181 1,783 1,344 1,922

5,8896,2288,382

12,317

22,219

45,173

0–4 Years 5–9 Years 10–14 Years 15–19 Years 20–24 Years 25+ Years

Staff Faculty

7

Total Remuneration Components and Allocation Values vs. Market Comparators – Campus and UCOP

Market Cash Compensation Market Health & Welfare Market Retirement (DB/DC) Market Retiree Medical & Life

73% 17% 8% 2%

$68,089 $19,940 $11,833 $6,179

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Market

UC

64% 19% 11% 6%

73% 17% 8% 2%

$68,089 $19,940 $11,833 $6,179

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Market

UC

64% 19% 11% 6%64% 19% 11% 6%

$78,365 $2,034$8,805$18,777

73% 17% 8% 2%

Market Comparators

Excludes medical centers and LBNL

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72% 15% 11% 2%

$71,409 $15,503 $14,911 $6,652

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Market

UC

66% 14 % 14% 6%

Market Comparators $72,859 $1,535$11,462$15,429

Market Cash Compensation Market Health & Welfare Market Retirement (DB/DC) Market Retiree Medical

71% 15 % 11% 2%

Total Remuneration Components and Allocation Values vs. Market Comparators – Medical Centers

9

UC Retirement Plan (UCRP)

UCRP

DC Plan

403(b)

457(b)457(b)

Deferred Compensation

Plan

Defined Contribution (DC)

Plan

Tax-Deferred 403(b) Plan

Components of UCRS

10~222,000 Members in UCRP (7/1/09)

Active Employee members ~ 115,700

Retirees & Survivors ~ 51,700

Separated members owed a benefit ~ 54,900

UCRP Membership

11

While employed at UC At Retirement Death The After-life

During Retirement

What Does UCRP Provide?

Disability Protection

Survivor Benefits

Death Benefits

Lifetime retirement income

or lump sum equivalent

Annual COLAs

Death Benefits

Post retirement Survivor

Continuance

12

UCRP Investment Rates of Return

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

5.6%

14.5%

10.3%

19.0%

22.1%21.4%

12.1%

5.2%

1.9%

5.9%

9.3%

7.2%

12.3%

21.6%21.3%

25.8%26.1%

-19.2%

-5.6%

-9.0%

-5.5%

12.7%

-2.6%

16.8%15.5%

13.6%9.8%

1.9%2.7%2.5%

11.5%

18.2%

19.4%

15.2%

11.2%

17.0%

11.0%11.1%11.2%11.3%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

'89-'90

'90-'91

'91-'92

'92-'93

'93-'94

'94-'95

'95-'96

'96-'97

'97-'98

'98-'99

'99-'00

'00-'01

'01-'02

'02-'03

'03-'04

'04-'05

'05-'06

'06-'07

'07-'08

'08-'09

Market Value of Assets (MVA)Assumption (7.5% starting 1994)Actuarial Value of Assets (AVA)

13

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 AccruedLiability

Future Normal Costs

Current AgeEntry Age Retirement Age

14

UCRP Historic Funded Status

149%

140%

128%119%

112%106% 105% 103%

95%

$0

$10

$20

$30

$40

$50

$60

$70

$80

2001 2002 2003 2004 2005 2006 2007 2008 2009

$ in

billio

ns

0%

20%

40%

60%

80%

100%

120%

140%

160%

Actuarial Accrued Liability (AAL) Actuarial Value of Assets (AVA) Ratio

Campus/Medical Centers Only

15

What it Takes to Stay 100% Funded

90

Assets earn assumed return (currently 7.5% )

Contributions equal Normal Cost (currently 17% of pay)

Pe

rce

nt

Fu

nd

ed

110

105

100

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)

17

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

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Examples of Member Contribution Amounts

Monthly Covered Monthly Member Percent Compensation Contribution

$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%

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0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014Plan Year Beginning July 1,

Fu

nd

ed R

atio

7.5% Market Value Return Per Year Starting July 1, 2009

2014 Funded Ratio = 60% ($20 Billion Unfunded Liability)

Funded Ratio (Actuarial Value Basis)

Campus/Medical Centers Only

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Pension benefits that current employees have already earned

Pension benefits for current retirees

Retirees will not be asked to contribute to UCRP

What is NOT Changing for UCRP ?

2121

UC Retiree Health Benefits

2222

UC Retiree Health Benefits

Medical

• Medicare

• Non Medicare

Dental

Wellness Program

Access to Vision plan

Access to Legal plan

2323

Medical Plan Enrollment

UC medical program covers ~290,000 employees, retirees and their dependents

~110,100 Employees

~ 34,000 Retirees

Retiree dependents ~17,500

Employee dependents ~128,000

2424

Financial Background on Retiree Health

• “Pay-as-you-go” cash costs

• Budget impact– CY 2009 cash costs ~ $230 million

– CY 2010 cash costs ~ $255 million

• Retiree Health Trust (Section 115) – Established July 2007

– Pre-funding annual liability has not started

2525

Annual Retiree Health Valuation

• Financial reporting obligations (GASB)

– Annual Required Contribution (ARC)

• Net OPEB balance sheet obligation

– Unfunded actuarial accrued liability

• Unless changes are made to plan design and/or funding, liability will lead to an erosion of the University's net assets

2626

Retiree Health Benefit Program Unfunded Liability and Cash Costs

$14.5 $15.6 $16.8 $18.0 $19.3 $20.6

$242$272

$312

$354

$399

$447

$0

$100

$200

$300

$400

$500

$600

$0

$10

$20

$30

$40

$50

$60

2009 2010 2011 2012 2013 2014

$ in Millions$

in B

illio

ns

Plan Year Beginning July 1

Unfunded Retiree Health Benefit Program Liability"Pay-As-You-Go" Cash Costs

2727Deloitte Consulting LLP

5-Year ProjectionGrowth in Balance Sheet Obligation

2828

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 non-Medicare retirees)

– Retiree dental will continue to be fully paid (subject to graduated eligibility)

2929

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

3030

Current PEB Valuation Comparisons

UCRP

$45.2 B*

RetireeHealth

$14.5 B

115,700ActiveEmployees

65,700 Vested50,000 Non-Vested31,200 Vested Inactive

Annuitants

43,000 Retired51,700 Total

Retirees (UCRP & PERS)

32,300 Primary Lives48,800 Total Lives

114,300 26,900 Eligible Now87,400 Earning Eligibility

Active Employees

* Includes campus/medical centers and National Laboratories

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$34.9 $33.0 $31.5 $29.4 $28.4 $29.4$36.9 $39.0 $41.5 $44.0 $46.6 $49.2

$14.5$15.6

$16.8$18.0

$19.3$20.6

$0

$10

$20

$30

$40

$50

$60

$70

$80

2009 2010 2011 2012 2013 2014

$ in

Bill

ions

Plan Year Beginning July 1UCRP Actuarial Value of Assets UCRP Actuarial Accrued Liability UC Retiree Medical Unfunded Actuarial Accrued Liability

7.5% MV return per year beginning July 1, 2009 for UCRP

$16.5 $21.6$26.8 $32.6

$37.5$40.4

Overview of Employee PEB Assets / Liabilities / Shortfall

32

PEB Work Teams Interactive Process

Pension Benefits Work Team

Retiree HealthWork Team

Finance Work Team

Steering Committee

33

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.

34

PEB Task Force Charge

• Consider the impact of:

– Market competitiveness,

– Talent management, work force renewal, work force behavior,

– Affordability and sustainability

• Analyze:

– Cost and cash flow impact

– 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

35

PEB Task Force Process Timeline

2009July –Sept

2009Oct – Dec

2010Jan –Mar

2010Apr – Jun

2010July –Aug

Phase 1: Phase 2: Phase 3: Phase 4:Assessment and

PreparationPrepare Report and Recommendations

Defining Options and Analysis Frame Recommendations

Steering Committee

Meeting

Work Team

Meetings

Work Team

Meetings

Steering Committee

Meeting

Work Team

Meetings

Work Team

Meetings

Steering Committee

Meeting

Work Team

Meetings

Work Team

Meetings

Steering Committee

Meeting

Work Team

Meetings

Work Team

Meetings

Steering Committee

Meeting

Work Team

Meetings

Work Team

Meetings

Local Forums Local Forums

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Consultation and Communication Process

Local Forums with stakeholders and advisory groups

Meeting all HEERA obligations with unions

State of California

Website :

http://www.universityofcalifornia.edu/news/ucrpfuture/

President’s charge: engage in a robust consultation and communication process.

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Q U E S T I O N S