university of missouri system board of curators: compensation & human resources committee: a...

UMSYSTEM.EDU August 20, 20091UMSYSTEM.EDU

University of MissouriBoard of Curators

Compensation & Human Resources Committee

A Review of Salary and Benefit ProgramsAugust 2009

Betsy Rodriguez, Vice President for Human Resourcesand

Mike Paden, Associate Vice President for Benefits


Total Compensation Overview

UMSYSTEM.EDU August 20, 20093

Compensation Philosophy

Total Compensation Philosophy

Attract and retain highly qualified employees through salary and benefits that are:

• Competitive (measured by peer comparisons)• Cost effective (measured by national and regional

benchmarks)• Valuable (measured by employee surveys and peer

comparisons)


University must manage and support its TALENT through programs and services that cover the employment and employee lifecycle.

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.

Compensation Philosophy (continued)


Employees’ needs and values change throughout their employment and employee lifecycles …

Compensation Philosophy (continued)


Lifecycle Events

Employee demographicsAverage Age: 45Turnover Rate: 13% per year

(higher turnover for those < 5 years)

Salary level: 50% employees make < $50,000Average Length of Service: 9.8 years

Other considerationsMarital statusDependentsGeographic location (rural vs. urban)Medical history


Workforce Demographics

Benefits Eligible employees = 19,000

Under

2525 to 29 30 to 39 40 to 49 50 to 54 55 to 59

60 and Over

Totals

Admin/Mgmt/Exec 5 92 327 549 349 317 263 1902

Professional Staff 188 561 1052 1031 577 449 253 4111

Technical 159 321 427 517 265 240 106 2035

Office Admin/Suprt 162 410 681 817 515 439 291 3315

Skilled Trades 0 9 83 223 145 105 53 618

Service 132 151 303 409 232 191 124 1542

Ranked Faculty 0 38 645 910 468 509 646 3216

Unranked Faculty 37 531 842 347 154 217 175 2303

% of Population 3.59% 11.10% 22.90% 25.22% 14.21% 12.96% 10.04% 19042


Workforce Trends

• Pending retirement of Baby Boomers(23% of UM population is 55 yrs and older)

• Smaller population to replace Baby Boomers(Labor shortage expected 2010-2016, especially in health care, info technology and education)

• Generational differences– different values and expectations from employees

• Increasing demand for work/life balance


Salary Overview


Salary Overview

• Most significant part of total compensation

• University spends $1 billion annually on benefits eligible salaries

• Lower public sector salaries are often viewed as counterbalanced by stability, job security, and substantial benefits package (especially retirement plans)


Salary Overview (continued)

Initial Salary • Job salary ranges based on: market, job level, job

scope• Individual salary based on: market and

recruitment conditions, applicant skills and experience, and internal equity*

• Salary is not based on funding source• Initial salary is critical given relatively minimal

annual adjustments and career progression opportunities

*New hire salaries often create significant internal equity issues.



Annual salary adjustments• Adjusted in September, based on funds availability, within

‘pool’ established by board of curators• Based on merit*, with available salary budgets distributed

under locally administered processes • Typically ‘base building’• Occasional market adjustments (e.g. Fall ’08)• Annual adjustments may include promotion (e.g. academic

progression)• Supervisors are expected to complete annual performance

evaluations*Assumes salaries are already at market



Salary Decisions

• Executive Order 6 – establishes delegated responsibility

• Access to market data (through Human Resources or website)



Other salary programs:• Extra Compensation (360.010) - pay for duties outside or

above the 'normal' duties• Executive Compensation/Incentive (by incentive plan or

individual contract)• Summer appointments (360.020) - pay for 9-month faculty

who elect to teach or conduct other academic work during the summer months

• Incentive compensation (360.150) - incentive pay plans • About 40 plans across campuses• Typically done for revenue generating areas (sales, dining halls,

athletics)• Require President approval


Salary Databy

Employee Group


Salary Data: Faculty

Faculty-Unranked

• Titles such as Lecturer, Instructor, Research Associate, Program Director, Extension Specialist

• Approximately 2,280• Term appointments (annual or no more than 3-year)• Average salary = $47,940 (12-month)



Faculty-Ranked

• Assistant Professor, Associate Professor, Professor (including clinical/professional practice, research, teaching, and extension nontenure tracks)

• Approximately 3,200• Term appointments and continuous• Average salary ranked faculty = $74,048 (9-month)

(tenured/tenure track = $78,338)(nontenure track = $60,194)



Salary Market Data – Faculty (Ranked)• Established based on discussions with academic

campus leadership• Market comparisons by academic discipline• Derived from the following data sources:

Association of American Universities (AAU) Association of Public Land Grant Universities (APLU) College & University Professional Association for

Human Resources (CUPA-HR)


Salary Market Data – Faculty (Ranked)

From data sources developed 5 market comparisons:(1) AAU Inclusive (all 35 AAU institutions)

(2) AAU (excludes institutions in coastal states)

(3) CUPA-HR Public National (50 public institutions: doctoral granting; intensive research; 15,000 and higher enrollment)

(4) CUPA-HR Urban 21 (21 institutions located in urban areas)

(5) APLU (land grant institutions excluding coastal states)




Salary Market Data – Faculty (Ranked)

• Data are focused on the contiguous states (and one state removed)

• Updated annually but typically lags about six months• Medical school faculty are excluded from all disciplines

due to the higher salaries associated with MD degrees• University and market data are accessible online to

department chairs, deans, and provosts –SEE SAMPLE



Faculty market data are available online to all campus academic administrators, including department chairs

See next slides for sample data by campus and selected disciplines


11-Month SalariesTenure and Tenure Track


Peer Comparisons: Faculty Salaries

• Includes all ranked faculty per AAU definitions

• Chart shows percent growth in overall salary base, with an average salary

• Average salary ranges from $73k to $116.8k

• MU was only one of few schools with increase in 2008

• With strategic investment in Fall 2008, MU remains next to last

1st yr rounded to 100's

Institution - Ranked High to Low on 10-Yr Growth

Fall '98 Fall '07 Fall '08Three Yr Growth

'05 to '08

Five Yr Growth

'03 to '08

Ten Yr Growth

'98 to '08

One Yr Growth

'07 to '08

California, University of -- Los Angeles 84,069 118,714 116,800 8.6% 14.4% 38.9% -1.6%

California, University of -- Berkeley 89,783 119,751 116,500 7.7% 9.9% 29.8% -2.7%

California, University of -- San Diego 83,126 111,034 107,200 7.8% 13.6% 29.0% -3.5%Rutgers, State Univ of New Jersey 78,014 106,960 106,800 11.2% 17.5% 36.9% -0.1%

North Carolina, University of -- Chapel Hill 74,106 109,679 106,000 14.8% 21.2% 43.0% -3.4%

Virginia, University of 77,454 107,195 103,000 3.6% 13.8% 33.0% -3.9%

Michigan, University of -- Ann Arbor 77,762 108,848 102,600 2.3% 9.7% 31.9% -5.7%

California, University of -- Santa Barbara 79,100 107,861 102,300 0.2% 11.1% 29.3% -5.2%

Maryland, University of -- College Park 69,819 105,497 102,000 5.1% 13.5% 46.1% -3.3%

California, University of -- Irvine 77,174 104,030 101,900 - 16.5% 32.0% -2.0%

California, University of -- Davis 76,769 103,742 101,600 11.4% 12.5% 32.3% -2.1%

Ohio State University 66,872 95,910 100,500 12.7% 21.4% 50.3% 4.8%

Illinois, University of -- Urbana 72,084 98,757 99,700 7.4% 15.7% 38.3% 1.0%

Washington, University of 64,785 97,892 96,400 11.1% 20.7% 48.8% -1.5%

Texas, University of -- at Austin 70,280 103,563 96,100 1.0% 13.2% 36.7% -7.2%

State University of NY at Buffalo 68,625 90,196 94,800 12.1% 17.6% 38.1% 5.1%

Iowa, University of 68,357 93,539 94,100 11.5% 20.2% 37.7% 0.6%

State University of NY at Stony Brook 69,754 94,824 94,100 4.1% 11.9% 34.9% -0.8%

Wisconsin, University of -- Madison 69,494 93,343 93,400 7.4% 10.2% 34.4% 0.1%

Minnesota, University of -- Twin Cities 72,527 98,664 93,400 3.7% 11.8% 28.8% -5.3%Kansas, University of 58,144 86,690 91,400 17.2% 30.2% 57.2% 5.4%

Michigan State University 65,850 91,194 91,000 6.7% 11.5% 38.2% -0.2%

Purdue University 66,909 89,505 90,100 6.9% 13.2% 34.7% 0.7%

Indiana University -- Bloomington 65,398 91,132 89,300 5.5% 10.3% 36.5% -2.0%

Colorado, University of -- Boulder 65,766 94,406 88,300 3.9% 9.8% 34.3% -6.5%

Pennsylvania State University 67,158 99,527 87,500 -4.9% 2.5% 30.3% -12.1%

Pittsburgh, University of 64,881 90,206 87,300 2.6% 8.4% 34.6% -3.2%

Arizona, University of 65,269 93,315 87,200 2.6% 13.8% 33.6% -6.6%

Texas A & M University 64,276 92,420 86,000 -0.7% 9.5% 33.8% -6.9%

Nebraska, University of -- Lincoln 61,663 87,231 85,900 5.8% 13.0% 39.3% -1.5%

Florida, University of 62,489 85,068 85,300 5.3% 14.0% 36.5% 0.3%

Iowa State University 65,655 87,362 85,300 7.5% 13.5% 29.9% -2.4%

Missouri, University of -- Columbia 63,864 76,139 81,600 13.3% 18.7% 27.8% 7.2%

Oregon, University of 55,352 75,447 73,300 5.3% 12.3% 32.4% -2.8%

Avg Annl Change: -2.0%

Average Salaries for Ranked Faculty at Public AAU InstitutionsAll Ranked Faculty Combined

May 2009 - Using Previous Fall Salary Information

Source: AAUP faculty salary surveys


Institution - Ranked High to Low on Fall'08 Avg Salary Fall '98 Fall '01 Fall '03 Fall '05 Fall'08 '98 thru '08

North Carolina, University of -- at Chapel Hill 88,700 103,400 106,300 115,300 142,700 60.9%

Michigan, University of -- Ann Arbor 96,700 108,900 117,800 125,600 142,100 46.9%

Virginia, University of 96,500 107,600 112,900 123,100 133,400 38.2%

Texas, University of -- at Austin 84,400 98,800 103,200 115,700 132,300 56.8%

Illinois, University of -- Urbana 86,800 100,900 107,000 116,600 129,600 49.3%

Minnesota, University of -- Twin Cities 85,600 97,600 102,000 110,300 127,400 48.8%

Ohio State University 84,900 93,700 103,500 112,600 126,400 48.9%

Iowa, University of 84,500 97,100 100,800 105,300 124,600 47.5%

Michigan State University 77,500 89,700 98,300 105,900 121,900 57.3%

Colorado, University of -- Boulder 79,500 89,700 98,400 102,800 121,500 52.8%

Indiana University -- Bloomington 80,800 94,200 99,100 104,900 118,400 46.5%

Kansas, University of $69,800 $84,400 $87,900 $98,000 117,300 68.1%

Texas A & M University 76,400 93,400 95,200 104,100 116,300 52.2%

Purdue University 84,600 90,500 97,200 104,000 115,000 35.9%

Iowa State University 80,000 87,400 92,200 97,200 112,100 40.1%

Missouri, University of -- Columbia 78,400 88,900 91,800 96,700 111,200 41.8%

Nebraska, University of -- Lincoln 74,900 86,600 90,900 97,500 110,100 47.0%

Wisconsin, University of -- Madison 77,600 92,900 96,200 100,500 109,500 41.1%

Institutional Average Rates Below UM-Columbia

Surrounding State Institutions

Missouri, University of -- Columbia $88,900 $96,700

Average Salaries for Ranked Faculty at Public AAU InstitutionsFull Professor - Columbia

Salary Peer Comparisons: Faculty


















Kansas, University of 50,800 59,600 61,700 76,100 79,600 56.7%





Average Salaries for Ranked Faculty at Public AAU InstitutionsAssociate Professor - Columbia


















Kansas, University of 44,400 50,900 51,200 65,000 67,100 51.1%






Missouri, University of -- Columbia $52,600

Average Salaries for Ranked Faculty at Public AAU InstitutionsAssistant Professor - Columbia



Salary Comparison SamplesCampus

Univ AvgMarket

AvgUniv Avg

Market Avg

UM-Kansas City $70,527 $79,963 $73,753 $84,095

UM-St. Louis $74,269 $80,723 $74,568 $81,860

Missouri S&T $88,376 $94,370 $88,043 $87,280*

• Urban 21 consists of select, large urban-based institutions

• Missouri S&T peers consist of 12 Engineering & Technology Institutions

Campus Selected Peers National Peers

* The population of science and engineering faculty compared to faculty in

other disciplines is disproportionate at S&T relative to its national peers.

• Source: CUPA-HR Faculty Survey Fall 2008

• Ranked Faculty

• National Public dataset includes approximately 50 public institutions, with intensive/extensive research, and 15,000 or more students


Salary Data: Hourly Employees

Hourly employees

Total payroll $233 million + benefits $49.8 million

Service/Maintenance & Skilled Trades• Titles such as Police Officer, Child Care Assistant, Food

Services, Custodians, Power Plant Operators, Electricians, Pipefitters

• Approximately 2,150 employees• Majority are union eligible positions (about 20% are

union members) • Meet and confer for annual agreement, nonbinding• Average hourly rate = $14.50 (range from $8 to $31)



Hourly employees (continued)

Office administration / Support • Titles such as Administrative Assistant, Office Support Staff, Fiscal

Assistant• Approximately 3,320 employees• Average hourly rate = $14.50 (range from $7.25 to $35.00)

Technical• Titles such as Research Technician, Optician Assistant, Broadcast

Technician, Reactor Operator, Computer Operator, Hygienist• Approximately 2,050 employees• Average hourly rate = $16.75 (range from$8.00 to $39.50)



Salary Market Data – Hourly Employees

• Compared to local/regional marketsNote: Columbia IS the market for many positions

• Union salary structure is discussed during annual ‘meet and confer’

• Union salary structure is a step system by which employees in same title with same length of service receive same hourly pay


Salary Data: Salaried Employees

Salaried employeesTotal payroll $772 million + benefits $165 million

Professional

• Titles such as Programmer / Analyst, Attorney, Psychologist, Accountant, Engineer, Chemist

• About 4,100 employees• Average annual salary $50,400



Salaried employees (continued)

Administrative / Manager / Executive• Titles such as Farm Supervisor, Ticket Manager, Admissions

Director, Placement Director, Coach, Provost, Chancellor, President

• About 1,900 employees• Average annual salary $79,000



Salary Market Data – Professional, Administrators and Executives

• Sources: Salary.com and other purchased or generated market databases

• Administrative work varies across many industries (e.g., agriculture, entertainment, sports, retail, finance, print, power generation, restaurant, resource management, housing, research, healthcare, student services)



Salary Market Data – Professional, Administrators and Executives (continued)

• Maintaining competitive pay across these industries is constant balancing act as each industry moves in response to economic conditions and labor markets

• 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)

• Assess markets and salary needs within Occupational Group(s) Exception: Senior Leadership and strategic valued positionare often individually compared to market


Sample Staff Market Data: Salary.com Salary.com


Administrative Compensation Survey: Single Position Report

Position: 1044 Chief Admissions Officer

Faculty Survey - National All

Others

UMKCAdmin-CUPA3

ADMINUMKC

umkc campus selection2

urban21_institutions

Resulting Number of Incumbents

41 12 12 9 12

Resulting Number of Institutions

40 12 12 9 12

Average Salary $ 103,367 98,536 103,380 109,288 103,980

Minimum $ 61,856 71,625 85,696 86,000 80,000

20th % 83,469 86,476 87,716 89,121 86,310

25th % 84,750 87,785 88,173 90,168 87,163

40th % 95,483 89,167 93,756 100,734 91,122

50th % (Median) 101,231 94,654 99,529 104,000 99,108

60th % 107,506 99,606 102,367 116,800 103,664

75th % 117,758 104,047 108,141 120,200 121,555

80th % 122,230 104,150 116,838 123,016 124,976

Maximum $ 181,175 148,518 148,518 148,518 148,518

Sample Staff Market Data: CUPA-HR


Salary Peer Comparisons: Staff

• Do not have complete data on every staff position compared to market

• Need to do significant work to develop accurate market comparisons (due to title inflation and other considerations)

• Selected 150 titles—salaried only for comparison


Office Admin

Staff Nurse

Engr/Rsrc

h

Facilities

Business

Admin

Advancement

0

20000

40000

60000

80000

100000

120000

79.6% of mkt

91.9% of mkt

90.8% of mkt

89.7% of mkt

79.9% of mkt

69.5% of mkt

MKT

UNIV

Salary Peer Comparisons: StaffStaff by Select Occupational Groups


Salary Increase History: Faculty and Staff

Federal CPI Statistics

Sept' Year

CPIGrowth Annual Growth

1999 12000 4.2% 4.00% 4.0%2001 8.1% 4.00% 8.2%2002 10.0% 0.00% 8.2%2003 11.9% 2.00% 10.3%2004 15.1% 2.00% 12.5%2005 18.2% 2.00% 14.8%2006 20.1% 2.00% 17.1%2007 23.2% 2.00% 19.4%2008 28.0% 4.00% 24.2%

Area: U.S. city average

Item: All itemsArea:

University Merit Guidelines

* 3.8% point loss amounts to a $2,000 purchasing

capability shortfall. Realignment would cost $38m.

CPI for All Urban Consumers (CPI-U) 1982-84=100*


Summary Observations of Salary

• UM salaries are below peers regardless of how data are analyzed

• We typically hire at lower end of range (which is below market) because of internal equity issues, but fall further behind quickly

• High turnover in the first 2-3 years is costly• High turnover will be exacerbated as we reach workforce

shortages• Increasing market pressure on new hires creates salary

‘compression’ (new hires at or above longer term employees)• Small annual merit pools have exacerbated market situation

• ‘Catch up’ will require strategic multi-year investment


Faculty & Staff Benefits

August 20, 2009


UM Retirement and Staff Benefits Committee


UM Retirement & Staff Benefits Committee

• UM Retirement, Disability & Death Benefits Plan• Rules and regulations for administration of the plan• Interpretation and construction of the plan• Rulings subject to review and final determination by

Board of Curators

• Advisor to President on Benefits Issues• Plan design and development• New program offering• Strategic planning


UM Retirement & Staff Benefits Committee

• Required MembershipPresident of the University, Ex-OfficioChair – appointed by the PresidentOther members – appointed by the President, with a

majority being faculty


UM Faculty & Staff BenefitsAdministration


UM Faculty & Staff BenefitsOrganization and Responsibilities

Centralized Service Center

DesignFinancingUnderwritingActuarialSelf Insurance ManagementContracting/Negotiations/SelectionsVendors/Insurer ManagementConsultant Selection/ManagementRegulation ComplianceIT FunctionalCommunicationsReporting

Direct - Active EmployeesColumbia CampusHospitals and ClinicsSystem

Direct - Retired employeesDirect - Long Term DisabilityIndirect – Active Employees

Kansas CityRollaSt. Louis

EnrollmentCounselingOrientationSeminarsPremium Contributions


BenchmarksHewitt Associates Benefits Index

Relative Value Study

A Study of Comparative Benefit Values


Comparator Institution BenchmarksHewitt Associates Relative Value Study• Indiana University• Iowa State University• Michigan State University• Ohio State University• Pennsylvania State University• Purdue University• Texas A&M• University of Colorado• University of Illinois• The University of Iowa• University of Kansas• University of Michigan• University of Minnesota• University of Nebraska• University of Texas


Comparator Institution BenchmarksHewitt Associates Relative Value Study

• Value vs. Cost – A Distinction• Employer Value Index-Average=100• Total Value Index-Average=100• Employer Value Ranking• Total Value Ranking

• Frequency-every 5 years


Comparator Institution BenchmarksHewitt Associates Relative Value Study

Employer Paid Value Total Value

Index Rank Index Rank

Retirement 117.9 3rd 77.6 15th

Retirement* 101.1 7th 77.6 15th

Pre Retirement Death-Group Life 107.7 7th 91.2 10th

Long Term Disability 143.9 4th 107.9 8th

Dental 85.3 12th 93.0 12th

Preretirement Health 98.9 10th 102.8 8th

Post Retirement Health-prior to age 65 161.9 3rd 127.5 2nd

Post Retirement Health-age 65 and higher 88.4 8th 103.1 9th

All Post Retirement Health 116.3 8th 110.7 6th

All Benefits (Including Tuition) 106.3 6th 92.3 13th

All Benefits (Including Tuition)* 98.5 11th 92.3 13th

*After 7/1/09 pension plan amendment


Benefit Eligibility


Employee Benefit Enrollment Eligibility

Employees Eligible to Enroll• 75% FTE• Appointment duration of at least 9 months

Employees Not Eligible to Enroll• Students• Part time• Temporary


Dependent Enrollment Eligibility

• Legal Spouse (domestic partners not recognized)• Surviving Spouse• Children


Benefit Plans Offered

• Conventionally Insured, No UM Subsidy• Conventionally Insured, UM Subsidy• Self Insured, UM Subsidy• Pension and Deferred Compensation• Other Employer Sponsored Plans


Conventionally Insured, No UM Subsidy Health and Welfare Plans

PlanNumber

Participants

AnnualizedEmployer

Cost

AnnualizedEmployee andRetiree Cost

AnnualizedTotal Cost

AD&D 13,478 $0 $ .4 million $ .4 millionVision Plan 11,238 $0 $1.4 million $1.4 millionDependent Life-Spouse 3,993 $0 $ .5 million $ .4 millionDependent Life-Children 3,683 $0 $ .04 million $ .04 millionLong Term Care 1,610 $0 $1.9 million $1.9 millionSupplemental Life 1,554 $0 $1.7 million $1.7 million


Conventionally Insured, UM Subsidized Health and Welfare Plans

PlanNumber

ParticipantsAnnualized

Employer Cost



Basic Life Insurance 21,438 $2.1 million $.5 million $2.6 million


Self Insured, UM Subsidized Health and Welfare Plans

PlanNumber

Participants

AnnualizedEmployer

Cost

AnnualizedEmployee

andRetiree Cost


Choice Health Care Program (Point of Service)

18,014 $98.5 million $38.0 million $136.5 million

Catastrophic Health Care Program

233 $ .3 million $ .2 million $ .5 million

Retiree Indemnity Medical Program (Medicare Eligible)

3,836 $ 8.1 million $ 7.4 million $ 15.5 million

Dental Benefits Plan 21,349 $ 6.3 million $ 6.9 million $ 13.2 million

Long Term Disability Plan 18,621 $ 3.0 million $ .4 million $ 3.4 million


Retirement & Deferred Compensation Plans

PlanNumber

Participants

AnnualizedEmployer

Cost

AnnualizedEmployee

andRetiree Cost


Retirement, Disability & Death Benefit Plan

18,071 $57.3 million $57.3 million

Retirement, Disability &Death Benefit Plan (projecting 7/1/09 contribution amendment)

18,071 $45.1 million $12.2 million $57.3 million

Supplemental Retirement

156 $.2 million $3.4 million $3.6 million

Tax Deferred Annuity 4201 $0 $35.3 million $35.3 million

Deferred Compensation 812 $0 $10.0 million $10.0 million


Flexible Benefits Plans No UM Subsidy

PlanNumber

ParticipantsAnnualized

Employer Cost



Health Care 3,292 $0 $5.3 million $5.3 million

Dependent Care 638 $0 $2.4 million $2.4 million


Other Benefit Plans

Plan

AnnualizedEmployer

Cost



Educational Assistance (employees)

$1.8 million $.6 million $2.4 million

Educational Fee Reduction (dependents)

$2.8 million $2.8 million $5.6 million

Wellness Programs $1.0 million $0 $1.0 million


Benefit Plans Contribution AnalysisBased on 2009 Contribution Rates

60%40%

Total Cost Prior to 7/1/09

Employer Employee

57%43%

Total Cost After 7/1/09

Employer Employee


UM Dental Benefits Plan


UM Dental Benefits Plan

• Self Insured• 50% UM Premium Subsidy


UM Dental Benefits Plan (cont.)

• $100 Deductible (not applicable to preventive care)• Preventive Care = 100% coverage• Other Care = 50% to 80% coverage levels• Maximum Annual Benefit = $1,500


UM Dental Benefits Plan (cont.)



85.3 12th 93.0 12th

Benchmark

Observations:• Deductibles of other plans are $25 - $50• All other plans cover orthodontic• UM requires higher employee contribution

percentage


UM Long Term Disability Plan


UM Long Term Disability Plan

• Self Insured• Claims Payment – UM Faculty & Staff Benefits• 3 year pre-existing condition period• 5 month elimination period• Integration with other plans• Option A - 60% of salary benefit, no employee

premium• Option B - 67% of salary, employee premium

required


UM Long Term Disability (cont.)

Benchmark

Observations:• Average benefit percentage - 62%• Average maximum benefit per month - $10,000 • 10 of 15 require employee contributions for base

coverage



143.9 4th 107.9 8th


UM Death Benefit Coverage


Death Benefits

• Group Term Life• Insurer – Minnesota Life• Up to 2X Salary• UM Subsidized

• Supplemental Term Life• Insurer – Minnesota Life• Up to 3X Salary• No UM Subsidy


Death Benefits (cont.)

• Accidental Death & Dismemberment• Insurer – Minnesota Life• Up to $150,000

• UM Retirement, Disability & Death Benefit Plan• Vested Status Required• Greater of 2X Salary or present value of future

pension benefits• UM Subsidized


UM Group Term Life Insurance

Benchmark

Observations:• Significant diversity in employer subsidized

coverage from lower fixed amounts to higher multiples of salary

• Lower Total Value primarily due to the average overall access is 6 X pay.



107.7 7th 91.2 10th


UM Medical Benefits Plan


UM Medical Benefits Plan

• Choice Health Care Program (Point of Service)• Catastrophic Health Care Program


UM Choice Health Care Program

• Self Insured• Network Based• Eligible Population – Active and Retired

Employees• Active Employee Premium Subsidy – 73%• Design Objectives and Features


UM Catastrophic Health Care Program

• Self insured• Eligible Population – Active and Retired

Employees• Active Employee Premium Subsidy – 66-2/3%• Non Network Based• Design Objectives and Features


Medical Benefits Plan – Active Employees

Benchmark

Observations:• Narrow range among institutions in total value: 87.3 to 110.1• UM subsidizes slightly less than average of other institutions



98.9 10th 102.8 8th


Medical Program Premium Changes

2007 2008 2009 2010*

UM Choice Health Care Program

0% 0% 3% 5%

UM Catastrophic Medical Program

0% 0% 5% 5%

Retiree Indemnity Medical

Pre 9/1/90 Retirees -4% -7% 0% 0%

Post 9/1/90 Retirees -2% -5% 3-4% 4%

* projected

2007 2008 2009 2010*

Employees 7% 6% 6%

Retirees Pre 65 9% 6% 6%

Retirees Over 65 8% 7% 4%

Benchmark – Towers Perrin Health Care Cost Survey (500 employers, 10 million employees)


Towers Perrin 2008 Health Care Performance Study

• UM actual costs were 16% below the benchmark in total

• UM actual costs fall below the 25th percentile• UM overall program efficiency is 16% below

the database. Translates into current savings of $23.9 million

• UM administration fees are competitive and fall below the 25th percentile


Healthy for Life: T.E. Atkins UM Wellness Program

• UMHS pilot began in 2004; extended to campuses 2007• Cost-Effectiveness: 524 employee volunteers; over 450 student volunteers

per year; doctoral, masters, & undergraduate practicum students provide an array of program support

• 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

• Leveraging Resources: received grant to support the nation’s first use of self-management model for employee health & job satisfaction

• Benchmarking: data warehouse will aggregate & analyze data on health behavior, wellness program enrollment, sick leave, worker compensation/work injury, and claims experience

• Data-driven Planning: Goal to improve tools & incentives for annual health survey to monitor and mitigate emerging health risks


UM Pension and Deferred Compensation Plans


Deferred Compensation Program Alternatives

Tax Deferred Annuity

Deferred Compensation

Supplemental Retirement

2009 Federal Contribution Limits

Under age 50 $16,500 $16,500

Over age 50 $22,000 $22,000

Irrevocable Election $49,000 $49,000

Current Participation $35 million $10 million $3 million


UM Retirement, Disability & Death Benefit Plan – A Hybrid Pension Plan

• Defined Benefit Plan• 5 Year Vesting• Benefit Formula:

2.2% X length of service X final average salary

• Final average salary – 5 highest consecutive• Minimum Value Accumulation

5% of salary7-1/2% interest rate


Deferred Vested Benefits

• Vested but not eligible for early retirement• Lump sum distribution available

Cash (taxable)Rollover non-taxable

• Reduced annuity benefits as early as age 55• Full annuity benefit at age 65


Early Retirement Benefits

Reduced Benefits• Age 55 = 10 years of service• Age 60 = 5 years of service• Reduction factor = 3-1/3% for each year

retirement precedes age 65

Unreduced Benefits• Age 62 = 25 years of service


Normal Retirement Benefits (unreduced)

• Age 65


UM Retirement, Disability & Death Benefit Plan

Active Members 17,983

Inactive Members 3,464

Pensioners/Beneficiaries 6,727

Total 27,651

Annual Benefits

Lump Sum to Terminated Employees $ 7.4 million

Lump Sum to Retirees $ 3.8 million

Lump Sum Death Benefits $ 1.9 million

Annuity Payments $106.3 million

Total $119.4 million


UM Retirement, Disability & Death Benefit PlanCurrent Benefit Recipients

Age Total

Under 55 2

55 – 59 237

60 – 64 815

65 – 69 1,352

70 – 74 1,170

75 – 79 953

80 – 84 651

85 – 89 388

90 – 94 153

95 – 99 30

100 and over 6

Total 5,757


History of Actual UM Contribution Rates

7/1990

7/1992

7/1994

7/1996

7/1998

7/2000

7/2002

7/2004

7/2006

7/2008

7/2010

7/2012

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%

Actual UM Contributions

Peer Institution Average

10/1/07 Projections using 8% rate of return

04/09 Projection - Assumes a -15% rate of return for year ending 9/30/09, 0% for year ending 9/30/10 and 8% thereafter

% of payroll


UM Retirement Disability and Death Benefit PlanHistory of Major Amendments

1990 Formula multiplier increased from 1.6% to 2.133%

1998 Formula multiplier increased from 2.133% to 2.2%Allow for unreduced benefits at age 62 with 25 years of serviceCreate Cash Balance feature of Plan

2009 Mandatory Employee Contributions initiated 1% for amount of salaries paid up to $50,000 2% for amount of salaries paid in excess of $50,000


Guaranteed Cost of Living Increase

• Employee Election• Reduction in Initial Benefit• 2% Option• 4% Option


Comparison of CPI-W to UM Pension Ad Hoc Adjustments through September 2008

Year of Retirement Cumulative CPIUM Cumulative Ad Hoc

Adjustments9/2005 – 8/2006 1.8% 0%

9/2000 – 8/2001 16.9% 3.0%

9/1995 – 8/1996 31.5% 11.6%

9/1990 – 8/1991 51% 27%

9/1985 – 8/1986 87% 46%

9/1980 – 8/1981 119% 73%

9/1975 – 8/1976 252% 117%


UM Retirement Disability and Death Benefit PlanRecent History of Pension Adjustments Awarded

Effective Date

Additional Contribution Requirement*

Additional Liability

Average Increase

9/1/2007 0.20% $17,420,333 2.00%

9/1/2006 0% $0 0.00%

9/1/2005 0.11% $8,614,742 1.00%

9/1/2004 0% $0 0.00%

9/1/2003 0% $0 0.00%

9/1/2002 0% $0 0.00%

9/1/2001 0.12% $8,199,850 1.05%

9/1/2000 0.19% $11,974,748 3.01%

9/1/1999 0.07% $3,971,000 1.00%

9/1/1998 0.18% $9,900,900 2.80%

9/1/1997 0.37% $19,180,000 6.11%

9/1/1996 0% $0 0.00%

9/1/1995 0.18% $8,336,000 2.13%

9/1/1994 0.40% $17,146,000 8.81%

9/1/1993 0% $0 0.50%

9/1/1992 0% $0 0.00%

9/1/1991 0% $0 0.00%

9/1/1990 0% $0 2.23%

TOTAL $104,743,573


UM Retirement, Disability & Death Benefit Plan

Benchmark – Before 7/1/09 plan changes

Benchmark – After 7/1/09 plan changes



117.9 3rd 77.6 15th



101.1 7th 77.6 15th


Observations

• All institutions offer defined contribution pension plans

• 5 institutions also offer defined benefit plans• Average employer contribution rate = 9.6%• Average employee contribution rate = 5.75%• Employer contribution rate range = 6.8% to

15%• Low total value ranking is due to other plans

requiring higher employer contribution


UM Post Employment Benefits


Other Post Employment Benefits Liabilities

• GASB 45• Annual Liability Accrual - $47.6 million• Annual Funding Rate – 50%


UM Post Employment Benefits

UM Subsidized• Medical Benefits• Dental Benefits• Group Term Life Insurance (to age 70)• Long Term Disability Benefits

Not UM Subsidized• Supplemental Life Insurance• Dependent Life Insurance• Vision Benefits• Accidental Death & Dismemberment• Long Term Care


Retiree Medical PlansUM Premium Subsidies

Retired Prior to September 1, 1990• 67% employee and spouse• 33% surviving spouse

Retired on or after September 1, 1990• Subsidy based on age + service• Range for employee coverage = 33% to 73%

(average 50%)• Range for spouse coverage = 18% to 33% (average 25%)


UM Retiree Indemnity Medical Program

• Self Insured• Eligible Population – Medicare Eligible Retirees• Non Network Based• Relationship to Medicare• Design Objectives and Features


Medical Benefits Plan – Retired Employees

Benchmark – Pre 65

Observations:• In most instances plan design is same as active employee• Above average coverage• More liberal eligibility requirements• 3 Universities provide access only coverage (no employer subsidy)



161.9 3rd 127.5 2nd



Benchmark – Medicare Eligible

Observations:• 8 institutions use “carve out” approach with Medicare• 3 institutions provide access only coverage



88.4 8th 103.1 9th



Benchmark – All RetireesEmployer Paid Value Total Value


116.3 8th 110.7 6th


Summary Observations of Benefits

• 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

• UM offers a competitive array of benefit programs that are currently slightly below the average of its peer group

• UM, strategically, assumes risk through self-insurance when appropriate

• UM employees, through premiums/contributions bear a significant portion of the cost of providing UM benefit programs



• UM employees, at the time of purchasing health care services bear a significant portion of cost for services rendered

• Areas of significant deviation from the average of the peer group include:

Above average Employer Paid Value of Long Term Disability Base Plan Employer Paid Value of Post Retirement/Pre 65 Medical Benefits

Below Average Employer Paid Value and Total Value of Dental Benefits



• 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

• The majority of peer institutions continue to offer subsidized post employment health care benefits

• UM is unique in offering a defined benefit plan as the primary pension plan avenue


Total Compensation: Salary and Benefits Compared to Peers


Total Compensation Compared to PeersRanked, Tenure-Track Faculty

Average Salary(11 mos.)*

Employer PaidAll Benefits

ValueTotal

CompensationAssistant Professor

University of Missouri $73,668 $25,042 $98,710

Market Average $88,305 $29,118 $117,423

Associate Professor


Market Average $105,759 $31,821 $137,580

Full Professor


Market Average $151,991 $38,661 $190,652

*22% of UM ranked faculty are on 9 month appointments salaries adjusted to 11 month basis for comparison purposes


Total Compensation Compared to PeersStaff Job Families

Average Salary All BenefitsTotal

CompensationOffice


Market Average $37,955 $21,333 $59,288

Business


Market Average $72,519 $26,687 $99,206

Engineering/Research


Market Average $65,842 $25,607 $91,449


Total Compensation Compared to PeersStaff Job Families (cont.)

Average Salary All BenefitsTotal

CompensationFacilities


Market Average $67,039 $25,800 $92,839

Advancement


Market Average $106,172 $31,901 $138,073

Staff RN


Market Average $58,136 $24,385 $82,521


Total Compensation Conclusions

• Both salary and benefits (total compensation) are critical factors for recruitment and retention

• On average UM total compensation is lower than peers, especially for salary

• Less competitive total compensation will exacerbate the impact of projected workforce shortage and high turnover rates

• CORRECTION WILL REQUIRE MULTI YEAR STRATEGY AND INVESTMENT

COMPARING DEFINED BENEFIT ANDDEFINED CONTRIBUTIONS PLANSImpact on Contributions and Benefits of Implementinga Defined Contribution Plan for New EmployeesAugust 2009

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.

Copyright ©2009 by The Segal Group, Inc., parent of The Segal Company. All rights reserved.

Presented by:

Howard Rog, FSA, MAAA, EA Senior Vice President and Actuary

116

Definitions

Defined Contribution Plan Fixed annual contributions, defined under the plan, accumulate with

investment income to a lump sum available at retirement

Can be annuitized · Monthly annuity income depends on how much

has been accumulated

Defined Benefit Plan

Provides a monthly pension calculated under a benefit formula “defined” under the plan

The University's retirement plan is a defined benefit/“hybrid” plan

117

Comparison of Accumulated Benefits

Early Retirement Subsidy

UNDER THE UNIVERSITY’S PENSION PLAN VS. 10% OF PAY DEFINED CONTRIBUTION PLAN

0%

100%

200%

300%

400%

500%

600%

700%

800%

30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Age

% o

f Sal

ary

Defined Benefit Plan (without hybrid feature) Defined Benefit Plan (with hybrid feature)Defined Contribution Plan

118

Key Employee Advantages

Defined BenefitEmployer assumes investment risk

Benefits determinable prior to retirement

Final average pay plans responsive to pay increases

Rewards long service

Provides protection against inflation and disability

Employee can’t outlive benefits

Provides vehicle for early retirement benefits

Provides survivor benefits

Defined ContributionBenefits are more portable

Simplicity

Employee investment control

Faster account build-up for younger employees

Provides capital accumulation

119

Key Employer Advantages

Defined Benefit

Favorable investment performance reduces costs

Funding flexibility

Design versatility

Defined Contribution

No investment risk

Predictable budgeting

Appreciation by younger workers

Potential ease of administration depending upon number of investment choices

120

Impact of Implementing a DefinedContribution Plan for New Employees

Objectives of the Study

Explore the impact of introducing a defined contribution plan for new employees

Determine the future retirement contribution requirements and unfunded pension plan liability by performing 20-year stochastic projections

Understand potential impact on participants’ future benefits using stochastic modeling

121

Impact of Implementing a DefinedContribution Plan for New Employees continued

Methodology

Impact on Contributions and Unfunded Liability:

Investment returns were projected using 1,000 Monte Carlo simulations

The projections were performed under two alternatives

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

The defined contribution plan’s projected contributions were based on an annual 10% of pay contribution from the University

122


Methodology

Impact on New Employees’ Benefits:

Benefits for a new employee hired at an age of 30 were studied

Assumed the employee would invest their accounts in a “life cycle” fund· A life cycle fund is one in which the asset allocation between equities and fixed income

changes over time as the employee ages

Benefits at termination ages prior to age 55 were studied by comparing the defined contribution account balance to the Minimum Value Accumulation Account

Benefits at retirement ages of 55 and over were studied using income replacement ratios.· 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

123


Recent Events

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

This change has not been reflected in this study

124

Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees

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

Year Defined Benefit Defined Contribution2012 72% 28%2017 46 542022 29 712027 18 82

% of Payroll Covered

125

Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees continued

Projected Contributions 2010 (Percentage of Payroll)

Current Plan Closed in 2009 DC Plan Total Closed + DC95th 12.3% 12.9% 10.0% 12.6%

75th 9.1% 9.3% 10.0% 9.4%

50th 8.1% 8.2% 10.0% 8.4%

25th 7.1% 7.1% 10.0% 7.4%5th 5.7% 5.5% 10.0% 6.0%

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

There is a narrower range of total University retirement contributions with the introduction of a defined contribution plan for new employees.

However, this comes with a higher total expected retirement cost to the University

126

Impact On Contribution Requirements of Implementinga Defined Contribution Plan for New Employees continued

Projected Contributions 2025 (Percentage of Payroll)

Current Plan Closed in 2009 DC Plan Total Closed + DC95th 17.7% 51.3% 10.0% 19.0%

75th 12.8% 31.1% 10.0% 14.6%

50th 7.5% 8.1% 10.0% 9.6%

25th 0.8% 0.0% 10.0% 7.8%5th 0.0% 0.0% 10.0% 7.8%

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

There is a narrower range of total University retirement contributions with the introduction of a defined contribution plan for new employees.

However, this comes with a higher total expected retirement cost to the University

127

Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees

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

StepsSelect a typical employee (male academic employee hired at age 30)Model the Defined Contribution (DC) plan designSimulate changes in the employee’s compensation base and account value from

hire date to various retirement dates· Compensation base varies with salary inflation· DC account balance varies with the assets’ monthly rates of return

At retirement, convert the DC account into a life annuity · The life annuity varies with the prevailing interest rate environment

Determine the ratio of annuity conversion to the employee’s compensation basePerform this process many times so that robust measures of expectancy and risk

can be quantified Compare the benefits from the DC plan with that of the current pension plan (DB)

128

Impact On Employees’ Benefits of Implementinga Defined Contribution Plan for New Employees continued

Lump Sum Benefits prior to reaching early retirement eligibility (pre-age 55):

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

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

At the 50th percentile, the lump sum paid to the employees prior to retirement eligibility is double what is paid from the pension plan

There is a significant range of the lump sum payable from the defined contribution plan compared to that from the pension plan

129

Defined Contribution PlanAge/Serviceat Retirement

355

4010

4515

5020

95th 82% 219% 433% 749%

75th 64 152 271 434

50th 55 119 201 303

25th 47 95 151 217

5th 38 69 103 142


Defined Benefit PlanAge/Serviceat Retirement

355

4010

4515

5020

95th 30% 69% 119% 182%

75th 28 62 102 150

50th 27 58 91 130

25th 26 53 82 114

5th 25 48 61 95

PROJECTED ACCOUNT VALUE AS A PERCENT OF FINAL COMPENSATION

Employee hired at age 30.

Terminates prior to early retirement eligibility (pre age 55)

130


Retirement Income Benefits after reaching eligibility for retirement:

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:· 50% of the future scenarios show the DC plan providing a RR of 76% or more

But, in worst case scenarios, employees face a catastrophic replacement ratio with serious consequences on their retirement viability:· 5% of simulations have a RR at age 65 equal to or less than 24% or approximately

one third of the defined benefit plan· 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

131


INCOME REPLACEMENT RATIO ANALYSIS

Defined Contribution Plan

Age/Serviceat Retirement

5525

6030

6535

7040

95th 113% 183% 305% 517%

75th 56 86 134 207

50th 35 51 76 115

25th 22 32 46 67

5th 12 17 24 33

Defined Benefit Plan

Age/Serviceat Retirement

5525

6030

6535

7040

42% 62% 77% 88%

Probably better in DC than DB

40% 40% 50% 62%

Employee hired at age 30

132

Questions and Discussion

university of missouri system board of curators: compensation & human resources committee: a...

Education

continuousaverage salary

yearaverage salary

job scopeindividual

available salary budgets

funding sourceinitial

salary databyemployee

total compensation overview

extra compensation