RETIREE HEALTH INSURANCE

1

• RETIREE HEALTH INSURANCE
• and
• GASB 45 LIABILITY
• Campus Seminar
• June 2007
• Presented by the
• Benefits Liaison Group

2

• BENEFITS LIAISON GROUP
• Members
• Martha Sloan, PhD, Professor President of the
  University Senate
• Don Beck, PhD, Professor Chair of Senate Finance
  Committee
• Tony Rogers, PhD, Associate Professor Former
  Chair of the Senate Benefits Committee
• Jane Berner Retiree Representative
• David Chard, Chair of the Senate Benefits
  Committee
• Mike Hendricks, Controller
• Debbie Lassila, Director, Budget
• Amy Hughes, Internal Auditor
• Ingrid Cheney, Director, Benefits

3

• MISSION STATEMENT
• The Benefits Liaison Group (BLG) is an advisory
  group whose mission is to provide the best
  possible fringe benefit package within the
  Universitys available resources.

4

• GASB 45
• Government Accounting Standards Board
• GASB Statement 45 Accounting and Financial
  Reporting by Employers for Post-employment
  Benefits Other Than Pensions Issued in June 2004
• Beginning July 1, 2007 the accounting practice
  for other post-employment benefits retiree
  health insurance - will change from a pay as you
  go practice to a recognize the expense as
  earned practice.
• Retirees health care expenses can no longer be
  pooled with active employees health care
  expenses.

5

• GASB 45 Impact
• GASB 45 requires Michigan Tech to recognize the
  expense of post-employment benefits.
• The GASB 45 liability affects Michigan Techs
  audit opinion.
• The GASB 45 liability could affect Michigan
  Techs Bond rating.
• 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.

6

• 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 million
• Annual 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

7

• POSSIBLE OPTIONS TO ADDRESS THE GASB 45 LIABILITY
• The University makes no changes and records the
  liability.
• The University cancels all current retiree health
  insurance and discontinues current employees
  access to retiree health insurance.
• Provide alternative options 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
  employees 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 employees access to retiree health
  insurance at (a subsidized rate or a
  non-subsidized rate) .

8

• FACTORS CONSIDERED BY THE BLG
• Employees Concerns
• Pre-Medicare (pre-65) coverage.
• Cost of retiree health care coverage.
• Access to affordable and quality health care
  coverage.
• Predictability
• Choices
• University Realities
• State funding is uncertain.
• Escalating subsidized health care costs for
  retirees and current employees.
• Faculty and staff recruitment and retention.

9

• THE BLG GASB 45 PHILOSOPHY
• To maintain access to Michigan Techs 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.

10

• ACTION PLAN TO REDUCE THE EMPLOYEES
• GASB 45 LIABILITY
• To slowly eliminate the subsidy (using a 7 year
  premium ramp) for retiree health insurance for
  employees beginning January 1, 2008.
• gtReduces the 3.3 million annual required
  contribution (ARC) liability, as reported by AON
  on December, 2005, to 670,000.
• gtReduces the GASB 45 ARC liability by 2.6
  million.
• gtAllows a gradual increase in retiree health
  premiums for employees to plan for their future
  retirement.
• gtAllows Michigan Tech to continue to offer
  retiree health insurance after January 1, 2008.

11

• ACTION PLAN TO REDUCE THE RETIREES GASB 45
  LIABILITY
• To slowly eliminate the premium subsidy (by using
  a 7 year premium ramp) for retiree health
  insurance for current retirees beginning January
  1, 2008.
• gtReduces the 962,000 ARC liability, as reported
  by AON on December, 2005.
• gtReduces the GASB 45 ARC liability by 129,000.
• gtAllows a gradual increase in health premiums
  for current retirees.
• gtAllows Michigan Tech to continue to offer
  retiree health insurance after January 1, 2008.
• gtTreats retirees and active employees
  consistently.

12

• RETIREE RATES WITHOUT SUBSIDY
• Pre-65 Rates
• 7 YEAR PHASE-IN
• Single Retiree Premium
• Standard Plan - Per Month Rates
• Ramp Only Ramp Health Cost Inflation
  (estimated)
• 2007 Current Premium 385
• 2008 Year 1 431 482
• 2009 Year 2 482 599
• 2010 Year 3 539 737
• 2011 Year 4 603 898
• 2012 Year 5 674 1,085

13

• RETIREE RATES WITHOUT SUBSIDY
• Post 65 Rates
• 7 YEAR PHASE-IN
• Single Retiree Premium
• Standard Plan - Per Month Rates
• Ramp Only Ramp Health Cost Inflation
• (estimated)
• 2007 Current Premium 300
• 2008 Year 1 308 345
• 2009 Year 2 316 393
• 2010 Year 3 324 443

14

• GASB 45 OBLIGATION
• After the Implementation of the Action Plan
• Reduction Relevant
• 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 million
• Annual Required Contribution - 1.5 million
• Active Employees - 670,000
• 83/84 Retirees - 200,000
• Current Retirees - 636,000
• 30 year amortization
• Calculated by AON

15

• CURRENT MICHIGAN TECH PRE POST RETIREE BENEFITS
• 2 2 Matching TIAA-CREF retirement
  contribution.
• Retirement Supplemental Voluntary Program (RSVP)
• Rule of 80
• 50 of salary at time of retirement up to
  50,000.
• Can be used on a tax-free basis to pay for health
  insurance other than Michigan Techs plan.
• Access to retiree health insurance benefits.
• Access to retiree life insurance.
• Coverage up to 50,000

16

• OTHER HEALTH PLAN OPTIONS
• Michigan Tech Retiree Health Plan Options
• Premium Plan access to current plan
• Standard Plan access to current plan
• Deductible 1,000 Plan possible plan for 2008
• Deductible 800 Plan possible plan for 2008
• Options Outside of the Michigan Tech Plans
• Blue Cross and Blue Shield Health Plan Options
• Pre 65 Value Blue PPO Plan
• Individual Care Blue
• Post 65 Medicare Plus Blue Option D
• AARP Health Plan Options