RETIREE HEALTH INSURANCE and GASB 45 LIABILITY
Campus Seminar June 2007 Presented by the Benefits Liaison Group
BENEFITS LIAISON GROUP Members
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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
MISSION STATEMENT
The Benefits Liaison Group (BLG) is an advisory group whose mission is to provide the best possible fringe benefit package within the University’s available resources.
Government Accounting Standards Board
GASB 45
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.
GASB 45 Impact
GASB 45 requires Michigan Tech to recognize the expense of post-employment benefits. The GASB 45 liability affects Michigan Tech’s audit opinion. The GASB 45 liability could affect Michigan Tech’s 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.
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
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.
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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 nonsubsidized rate) .
FACTORS CONSIDERED BY THE BLG
Employees’ Concerns
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Pre-Medicare (pre-65) coverage. Cost of retiree health care coverage. Access to affordable and quality health care coverage. Predictability Choices
University Realities
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State funding is uncertain. Escalating subsidized health care costs for retirees and current employees. Faculty and staff recruitment and retention.
THE BLG GASB 45 PHILOSOPHY
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To maintain access to Michigan Tech’s 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.
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Provide assistance in making well-informed health plan choices.
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. >Reduces the $3.3 million annual required contribution (ARC) liability, as reported by AON on December, 2005, to $670,000. >Reduces the GASB 45 ARC liability by $2.6 million. >Allows a gradual increase in retiree health premiums for employees to plan for their future retirement.
>Allows Michigan Tech to continue to offer retiree health insurance after January 1, 2008.
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.
>Reduces the $962,000 ARC liability, as reported by AON on December, 2005.
>Reduces the GASB 45 ARC liability by $129,000.
>Allows a gradual increase in health premiums for current retirees.
>Allows Michigan Tech to continue to offer retiree health insurance after January 1, 2008.
>Treats retirees and active employees consistently.
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 2008 Year 1 2009 Year 2 2010 Year 3
2011 Year 4 2012 Year 5 2013 Year 6 2014 Year 7
$385 $431 $482 $539
$603 $674 $754 $843
$482 $599 $737
$898 $1,085 $1,298 $1,539
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 2008 Year 1 2009 Year 2 2010 Year 3 2011 Year 4 2012 Year 5 2013 Year 6 2014 Year 7
$300 $308 $316 $324 $332 $341 $350 $359
$345 $393 $443 $495 $549 $602 $655
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
CURRENT MICHIGAN TECH PRE & POST RETIREE BENEFITS
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2% + 2% Matching TIAA-CREF retirement contribution. Retirement Supplemental Voluntary Program (RSVP)
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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 Tech’s plan.
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Access to retiree health insurance benefits.
Access to retiree life insurance.
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Coverage up to $50,000
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 Pre – 65 Gold Plan Post – 65 Plan J