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

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 University’s 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 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. 

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 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. 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. >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. 

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. >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. 

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 2013 Year 6 $754 $1,298 2014 Year 7 $843 $1,539 

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 2011 Year 4 $332 $495 2012 Year 5 $341 $549 2013 Year 6 $350 $602 2014 Year 7 $359 $655 

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 Tech’s 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 Pre – 65 Gold Plan Post – 65 Plan J