OSU Benefits Fair Retirement Subcommittee of the Flexible Compensation Benefits Committee

1. OSU Benefits Fair Retirement Subcommittee of the Flexible Compensation Benefits Committee Recommended Changes to The OSU Retirement Program and to OTRS

2. Who We Are . . . Subcommittee of the Flexible Compensation Benefits Committee Appointed in August 2001 by administration to develop a proposal for a competitive retirement program for the future.

3. Discussion Topics Background of the Subcommittee The Current OSU Program OTRS Inequities And Proposed Legislation Recommended Changes in OSU Retirement Expected Changes in TIAA-CREF

4. Who We Are . . . Subcommittee of the Flexible Compensation Benefits Committee Appointed in August 2001 by administration to develop a proposal for a competitive retirement program for the future.

5. Subcommittee Membership Bill Barfield (Faculty, OSU-STW) Brad Barnes (Staff, OSU-STW) John Dalton (Staff, OSU-STW) Camille DeYong (Faculty, OSU-STW) Greg Fox (Staff, OSU-STW) Sheila Harp (Staff, OSU-STW) Sally Henderson (Faculty, OSU-OKC) Darrel Kletke (Faculty, OSU-STW) Terry Lehenbauer (Faculty, OSU-STW) Ken Morris (Administrator, OSU-OKM) Bob Oehrtman (Faculty, OSU-STW) Louisa Payne (Staff, OSU-STW) David Peters (Staff, OSU-STW) Fran Stromberg (Emeriti, OSU-STW)

6. Subcommittee Charge – 11/01

7. Committee Chronology 7/2000 Flexible Benefits Compensation Committee identifies retirement as an issue in need of further study 8/2001 Retirement Subcommittee appointed 11/2001 Retirement Subcommittee meets 11/2002 Committee presents interim report to Flexible Benefits Compensation Committee Spring 2003 Presentations to Fac, Staff and Emeritus Councils, Joe Alexander, David Bosserman, and Tommy Beavers Spring 2003 Presentations to faculty and staff groups at OSU Stillwater, OSU Tulsa, OSU Okmulgee, OSU OKC, and extension districts 6/2003 Presentation to President David Schmidly 1/2004 Presentation to Provost Marlene Strathe 2/2004 Presentations to Vice President Stephen McKeever and to the OSU Emeriti Association

8. Changes in July 2003 7/2003 -- Legislative changes to OTRS to change vesting period from 10 to 5 years and reduced optional membership age from 55 to 45 7/2003 -- 7/11% contribution changed to 11% 7/2003 -- Contribution option added for pre-July 1, 1992 employees

9. Recent History OSU retirement program stayed same until July 1, 1993 when 7/11 plan began. 7/11 plan: OSU contributed to each employee’s retirement 7% of first $11,520 of salary and 11% of salary above. (Now flat 11%) Employee contribution to OTR taken out of above amount, with rest going to TIAA-CREF The problem: As OTR caps come off, more and more going to OTR, less to TIAA-CREF.

10. Retirement Employees Can Expect Consists of four parts: Monthly income from OTR Retiree directed benefit from TIAA-CREF Social Security Other retirement savings

11. Comparison of OTR and TIAA-CREF OTR is “Defined Benefit Program”. With OTR what you receive is based on the number of years you work and your average compensation level. TIAA-CREF is “Defined Contribution Program” With TIAA-CREF what you receive is determined by the investment choices you make.

12. Comparison of OTR and TIAA-CREF The only real way of comparing the benefits received from OTR and TIAA-CREF is by comparing the TIAA-CREF accumulation to the present value of the retirement benefits a retiree expects to receive from OTR.

13. Retirement Subcommittee of Flexible Benefits Committee Recommendations Subcommittee developed two groups of recommendations: The subcommittee developed what we believed would be a competitive retirement program for OSU. In addition, the subcommittee prepared a set of recommendations that, if legislatively permitted, would go a long way towards eliminating the inequities currently impacting OSU and OU.

14. The Program Being Recommended Does not include OTR as a mandated program Current OTR participants will be given opportunity to exit OTR For employees not participating in OTR: 12% of salary is contributed towards retirement University will match one-to-one employee contribution of up to 2% Maximum retirement 16% (14% University, 2% Individual) There will be a two-year vesting period. New hires employed for less than two years must forfeit the retirement funds that have been contributed on their behalf.

15. Note . . . We (OSU) will have to BUY our way out of OTRS Converting to the proposed program will be OPTIONAL for current participants

16. Program RecommendationIf OTR-Optional Goal Is Not Met Remove one year and age 26 requirements for OSU contributions. Move from current 7-11 contribution to flat 11%. The Board of Regents approved President Schmidly’s request for this action in July 2003. There will be a two-year vesting period. Employees not completing two years of service must forfeit the TIAA/CREF retirement funds that have been contributed in their behalf. Additional tax deferred annuity options including a 457b plan. Recommend a “Grandfathering” option be made available

17. OTR Inequities for OSU & OU The legislation implemented July 1, 1995 required that OSU & OU salary levels covered by OTR to be gradually uncapped. Starting July 1, 2007, OTR will cover the full compensation of all OSU faculty and A&P employees. The benefit formulas of this legislation are inequitable to OSU & OU employees.

19. Comparison of OSU and Common School Retirement Same for all years except between 1995 & 2006 For low base illustration, common school employee with same salary stream receives annual retirement of $31,531 while OSU employee receives $26,425, a difference of $5,106 per year or $425 per month. This illustration is for an employee whose salary is always below the cap. Therefore, the contributions to OTR are virtually the same as for the non-OSU employee.

23. Compensation is always above the cap until 2006. Retirement benefits for Common school employee are $58,062 while OSU employee benefits are $44,925, a difference of $13,137 per year or $1095 per month. Those with salaries over the cap in some years contribute less to OTR than uncapped employees. As a result, the direct comparison of retirement income is not totally accurate. OSU and Common School Retirement: Starting Above Cap

24. Recommendations for Eliminating the Inequities Retirement subcommittee of the Flexible Benefits Compensation committee has prepared seven recommendations. These recommendations can only be implemented by legislative action. There is currently legislation in process that would solve most of the problems if enacted.

25. Who is Impacted by The Formula Inequities? Any OSU or OU employee hired before XX, 1996, and who is a member of OTRS. Every OTRS member from OSU/OU hired after that time has their retirement benefit calculated the same way all other OTRS members do.

26. 1st Recommendation to OTRS The comprehensive universities (OSU and OU) should not be required to have new employees participate in OTRS, and current employees should be given a one-time option to exit or remain in OTRS. New employees should have the option to enroll in OTRS and/or a portable retirement system, such as TIAA-CREF.

27. 2nd Recommendation to OTRS Recommendation for those employees whose compensation is always below the cap For those OTRS members from the comprehensive universities whose compensation is always below the cap, the benefit calculation formula should be the same as the formula for members from the non-comprehensive universities since OTRS has already received payment for OTRS coverage on the comprehensive university member’s total compensation.

29. 3rd Recommendation to OTRS Recommendations for Employees Whose Salaries Have Been Consistently Above the Cap For those employees whose regular annual compensation exceeds the cap in each of the fiscal years 1996-2007, it is recommended that the following formula be implemented for calculating retirement benefits: For those members who joined the system prior to July 1, 1992, the average of the high three consecutive caps on which the highest contributions to OTRS were paid during fiscal years 1996-2007 times 2% times the number of years of service during the capped period. For those members who joined the system after June 30, 1992, the average of the high five consecutive caps on which the highest contributions to OTRS were paid during fiscal years 1996-2007 times 2% times the number of years of service during the capped period.

31. 4th Recommendation to OTRS Recommendations for Employees Whose Salaries Have Changed From Above the Cap to Below the Cap During 1996-2007 For those employees whose regular annual compensation changes from above to below the cap between 1996 and 2007, a change in the statutory formula is recommended. OTRS should specify the year that an employee becomes uncapped as the year when regular annual compensation equals or remains below the cap. OTRS will then calculate retirement benefits for comprehensive university employees having regular annual compensation equal to or beneath the cap exactly as done for the non-comprehensive universities for the period after going below the cap until retirement. For all years where an employee’s compensation is above the cap, the procedure used for those employees above the cap above should be used to calculate benefits.

33. 5th Recommendation to OTRS Recommendation For Those Employees Who Retired Between 1996 and the Present Time It is recommended that OTRS recalculate benefits for those employees of the comprehensive institutions who have retired between 1996 and the current time using the appropriate calculation procedures specified in preceding recommendations, depending on where their salaries were relative to the caps.

34. 6th Recommendation to OTRS Recommendations for Employees Hired in FY96 at the Comprehensive Universities For those employees hired in FY96, the benefit calculation formula should be the same as it is for common education since OTRS received the same payment for OTRS coverage from employees hired that year, regardless of who their employers might be. For example, an employee at OSU or OU hired in FY96 with a total compensation package of $50,000 and whose five-year average compensation package climbed to $150,000 by retirement at 2030 would receive $2000 a year less than an employee in common education who contributed the exact same amount each year.

35. 7th Recommendation to OTRS Recommendation – Buy Back and Uncapping Options For employees whose salaries are above the caps, as specified in statute, at any time between 1996 and 2006, the OTRS should institute a buyback program whereby comprehensive university employees can retroactively make contributions and subsequently have OTRS calculate benefits for those years as an uncapped retirement benefit using the same procedures as currently used for the uncapped, non-comprehensive university employees. It would be desirable for employees to have the choice to buy back an uncapped retirement benefit and/or to request that their salary be uncapped immediately without buying back an uncapped retirement benefit from 1996 to the present. It is further recommended that employees who have retired between 1996 and the present time be afforded the same buy-back opportunity, with benefits recalculated to reflect the additional contribution.

36. Status of Legislation A bill has been passed by House and sent to Senate. Bill currently includes 1st and 6th , but none of the other recommendations. If Bill passes Senate, it will be sent to Conference Committee where there will be an opportunity to include the wording for the 2nd, 3rd, 4th, and 5th , recommendations. The 7th recommendation, the buy-back, will not be included.

37. What if Legislation Passes? New employees will not be permitted to participate in OTR. Current employees will have opportunity to exit OTR. If needed wording is included, many retirees will receive substantially more OTR retirement.

38. Who should leave OTR? The older you are, the better the OTR benefit. The financial stability of OTR should not be questioned. TIAA-CREF and similar investments are likely to provide a greater retirement when there is 25+ years until retirement. I would question whether anyone who is vested should leave OTR.

39. What is given up when exiting OTR

40. Expected Changes in TIAA-CREF In very near future, this month or next, there will be up to nine additional investment alternatives available within the TIAA-CREF family. Within a year the alternatives will be expanded even further. There is a possibility that you may be able to buy individual stocks with your CREF funds. The “Flexible Benefits Committee” will be considering a recommendation to permit one or two additional vendors in addition to TIAA-CREF.

41. Questions? Comments?