OPEN – C&HR – 1

June 13-14, 2013

OPEN – C&HR – 1

June 13-14, 2013

Board of CuratorsCompensation and Human Resources Committee

June 13-14, 2013

OPEN – C&HR – 2

June 13-14, 2013

Total Rewards Ad Hoc Task Force(Information Item)

OPEN – C&HR – 3

June 13-14, 2013

Task Force Charge

Charge: Development and communication of recommendations regarding the Total Rewards Program for employees and retirees and to facilitate communication

Components:Includes all health and welfare programsPreserves the value of current retirement plansDoes not include mandatory programs or salary and

wage decisionRepresentative of employee, retirees and community

OPEN – C&HR – 4

June 13-14, 2013

Health Care Reform (PPACA) Update

OPEN – C&HR – 5

June 13-14, 2013

UM Cost Impact of PPACA

Year Provisions Cost impact2010-2011 • Adult child coverage to age 26

• No lifetime dollar limits/restricted annual dollar limits on essential health benefits

• No pre-existing condition exclusions for enrollees under 19

• First-dollar preventive care coverage

• $864,000• No impact

• No impact

• Minimal impact

2013 • W-2 issued (using 2012 information)• Additional Medicare tax & unearned income

contribution• $2,500 cap on pretax contributions to health FSAs

• Minimal impact• No impact to UM• No impact to UM

2014 • Employer mandate• Revenue raisers

• Transitional reinsurance fee (TRF)• PCORI tax

• Positioned to avoid penalty, risk of non-compliance $39M

• $2.4 Million TRF• $43,623 PCORI

2015-2017 • Automatic enrollment – required to enroll eligible employees in a plan

• To be determined

2018 • Excise Tax • To be determined

OPEN – C&HR – 6

June 13-14, 2013

UM Population

University of Missouri Population

Population # of employees

Benefit Eligible 19,100Non Benefit Eligible 18,670Total 37,770

University of Missouri Population

Benefit EligibleNon Benefit Eli-gible

OPEN – C&HR – 7

June 13-14, 2013

Definitions

Fully Benefit Eligible – based on primary job75 percent FTE and a 9 month or greater appointmentEligible for all benefit plans

Variable Employee – based on all concurrent jobsIndividual whose appointment is less than a 75

percent FTE, and/or does not have a 9 month or greater appointment

Eligible for medical if averaging 30 hours or more per week during the measurement period

OPEN – C&HR – 8

June 13-14, 2013

Eligibility Changes

Clarify employment status definitions in CRR 320.050 to comply with “Shared Responsibility” provisions in PPACAFully benefit eligible academic appointmentFully benefit eligible regular employee Variable employeeRetireeStudent

Update eligibility language in Medical, Dental, Long-term Disability and Flexible Benefits Plans

OPEN – C&HR – 9

June 13-14, 2013

Eligibility Changes – All Health and Welfare Benefit Plans

The sponsored adult dependent of an employee or retired employee, so long as the employee or retired employee does not have a spouse

Criteria:Same principle residence for at least 12 monthsOver age of 18Not currently marriedNot related to employeeNot Medicare eligible

OPEN – C&HR – 10

June 13-14, 2013

Retirement Plan Assumptions

OPEN – C&HR – 11

June 13-14, 2013

Cost Impact of Changes in Assumptions

Assumption Change ImpactFuture Mortality People are living longer Increased costTermination of Employment

Overall turnover decreased/vesting increased

Increased cost

Retirement Rates People are waiting to retire Decreased costFuture Salaries Actual increases in past 5 years lower

than assumptionDecreased cost

Investment Return Lowering expected return on investments

Increased cost

Disability rates Disabled members earning service credit No change

The net impact to the Required Employer Contribution is an additional $6.3 million.

OPEN – C&HR – 12

June 13-14, 2013

Investment return assumption

Investment Consultant ALM Study April 2012

Investment Consultant

ALM Update Q1 2013

Assumptions Recommended

by Actuarial Study

Expected Investment Return 8.00% 7.40% 7.75%

Expected Inflation 2.30% 2.40% 2.75%

Total Expected Real Return 5.70% 5.00% 5.00%

Based on the latest available Public Fund Survey data, the median expected real return assumption was 4.50% (based on 126 plans with $2.7 trillion in plan assets).

When comparing the investment consultant’s expected investment returns to those utilized in the University’s actuarial study, it is important to look at the real return expectations (gross expected returns less assumed inflation). Due to different time horizons, inflation assumptions will often be different between the two.

OPEN – C&HR – 13

June 13-14, 2013

Downward trend of return assumptions

7.77% Current Average Return

Assumption

(top 126 public pension plans)

OPEN – C&HR – 14

June 13-14, 2013

Amortization of Unfunded Liability

As of 10/1/2012Actuarial Accrued Liability $3.3 billionActuarial Value of Assets $2.8 billionUnfunded Liability $0.5 billion

• The Retirement Plan has historically amortized any unfunded liability over a 20 year period using the level dollar method.

• A switch to a 30 year amortization period was reviewed. While a switch could result in a 0.30% reduction in the required contribution rate in the near term, it would ultimately lead to higher annual costs for the Plan in later years.

OPEN – C&HR – 15

June 13-14, 2013

Upcoming GASB Changes

• Beginning in FY 2014, the annual income statement expense associated with the Retirement Plan will be largely governed by new Governmental Accounting Standards Board guidance for public pension plans.

• The actuarial assumptions just discussed will continue to drive the amount of required contributions to the Plan each year.

• Currently, the required contribution and the annual expense are the same; that will no longer be the case going forward.