The Senate recommends that the University contribute supplemental funds to the TIAA/CREF accounts of certain employees to help these employees to be able to pay their medical insurance premiums upon retirement from accumulated earnings in those accounts. The amount of these payments and the mechanism for their distribution shall be in accordance with the following plan which has been developed by the Executive Vice President and Provost in consultation with members of the Senate.
Summary
Additionally the University will increase its contribution to the TIAA/CREF accounts of all eligible employees by 0.45 percent (from 12.55 to 13 percent) beginning in the 2000-2001 fiscal year.
Background
After reviewing a variety of proposals in
1997 relating to TIAA matching contribution and retiree health care premium
funding, the Board of Control adopted the "March Proposal" at its March 14, 1997
meeting. This proposal called for a "Phased in Matching Program (2+2)", combined
with a "Phased out Retirement Health Care Premium Subsidy" (10 year transition
period). One of the stated "Retirement Benefits Principles" emphasized in the
presentation to the Board was to "Provide employees with the wherewithal to
acquire post-retirement health care". During the 1997-98 school year, both the
Finance Committee and Benefits Committee of the Senate conducted a detailed
review of the health care premium component of the March Proposal and found that
the transition period violates the basic principle stated above for those
employees in the lower wage categories and for those who are scheduled to retire
in less than 15 years. Meetings with the Provost during that period led to an
agreement in principle to make some adjustment for those employees who were
adversely affected.
Proposal 11-98, submitted to the Senate by the Finance Committee in the spring of 1998, called for revising the transition period to 15 years as one possible solution to this problem. During the summer of 1998 Institutional Analysis conducted an extensive analysis of both the degree to which employees were adversely impacted by the current phase out program and the costs of possible solutions. These calculations were shared with the Finance and Benefits Committees in September of 1998 and all parties agreed that the true costs of the 15-year transition were much higher than originally estimated by the Finance Committee. The Provost suggested an alternative solution to the problem that would consist of a one time supplemental payment to the TIAA/CREF accounts of those employees who are being adversely impacted by the current transition. Proposal 9-99 is in response to the Provost's suggestion.
Program Details:
Medigap Premium (1999-2000 value) $2340/year
Annual Health Care Premium Increase 3%
TIAA-CREF Investment Returns
Pre-retirement 10%
Post-retirement 6.5%
Annual Salary Increase 3%
Retirement Age 65
Insurance Premium Payments 20 yr.
The amount of money necessary to fund an annuity that will cover the predicted medigap premium for any future retirement year (at age 65) is a function only of the year of retirement and is independent of the individual involved or their salary, etc. Thus this required annuity amount may be calculated for future years using the data in the above table. Although a two-life annuity is the most likely approach to be used by employees, we have agreed to use a 20-year sinking fund at 6.5 percent to approximate this result. In this manner we are able to compute the amount necessary to cover the premium for the entire 20-year period.
A separate calculation will be performed for each eligible employee that takes into account their current age and salary and predicts the amount which they will have accumulated at age 65 in TIAA/CREF from the University contribution to the (1+1), (2+2) and 0.45 % programs using the assumed returns. The necessary and accumulated amounts will be compared and any shortfall converted to a 1999 value using the assumed 10 percent interest rate. This shortfall is the maximum supplemental contribution available to the employee.
Employees earning $50,000 or less shall receive the maximum contribution. Employees earning more than $50,000 shall receive a portion of the maximum contribution which is to be calculated as the full amount reduced by 2.0 percent for each $1,000 in base salary over the $50,000 amount. Employees who are ages 65 or over at the time of this program and elect to commit to their future retirement date will have the supplemental contribution calculated for them on the basis of this selected date.
The IRS has a 25 percent limitation on total contributions to TIAA/CREF tax deferred accounts by either the employer or employee. In cases where the supplemental contribution may exceed this amount, the contribution will be spread over several years so as to minimize the tax liability. Subject to this limitation, the University shall make the payments to individuals as early as possible. Individuals may elect to receive the payment as taxable income (for example those who are already contributing the maximum to a supplemental retirement annuity) in which case the limitation will not apply
All TIAA/CREF employees will receive an additional contribution of 0.45 percent to their retirement accounts commencing in fiscal year 2000-2001. This contribution will not require any employee match.
Costs
The total cost of the supplemental payments for the
employees making less than $50,000 per year is calculated to be $459,000 spread
over eight years as shown in Table 1. The bulk of the costs are incurred in the
first two years ($237,000 and $133,000). These costs will be met from the
Program Development funds allocated in the Five-Year Budget Model.
The maximum cost of the payments to those making more than $50,000 per year would be $356,000 if these employees received the full amount as also shown in Table 1. The prorated value has been calculated by Institutional Planning as shown in Table 2. The total cost of the prorated supplemental payments for these employees is $243,000 in the first year and $21,000 in the second year for a total of $264,000. By deferring the new 0.45 percent contribution for one year we can generate an estimated $171,000 in 1999-2000 ($166,000 in 1998-99 salaries). This amount, from projected salary costs in the Five-year Budget Model, will be used to cover most of the cost in the first year for the supplemental contribution to those making more than $50 K. The balance of $72,000 in this year and $21,000 in the second year will be met using one-time salary costs in the Five-year Budget Model.
The anticipated cost for the new 0.45 percent contribution by MTU is estimated to be $176,000 in 2000-2001. This cost is expected to escalate with salaries at a rate of three percent as shown in Table 2. Future costs for this contribution will also be met from projected salary costs in the Five-year Budget Model.
Table 1: TIAA Employee Maximum Supplemental
Contribution ($thousands)SALARY LESS THAN $50 KEmployee StatusNo.of
Empl.19992000200120022003200420052006Total Full-time Non-union62$207 $117 $34 $9
$6
$4
$2
$379
Other Non-union
7
$13
$4
$17
Unionized
9
$17
$12
$9
$8
$6
$6
$4
$1
$63
Sub-total
78
$237
$133
$43
$17
$12
$10
$6
$1
$459
SALARY GREATER THAN $50
K
Full-time Non-union
82
$318
$38
$0
$0
$0
$0
$0
$0
$356
Other Non-union
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Unionized
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Sub-total
82
$318
$38
$0
$0
$0
$0
$0
$0
$356
ALL ELIGIBLE EMPLOYEES
Full-time Non-union
144
$525
$155
$34
$9
$6
$4
$2
$735
Other Non-union
7
$13
$4
$17
Unionized
9
$17
$12
$9
$8
$6
$6
$4
$1
$63
TOTAL
160
$555
$171
$43
$17
$12
$10
$6
$1
$815
Table 2: TIAA Employee Prorated Supplemental Contribution And
Source of Funds
(thousands)
SALARY LESS THAN $50 K
Employee Status
No.of Empl.
1999
2000
2001
2002
2003
2004
2005
2006
Total
Full-time Non-union
62
$207
$117
$34
$9
$6
$4
$2
$379
Other Non-union
7
$13
$4
$17
Unionized
9
$17
$12
$9
$8
$6
$6
$4
$1
$63
Sub-total
78
$237
$133
$43
$17
$12
$10
$6
$1
$459
SALARY GREATER THAN $50 K PRORATED
AT MINUS 2%/$1000 ABOVE $50 K
Full-time Non-union
77
$243
$21
$0
$0
$0
$0
$0
$0
$264
Other Non-union
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Unionized
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Sub-total
77
$243
$21
$0
$0
$0
$0
$0
$0
$264
ALL ELIGIBLE EMPLOYEES USING
PRORATED VALUES
Full-time Non-union
139
$450
$138
$34
$9
$6
$4
$2
$0
$643
Other Non-union
7
$13
$4
$0
$0
$0
$0
$0
$0
$17
Unionized
9
$17
$12
$9
$8
$6
$6
$4
$1
$63
TOTAL
155
$480
$154
$43
$17
$12
$10
$6
$1
$723
SOURCE OF FUNDS
Program Development
(one-time)
$237
$133
$43
$17
$12
$10
$6
$1
$459
Salary Costs (deferral,
one-time)
$171
$171
Salary Costs (other,
one-time)
$72
$21
$93
Sub-total
$480
$154
$43
$17
$12
$10
$6
$1
$723
Salary Costs( 0.45 %
program)
$176
$181
$187
$192
$198
$204
$210
TOTAL
$480
$330
$224
$204
$204
$208
$210
$211
Adopted by Senate: December 16, 1999
Rejected by University
Budget Team: September 23, 1999