1 presentation to university of alaska board of regents september, 2008 emeriti as a strategic...
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Presentation to University of Alaska
Board of RegentsSeptember, 2008
EMERITI AS A STRATEGIC RETIREMENT BENEFIT
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Broader Context of Retiree Health Care
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INSTITUTIONAL CONTEXT OF RETIREMENT PLANNING
No mandatory retirement age
Increasingly delayed retirement decisions
Aging demographics coupled with expanded life expectancy
Negative impact of delayed retirement on UA’s workforce
needs
Increasing end-of-career compensation pressures
Explosive trend in the active health care plan
Rising health care utilization at the end of career
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Faculty Stay 18-36 Months Longer
No Plan Some Support High Support
Source: Mellon Faculty Retirement Project (2000)
Retirement Date
BEHAVIORAL IMPACT OF RETIREE MEDICAL ACCESS
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University of Alaska Compensation Impact
Delayed Faculty Retirements
Total Cumulative Excess Costs (salary/benefits) Incurred with Delayed Retirement for One Individual (monthly view)
$34,500
$69,000
$7,200
$14,400
$6,088
$12,176
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
month18
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month22
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month24
month25
month26
month27
month28
month29
month30
month31
month32
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Additional Salary Additional Health Costs Additional Disability/Life/Pension/403b
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EMPLOYEE PERCEPTIONS - RETIREMENT SECURITY
Dwindling employer commitment to retiree benefits
Erosion of defined benefit retirement plans in all sectors
Escalating cost of all medical services
Worries about access to “good” insurance
Anxieties about financial impact of a catastrophic illness
Concerns about outliving retirement assets
Preoccupation with long-term care expenses
Frustrations with complexities of Medicare
Perceived lack of insurer commitments to local market
Loss of control over health care decisions
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HOW RETIREE HEALTH CARE EXPENSES ARE PAID
Other Gov’t Programs*
10%
*VA/Tricare 4%, Medicaid 4%, Other 2%
Source: The Employee Benefit Research Institute (EBRI) 2006 estimates from the 2003 Medical expenditure survey.
Individual Out-of-Pocket
20%
Private Insurance 19%
Medicare 51%
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The Emeriti Solution
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EMERITI’S VALUE PROPOSITION
A strategic purchasing alliance of, by, and for higher education
An innovative retirement benefit paradigm
• tax-advantaged savings/investment accounts
• nationally accessible retiree medical plans
• reimbursement benefit for other health expenses
An educational framework for integrating health planning into retirement decision making
A single source administrative structure
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403 (b) Pension Plan
501 (c) (9) EMERITI PLAN
Defined Benefit
Promise
RETIREMENT PARADIGM SHIFT
+
Defined Contribution
Account
Social Security
Medicare +NOTE: Emeriti is made possible through the generosity of The Andrew W. Mellon Foundation and The William and Flora Hewlett Foundation.
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EMERITI TRUST STRUCTURE
EMERITI HEALTH ACCOUNTS
EMERITI INSURANCE OPTIONS
Lifecycle Mutual
Funds
EMERITI REIMBURSEMENT BENEFIT
EMERITI’S RETIREMENT MODEL
Grantor Trust*
VEBA Trusts
Eligible out-of-pocket expenses incurred by
participants
Fidelity: Trust Administrator
Fidelity:
Investment Provider
Acclaris: Claims Processor
- Indemnity Medical Plans - Rx Plans - Medicare Part C Plan - Dental Plan
Aetna: Insurance Provider
*NOTE: Grantor Trust money can only be used for Emeriti Insurance Options
$
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Emeriti Plan Who Pays Contributions Earnings Payout
Required Employer Pre-tax Tax free Tax free
Strongly Encouraged
Employee Voluntary
After-tax Tax free Tax free
Optional by Plan
Employee Mandated*
Pre-tax Tax free Tax free
*Depending on the organization, your employer’s contributions may also include additional pre-tax amounts in lieu of compensation or other benefits.
TAX ADVANTAGES
Plan Options; Amounts into VEBA Trusts
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TAX ADVANTAGES
How to pay for $1,000 Out-of-Pocket Medical Expense
Tax-free withdrawal of $1,000 100 cents on the dollar Equals $1,000
Emeriti Health Account
Taxable withdrawal of $1,000 72 cents on the dollar (28%
federal tax does not include any state taxes)
Equals $720 To get $1,000 after tax would
require a withdrawal of $1,389
ORP Retirement Plan
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TAX ADVANTAGES
Employer-Selected, Special Contributions into Grantor Trust
Workforce Management Flexibilities
Retirement Incentives
Retention Opportunities
Recruitment Strategies
Special Transition Contributions
PAYER CONTRIBUTION EARNINGS PAYOUT
EMPLOYER ONLY (non-profit)
Pre-tax Tax free Tax free
NOTE: These special employer contributions may be made in any amount, but are limited to fully insured products.
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Pre-65 health insurance premiums
Supplemental insurance deductibles, co-insurance, co-pays
Vision, dental, hearing care
Over-the-counter drugs
Long-term care insurance
Medical expenses associated with nursing or in-home health care services
Medicare premiums and cost shares
Other post-65 insurance premiums (if Emeriti coverage is not elected)
NOTE: A wide range of health care expenses apply for tax-free reimbursement as long as they satisfy the requirements of Section 213 (d) of the IRS Code.
Unlike a flexible spending account, any residual balance stays in the employee’s account and continues to grow tax free for future use
TAX ADVANTAGE OF THE REIMBURSEMENT BENEFIT
Tax-free earnings can be used for reimbursement of qualified medical expenses, such as:
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Guaranteed issue group health insurance coverage
A menu of options to fit your personal needs
Catastrophic protection
Prescription drug coverage
Nationwide access
Annual enrollment choice
Foreign urgent or emergency care
Preventive care
Builds on the foundation of Medicare
ADVANTAGES OF EMERITI INSURANCE
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Four Post-65 Medical PlansChoice of Two Medicare Supplement Plans (Original Medicare)
Choice of Two Private Fee for Service Plans (Medicare Advantage)
Three Medicare Part D Prescription Drug PlansChoice of Formularies
Choice of Coverage in the “Gap”
Choice of mail order and retail pharmacy supply
One Optional Dental Plan
Pre-65 Retiree Health Plans (coming in 2009)
EMERITI’S BUILD YOUR OWN PLAN APPROACH TO RETIREE INSURANCE COVERAGE
NEW in 2008
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1. Toll-free service center
2. Dedicated website www.emeritihealth.org
3. Printed enrollment materials
4. Annual workshops on campus
5. Periodic newsletters to active employees and to retirees
EMERITI EDUCATIONAL COMMITMENTS
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Emeriti Funding, Services, and Fees
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I. Prefunded Contributions for Active Employees
II. Transitional Funding Support for Older Employees
III. Insurance Access for Current Retirees
CAMPUS POPULATIONS POTENTIALLY SERVED
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OTHER POTENTIAL BENEFITS
Potential Savings from more timely retirements
Potential Savings on Active Health Plan
Competitiveness
Greater opportunity for instructional renewal
Combinations of the above
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EMERITI SERVICES
Legal Structure
Plan Design
Evaluation Tools (Funding Models)
Plan Documents
Regulatory Compliance
Communications to employees and retirees
Enrollment and ongoing education
Negotiation of insurance rates and plan provisions
Service and performance monitoring of partners
Ongoing evaluation and feedback from members
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1. Required one-time institutional implementation fee: $25,000.
2. Optional institutional cost sharing of participant fees: Emeriti account fee: $4.00/mo.
Fidelity record-keeping fee: Actives $1.67/mo., Retirees $6.25/mo.
Fidelity investment management fees: variable
Reimbursement benefit claims processing fee: first 4 submissions free, thereafter $6.00/bundle of receipts
EMERITI PROGRAM FEES
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Strategic Value of the Emeriti Program
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■ Talent Management: The Three “Rs”
- Recruitment
- Retention
- Retirement
■ Parity among Employee Groups
- Equal opportunity for retirement security
- Value-added employee benefit
VALUE TO UA AND ITS EMPLOYEES
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■ Value of Group Sponsored Consortium Based Insurance
- Guaranteed issue, fully portable
- Flexible menu of options, annual choice by retiree
■ Single Source Solution
- Comprehensive approach (savings and insurance)
- Integrated service delivery (enrollment, communications, education) - Reduced administrative responsibilities
THINK STRATEGICALLY, THINK RENEWAL
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EMAIL [email protected]
PHONE (866) 685-6565 (toll-free)
FAX (866) 686-6565 (toll-free)
URL www.emeritihealth.org
POST EMERITI Retirement Health Solutions 103 Executive Drive – Suite 503
New Windsor, NY 12553
EMERITI CONTACT INFORMATION
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ADDENDUM
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RETIREMENT BENEFIT DIFFERENCES
RETIREMENT INCOME 403(b) Plan-Available Now
RETIREMENT HEALTH CARE Plan-Available with Emeriti
General income protection Dedicated health security
Unrestricted distributions for any purpose
Qualified distributions for eligible medical expenses
Tax-deferred earnings Tax-free earnings
Fully taxed at distribution Tax-free disbursements for qualifying medical expenses
Taxable, unqualified death benefit (assignable to any designated beneficiary)
Tax-free lifetime asset distribution for health care (assignable to eligible spouse, partner, other federally defined dependents)
Residual balance is payable to estate Residual balance reverts to plan
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POTENTIAL UNIVERSITY OF ALASKA COMPENSATION SAVINGS via ORDERLY RETIREMENT
EMERITI RETIREMENT HEALTH SOLUTIONSPotential University of Alaska Compensation Savings via Orderly Retirement
Compensation Differential:
Full Professor Assistant Professor Replacement
Annual Salary1 Annual Salary1 Differential85,000$ 62,000$ 23,000$ Annual
Full Professor Assistant Professor Replacement
Benefits Percentage2 Benefits Percentage2 Differential $22% 22% 5,060$ Annual
Full Professor Assistant ProfessorPEPM Health PEPM Health Replacement
Insurance Cost3 Insurance Cost Differential800$ Month 400$ Month 400$ Month
9,600$ Annual 4,800$ Annual 4,800$ Annual
Totals 113,300$ 80,440$ 32,860$ Annual
Notes: 1) Provided by University of Alaska2) Estimate of pension, and other benefits as a percentage of salary; excluding healthcare 3) Aetna costs for Emeriti Pre-65 - 2009 average premium for mid level plan - Alaska
Assumptions:Approximately 50 full-time staff over the age of 60 of which 15 are Full Professor faculty
If 5 of these faculty members could be induced to retire and replaced with Assistant Professors, the annual compensation savings = 164,300$
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Emeriti Retirement Health Solutions provided this information and is responsible for its content. The Emeriti Program, Aetna Life Insurance Company, Fidelity Investments, HealthPartners (in Minnesota), and Acclaris Inc., are independent corporations and are not legally affiliated.
The full name of Emeriti Retirement Health Solutions is The Emeriti Consortium for Retirement Health Solution, an Illinois Nonprofit Corporation.
Emeriti Retirement Health Solutions is not an insurance company, insurance broker or insurance provider.
Summary Plan Description (SPD)This presentation is intended to provide you with a brief summary of some of the details of your Employer’s Emeriti Plan and the Emeriti Program. For a full summary of the terms of your Employer’s Emeriti Plan you must consult the SPD, which will be provided to you upon enrollment or upon request.
A benefit program of, by, and for colleges, universities, and higher education-related tax-exempt organizations.
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Investment DecisionsIt is your responsibility to select and monitor your investments to make sure they continue to reflect your financial situation, risk tolerance and time horizon. Most investment professionals suggest that you reexamine your investment strategy at least annually or when your situation changes. In addition, you may want to consult an investment adviser regarding your specific situation.
Unless otherwise noted, transaction requests confirmed after the close of the market, normally 4 p.m. Eastern time, or on weekends or holidays, will receive the next available closing prices.
Recordkeeping and shareholder services for the Emeriti Program are provided by Fidelity Investments Tax-Exempt Services Company, a division of Fidelity Investments Institutional Services Company, Inc.
Strategic Advisers, Inc., a subsidiary of FMR Corp., manages the Fidelity Freedom Funds
Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges and expenses. For this and other information, call or write Fidelity for a free prospectus. Read it carefully before you invest.
An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in these funds.
Investment Adviser StatusEmeriti Retirement Health Solutions is a registered investment adviser for purposes of selecting the range of investment options for the Emeriti Program, selecting the investment manager for employer and voluntary employee contributions, and providing these and other impersonal educational materials to plan participants. Emeriti does not provide advice to participants about their individual investment selections.
The participation interests in the voluntary employee contribution VEBA trusts associated with the Emeriti plans (the “Interests”) may be treated as securities under various state securities laws. The offering of these Interests is subject to compliance with any applicable state law. For residents of Georgia, the Interests are being offered in reliance on paragraph 13 of Code Section 10-5-9 of the Georgia Securities Act of 1973, as amended (the “Georgia Act”). The Interests may not be sold or transferred except in a transaction which is exempt under the Georgia Act or pursuant to an effective registration under the Georgia Act.