NFL Retirement Plans NFL Retirement Plans “What’s all the fuss about?” Charles Clark and Regine Rucker Thursday, November 29, 2007 Finance Employee Benefits Dr. David Sinow

Introduction Retirement pensions – Tradition of the American workforce Late start for Sports NFL – Nearly $7 billion in revenue annually – $193K: Minimum Salary for Rookies – $1.1 Million: Avg. NFL Salary – Pensions Plans – Avg. career 3.5 yrs. Recent Debate

Objectives History of NFL Retirement Plans Current state of NFL Retirement Plans – Comparison to other major professional sport leagues Suggestions to improve benefits of “old-timers”

History of NFL Retirement Plans NFLPA – Union providing retirement, medical, and disability benefits to players through a collective bargaining agreement (CBA) along w/ NFL – 3 of 6 appointed voting trustees on the Retirement Board – Organized in 1956 – “Bert Bell NFL Retirement Plan” of 1962

History of NFL Retirement Plans 1970 – 1 st Revision – Basis for current plan – Formula to calculate monthly pension developed Normal Retirement Age (NRA) = 55 Single Life Annuity Vesting Schedule – 5 “Credited Seasons” # of “Credited Seasons” X “Benefit Credit” – “Credited Seasons” earned if paid for 3 or more games in a football season – “Benefit Credit” = $60 for retirement Reductions – Joint/Survivor, Early Pension Benefits, and Social Security Adjustments

History of NFL Retirement Plans 1977 Revision – Vesting Schedule - Reduced to 4 yrs. – Added lump sum “Early Payment Benefit” (EPB) 1987 Revision – Expiration of 1982 CBA – $150 Benefit Credit for 1987 and 1988 – 1989: “Pete Rozelle NFL Player Retirement Plan”

History of NFL Retirement Plans 1993 CBA – “Benefit Credit” increase from $60 to $80 for retirees and $150 to $210 “Pre-59er’s” included, receiving same rate as retirees – Vesting Schedule – Reduced to 3 yrs. – Co-counsel, co-actuary system replaced

History of NFL Retirement Plans 1993 CBA – Future contributions based on actuarial factors – Increases in plan funding – Early Retirement Options eliminated for those retired after 1993 – 401 (k) Plan established w/ 2 for 1 match – All benefits tied to salary cap

History of NFL Retirement Plans The “GREAT DEBATE” – Benefits of all (current and retired) paid by active players – Former Players vs. Current Players – Benefit upgrades not received by “old-timers” – Union leaders have no obligation to represent former players, nor does management to re- negotiate benefits for “PAST” employees

Current Retirement Plan CBA allocated 60% of league revenue to player benefits and salaries. – Because of this allocation, each NFL player (approximately 1800) paid $82,000 in benefits to former players Although NFL revenues are estimated to be nearly $7 billion, only 2% went to retired players. – $96.5 million went to player retirements – $31 million went to health benefits – $20 million went to disability benefits

Current Retirement Plan A player retiring today receives under the collective bargaining agreement – Pension funding – Group insurance – Injury protection – Workers’ compensation – Pre-season per diem – Expenses for travel, board and lodging for off- season workout programs – Payments or reimbursements for participating in Rookie Orientation Program – Moving and Travel Expenses – Postseason Pay

Current Retirement Plan A player retiring today receives under the collective bargaining agreement – Player medical costs – Severance pay – Minimum Salary Benefit – The Performance Based Pool – The Tuition Assistance Plan – The NFL Players Health Reimbursement Plan – The “88 Benefit” Plan – The “Second Career Savings” Plan – The “Player Annuity Plan”

Professional Sports Pension Plans National Football League National Basketball LeagueMajor League Baseball National Hockey League Year Established Retirement Formula Ranges between $3K to $5.64K per year of service. An annuity was provided in Annual payments for players before 1965 are $3.6K per year of service. Annual payments for players in 1965 or later are approximately $17K per year of service. No specific per year formula; payments are based on service time in major leagues and salary level (for players in 1970 or later). “Defined Contribution” Plan; Team gives $19K (Canadian) for less than 2 yrs. & $45K (US) for each player with 2 or more yrs. of service Vesting Requirement Three years One day, though players need 43 days of service to begin accruing pension payments.160 games (2 yrs.) NRA Currently 55; 65 until the 1970s62 45 “Old Timer” Plan A 10 year veteran who retired in 1981 or earlier receives an annual pension payment of $30K A 10 year veteran who retired before 1965 or later receives an annual payment of $36K A 10 year veteran whose last season occurred between 1946 and 1965 receives an estimated annual payment of $52.5K Not available; but NHLPA staff say pensions are as low as $10K - $15K annually Current Player Plan A 10 year veteran who retires now will receive an annual payment of $56.4K, plus potentially more than $100K per year from his annuity. A 10 year player who played in 1965 or later receive an annual payment of approximately $170K. A 10 year veteran whose last season occurred in 1992 or later will receive an estimated payment of $175KNot available

Bert Bell/Pete Rozelle NFL Player Retirement Plan In April 2006, was estimated to be 93% funded – $1.034 billion actuarial liability Assumed investment rate of return is 7.25% Players receive retirement credits based upon years of service in the NFL, not total salary

Bert Bell/Pete Rozelle NFL Player Retirement Plan - Accrual Credited Season In Plan Year Benefit Credit Estimated Liability Before 1982$250$480.9 million $255$203.2 million $265$29.3 million $315$32.3 million 1997$365$17.4 million 1998 to Present$470$133.2 million Total = $896.3 million

Example - Former vs. Current Player# Credited Seasons (Benefit Credit) Monthly Pension Benefit Former6 ($250)$1500 Current6 ($470)$2820 But most players retire w/injuries…incurring major recurring medical expenses!!!

Second Career Savings Plan Established in 1993 Was the first 401(k) plan in professional sports Beginning in the 2007 Plan Year, eligible players are automatically enrolled After a player’s second year, pre-tax contributions up to $20,000 receive a two-to-one match – Remember, the IRS limit for contributions for 2007 was only $15,500

NFL Player Annuity Program Established in 1998 This DC plan allows former players to receive annuity payments as early as age 35 After 4 credited seasons, $65,000 is placed in an annuity account for each subsequent season The NFL Player Annuity Program has approximately $340 million in assets

Health and Disability Benefits Free medical coverage for vested retired players and their families for five years after retirement Players can contribute $25,000 per year (for a total of $300,000) to fund medical coverage after their free coverage ends 88 Plan provides reimbursement for certain costs related to dementia up to $88,000 Disability benefits can be between $18,000 to $224,000 per year

Ways to Improve the Plan Many of the problems of the NFL pension plan are similar to those of Social Security – “Pay as you go” DB plans – Increasing health care costs – Benefits for many retirees outweighs the amount they put into the system Similar to fixing Social Security, there are two ways to fix NFL pensions – Increase pension funding – Decrease the benefits of current players

Acknowledgements Jeff Nixon – Buffalo Bills Retiree – NFL/ NFLPA/ MLB Dr. Sinow