1. UMSYSTEM.EDU February 2009 1 UMSYSTEM.EDU Compensation and Benefits Update February 2009 Betsy Rodriguez Vice President for Human Resources rodriguezea@umsystem.edu

2. UMSYSTEM.EDU February 2009 2 Context – National Economy Colleges and Universities are making drastic budget cuts due to: Reduced investment earnings Reduced state appropriations and other revenues Budget cuts result in layoffs, furloughs, salary cuts, benefits reductions See Chronicle article on university pension plans It all happened very quickly!

3. UMSYSTEM.EDU February 2009 3 Quote from President Forsee “The worst thing that can happen is that we delay actions, that we wait for the perfect answer to come, and then we find out that we can’t execute (a plan) without doing something that would dramatically affect our mission.”

4. UMSYSTEM.EDU February 2009 4 Board Actions February 2009 Board of Curators Meeting

5. UMSYSTEM.EDU February 2009 5 Compensation Changes Guiding principles for compensation changes:  Minimize current impact to employees whose annual salary is below $50,000  Maintain competitive position within peer group

6. UMSYSTEM.EDU February 2009 6 Delegated Authority: Transition Assistance Authority to President to develop a procedure for employees who lose jobs due to budget reductions Transition Assistance components:  Continued access to medical insurance  Severance pay based on years of university service, with cap  Available only to staff

7. UMSYSTEM.EDU February 2009 7 Delegated Authority: Furloughs What is a furlough? Unpaid time off, typically a few days per year Gives university ability to reduce salary costs on a one-time basis Complicated by need to keep essential functions President required to have board discussion President’s authority ends June 30, 2009

8. UMSYSTEM.EDU February 2009 8 Overtime Calculation Eliminate paid leave as part of overtime calculation – pay overtime only on actual hours worked Most employers do NOT allow paid leave to count toward overtime Results in annual savings of about $2m

9. UMSYSTEM.EDU February 2009 9 Information Items: No Board action No early retirement package Too expensive (create long-term liability) Disruptive to workplace FY2010 Salary pool No merit increases Possible 1% pool (e.g., faculty promotions, mid year retention, and market adjustments)

10. UMSYSTEM.EDU February 2009 10 Context for pension plan change Actuarial study 10-1-08 Investment projections Peer group comparison

11. UMSYSTEM.EDU February 2009 11 How do we compare to our peers– for benefits? Employer Paid ValueTotal Value Rank (out of 15)Index Rank (out of 15)Index Current Retirement2/3117.914/1577.6 Benefit Index Relative Value Study

12. UMSYSTEM.EDU February 2009 12 Actuarial Value of Liabilities vs. Assets

13. UMSYSTEM.EDU February 2009 13 History and Future UM Contribution Rates

14. UMSYSTEM.EDU February 2009 14 Employee Contribution to Retirement Plan Allows UM to continue commitment to support meaningful pension benefits 1% up to $50,000 salary; 2% on all salary above $50,000 Annual fiscal impact - $11.9 million (based on current salaries) Employees will contribute on a pre-tax basis

15. UMSYSTEM.EDU February 2009 15 Paycheck Examples Annual Benefit Eligible SalaryMonthly contribution (pre-tax) $36,000 $30 $50,000 $42 $150,000$208 Hourly WageBiweekly Contribution (pre-tax) $10/hour $8 Note: Net impact on take home pay will be based on individual’s tax rate.

16. UMSYSTEM.EDU February 2009 16 How Does the Money Flow? UM Benefits Budget Retirement Trust Fund Employee Contributions Budget Stabilization Fund When UM share is greater than budget Total Required Contribution 20095.87% 20106.12% 20118.80% 2012 10.7% 2013 12.2%

17. UMSYSTEM.EDU February 2009 17 How do we compare to our peers– for benefits? Employer Paid ValueTotal Value Rank (out of 15)Index Rank (out of 15)Index Current Retirement2/3117.914/1577.6 Future Retirement7/8101.914/1577.6 Benefit Index Relative Value Study

18. UMSYSTEM.EDU February 2009 18 AAU Public Average Faculty Salaries 10-Year Trend b How do we compare to our peers—for salary?

19. UMSYSTEM.EDU February 2009 19 Questions? Comments? ‘Frequently Asked Questions’ on benefits web site: www.umsystem.edu/benefitswww.umsystem.edu/benefits or email your questions to: benefits@umsystem.edu