U-M contributions to employee retirement savings accounts represent another enormous area of expenditure and one where we contribute a significantly greater proportion than our peer institutions. In FY 2007, U-M employees received almost $186 million in U-M contributions to retirement savings accounts. This figure is expected to increase exponentially in the years ahead, with projected annual contributions of over $700 million by 2027 (see figure below).
In an analysis conducted by Hewitt and Associates, U-M was compared
to 27 peer institutions (public and private) in higher education
and health care.
Hewitt’s benchmarking shows that U-M contributes a substantially
greater proportion than our peer institutions toward these benefits,
and that we can remain highly competitive even if we adjust some
of our expenditures by changing the total aggregate for health insurance
premiums and employee out-of-pocket expenses.
U-M benefit spending is rising at an unsustainable rate. At the current rate of increase, U-M’s employer paid benefit costs would be almost $2.4 billion by 2027.
Between FY 1997 and FY 2007, the University contribution for benefits increased from 7.5% to 9.3% of the total operating budget. Most of this increase is attributable to increases in health care costs. If left unchecked, these costs are projected to rise to 15 percent of the University’s total operating budget by 2027.
HEALTH CARE COST SHARING
The Committee on Sustainable Health Benefits
Focus
The Committee on Sustainable Health Benefits (COSHB)
was charged to develop specific methodologies
to meet the University’s goals for health care cost-sharing.
Currently, when we consider health care premiums and out-of-pocket
co-pays and deductibles, employees contribute an
aggregate of 20% toward health care costs, and the
University contributes an aggregate of 80%. To respond
to the challenge of balancing increasing costs with
the needs of our community, COSHB carefully
studied the ways we could adjust our cost-sharing
ratio over time to 70% aggregate University contribution
and 30% employee contribution toward the total cost
of health care premiums and out-of-pocket expenses.
This cost-sharing ratio brings us closer to that
of our peers. While some organizations reduce plan
quality to control costs, we do not intend for any
changes we undertake to diminish the quality of the
plans offered by the University. We recognize their
importance to the health and welfare of our faculty
and staff and their families as indisputable, and
our benefits will remain an asset in our ability
to recruit and retain the highest quality faculty
and staff.
The committee worked from September through December
2008 and issued recommendations to the University's
executive vice presidents at the end of 2008. COSHB
utilized faculty and staff expertise to recommend cost-sharing
mechanisms (premiums, co-pays, and deductibles) to
achieve an aggregate 70/30 cost share. The committee
also investigated ways to consider an employee's salary
in setting the monthly premium (e.g., lower premium
when salary falls below specified thresholds).
View the Charge
to the Committee on Sustainable Health Benefits
Managing the Cost of Care
Like most U.S. employers, the University of Michigan faces 8-10 percent or more annual increases in health care costs, resulting in larger amounts of resources being devoted to health care insurance. This creates upward pressure on student tuition and makes resources less available for salaries and other important priorities. Institutions that better balance the ratio of health care costs between the university and their faculty and staff are better positioned to make strategic, long-term investments and curb their rate of tuition increase.
Our Contribution Ratio
When out-of-pocket co-pays and deductibles are included, our current aggregate ratio is 80% University contribution and 20% employee contribution. Our faculty and staff premium contributions and out-of-pocket costs are below our university and health system peers, and are well below the general employer average (see figure below).
Financial efficiency is a measure of how effectively an organization delivers health care to its employees. U-M’s efficiency is significantly higher than peer institutions and the Fortune 500 average. (Source: Hewitt and Associates, 2008)
U-M employees’ out of pocket costs and co-pay costs are both substantially lower than those of our peer institutions’ employees. U-M’s premium contribution is 9.5 percent higher than our institutional peers. (Source: Hewitt and Associates, 2008)
RETIREMENT SAVINGS
Committee to Study Vesting Options for the Retirement Savings Plan
Focus
The Committee to Study Vesting Options for the Retirement
Savings Plan studied and evaluated the potential
cost savings of vesting options and/or waiting periods
for the U-M Retirement Savings Plan for future hires
and recommended alternative options to protect
the long-range viability of retirement benefits for
our community. Changes that are adopted
apply only to future employees
coming into the U-M community after the changes are
implemented. Current employees
will not be affected.
The options that were studied included:
- 5-year cliff vesting, in which an employee forfeits the U-M contributions from the first 5 years of employment if s/he ends employment before completion of that time period
- 6-month waiting period before employee is eligible to receive U-M contributions
- 1-year wait to receive U-M contribution
The committee worked from September through December
2008 and issued recommendations to the University's
executive vice presidents at the end of 2008.
View
the Charge to the Committee to Study Vesting Options
U-M Retirement Savings Plan: A Valued Benefit and Important Source of Retirement Income
The University provides employees with an important source of retirement income through the U-M Retirement Savings Plan. In calendar year 2007, almost 90 percent of eligible faculty and staff were enrolled in the retirement savings plan receiving approximately $191 million in University of Michigan contributions toward their retirement. To receive the 10 percent University retirement contribution, plan participants must contribute 5 percent of their eligible gross salary to their retirement savings account.
U-M’s 10 percent retirement saving plan contribution
is slightly above market average when compared with
peers in higher education and much higher when compared
with health system peer markets. However, the 10 percent
contribution amount will not be affected by the waiting
period recommended by the Committee.
