The university will go forward with changes to retiree health benefits beginning in 2013, the university’s executive vice presidents and associate vice president for human resources said in a joint message to faculty and staff Feb. 10.

The leaders indicated their acceptance of the recommendations for change made by the Committee on Retiree Health Benefits (CORHB), but with an accelerated overall timeline for implementing the long-range plan. Appointed in late 2009, the committee gave its recommendations to the university’s executive leadership during the past summer and they have been under consideration since then to determine the final timeline for the gradual implementation.

“The committee recommended specific changes to the retirement eligibility rules and the amount of the university’s contributions, and these adjustments will work together over time to help control growth in the university’s retiree health care costs,” says Tim Slottow, executive vice president and chief financial officer.

University projections indicate that the changes will begin accruing university savings upon implementation and will produce recurring annual savings of more than $9 million by the year 2020 and $165 million by 2040. That kind of recurring cost reduction is vital to the university’s mission, says Phil Hanlon, provost and executive vice president for academic affairs.

“The funding that we preserve helps strengthen the university’s ability to succeed in its missions of education, research and patient care. The better job we do at controlling expenses, the more effective we also can be at influencing the rate of future tuition increases, and that remains an important priority for us,” Hanlon says.

Previous analyses of peer institutions showed that the university’s retiree health benefits were well above the market average.

“U-M’s retiree health benefits turned out to be among the most generous of the 27 peer institutions studied,” says Laurita Thomas, associate vice president for human resources. “That showed us an important opportunity to spend more wisely and still remain extremely competitive with a very valuable retirement health benefit.”

Meetings and focus groups were held on all campuses to gather community feedback and advice before the committee reached any conclusions, Thomas says. She reports that hundreds participated in focus groups and the most frequently cited priorities were:

1) The importance of providing time for planning before changes take effect.

2) The need to continue to cover dependents after retirement.

3) The desire to minimize any financial burden on those already retired.

4) The general support for offering a greater university contribution for employees with more years of service at the time of retirement.

“The committee developed its recommendations with these community priorities in mind, and these objectives were met,” Thomas says.

The charge to the committee also incorporated a set of institutional priorities that included:

• Retaining overall market competitiveness.

• Providing time for current faculty and staff to plan for and manage changes in eligibility and contributions.

• Achieving graduated degrees of impact so that the greatest impact would be on future employees, followed by faculty and staff not yet eligible to retire, then faculty and staff who currently are eligible to retire, and the least impact on current retirees.

“Projections have estimated that the number of retirees with U-M coverage could double within the next 20 years as the retiree population grows at a faster rate than our faculty and staff population, so these changes are necessary to continue funding a very important benefit,” says Dr. Ora Pescovitz, executive vice president for medical affairs. “Fortunately, we had access to some of the country’s best thinkers to help develop our long-term plan in a way that adheres to the principles.”

Officials say the impact of the changes will be monitored and reviewed in five years.

Summary of changes

• The university will make changes that affect both the rules of eligibility to retire with benefits and the amount that the university will contribute toward health care coverage for retirees and their dependents in the future.

• A new point system will determine eligibility to retire beginning in 2013. Once the sum of an employee’s age and years of full-time service equals 76, the employee will be eligible to retire with health benefits. Starting in 2015, one point will be added to the eligibility requirement every two years until 2021, when 80 points will required to retire with health benefits.

• The percentage contribution toward retiree health benefits made by the university will begin being gradually reduced starting in 2013. The university will continue to pay a greater percentage contribution toward the coverage of the retiree than the percentage paid for coverage of a dependent.

• Also effective in 2013, the rate of accrual of points toward retirement will change for benefits-eligible part-time employees who will receive 0.8 points toward retirement eligibility for each year of service.

• Newly hired employees starting on Jan. 1, 2013, will continue to be eligible for retiree health benefits once they have the required age and years-of-service points, but the percentage university contribution toward their coverage will be reduced below the level that will be received by current employees when they retire.

• The percentage contribution toward health benefits during retirement will increase in relation to a retiree’s number of years of service starting in 2021, with the greatest contribution going to those with 20 or more years of service at the time of retirement. The minimum years of service required to receive a contribution toward retiree health benefits will be 10.

Learn more about how the changes affect you

An online Retirement Health Benefit Estimator has been developed to make it easier to apply the future rules and determine the earliest date of eligibility to retire with benefits. The estimator, Q&A’s and a detailed summary of the changes can all be found on the Benefits Stewardship website at www.benefitsstewardship.umich.edu.

Campus information forums will be held this month in Ann Arbor, Dearborn and Flint. The presentation also will be offered as on-demand video for those unable to attend. Forum dates and times, and information on the video presentation can be found at www.benefitsstewardship.umich.edu.

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